The price impact of 50 per cent renewables

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As the costs to develop new renewable generation continue to tumble, many market analysts predict that Australia will be generating 50 per cent of its electricity needs from renewable sources by 2030. But what will this do to electricity prices? Will they move up, down or sideways? And what sort of impact will this have on global electricity markets? We spoke to David Leitch, Principal at ITK and electricity market guru, to find out more.

Mr Leitch is one such market observer who believes we will reach 50 per cent renewables by 2030, and his short answer to the question of what impact this will have on prices is that we’ll see a bit of everything – up, down and everything in between.

Mr Leitch will be elaborating on his theories when it comes to electricity prices over the next decade when he speaks at the Smart Energy Conference & Exhibition, taking place from 2–3 April 2019 at the International Convention Centre in Sydney.

Central to Mr Leitch’s position on prices is that fact that from where we are currently at today, getting to 50 per cent renewables is actually not that difficult a job – it only requires just over 1GW of new wind and solar per year, every year up until 2030. And if you look at what has been added in the past, Mr Leitch said this is a fairly trivial task.

According to Mr Leitch, it’s not the adding of renewables that is the difficult task – it’s the balancing of different renewables with things like hydro power and batteries, that will prove to be the challenge. And is ultimately where most of the marginal intellectual property and value can be realised for the industry.

But, back to prices – during his presentation, will Mr Leitch be able to pinpoint any further what they will do over the next ten years, beyond a little bit of everything?

“The nature of properly functioning markets is that they are self-correcting,” said Mr Leitch. “Prices go up, and we get more supply and substitution, so that prices will come down.”

With the influx of renewables forecast to enter the grid in the coming years, Mr Leitch believes that costs will continue to come down – particularly driven by the learning rate we’re able to achieve when it comes to our deployment of renewables.
One of the particularly interesting elements of Mr Leitch’s presentation will be his analysis of Australian electricity prices, as compared to global electricity prices. On this front, Mr Leitch believes that by and large, electricity prices in different international markets are converging more and more.

“If you look at fuel costs, for example, coal cost is driven by China, because it imports coal from places like Australia. So a power station in NSW ultimately faces a similar coal cost to a power station in China. And as the input costs become a lot closer, prices are tending to converge to some extent.”

According to Mr Leitch, where Australia can really make an inroad in global power markets will be with our energy sources powered by wind and solar, as we have a competitive advantage thanks to our abundant supply of these resources.

“From there, the leading sources of supply will be those which can manage the balance price – the price required to make the wind and solar dispatchable in the longer term – best.”

Importantly, any gains we can see in relation to global prices will be of particular importance to our manufacturing sector.

Australia is competing globally to provide major industrial power users, such as aluminium smelters and manufacturers, with access to affordable, abundant power.

“Anything we can do to keep our power prices low, and keep the big manufacturers here in Australia, is obviously of critical importance to the broader Australian economy,” said Mr Leitch.

“Aluminium smelters don’t care what global policy or Australian policy is – they care about what the price of electricity is, as that’s a third of their cost of making aluminium.

“We have to compete on the world market. If we don’t, smeleters and other industries – all of which are significant employers in the Australian labour market – will move to where electricity prices are more advantageous.”

According to Mr Leitch, the bottom line is pretty simple. “Australia can have a globally competitive power price, and we do expect our wind and solar costs to be lower than global averages – much lower than some of our major trading partners.

“And how well we capitalise on this potential will have major impacts for the broader economy. As an industry we need to come together, solve some of the challenges we are currently facing and show the world that we can provide the clean, affordable power we so desperately need.”

David Leitch will elaborate on the price impact renewables will have in Australia at the Smart Energy Conference & Exhibition, taking place from 2-3 April 2019 at the International Convention Centre in Sydney. For more information about the event, head to www.smartenergyexpo.org.au.

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