Victoria's renewables push

There are several ways we could encourage renewables.  One way is legislative fiat.   You pass a law requiring utilities to progressively increase the percentage of electricity they produce from renewable sources.  Another is to give tax credits.  In the US, there is a 30% Federal tax credit for wind and solar (though it's being phased out).  There is a $7500 tax credit for buying an EV, though for Tesla at least, that will fall away over the next 9 months.  Or you can have some sort of cap-and-trade system.  How they work is that a limit for carbon emissions or a minimum for renewable generation is set.  If you are above (in the case of carbon emissions) or below (in the case of renewable generation) you have to buy certificates to cover the cost of your excess (shortfall) from firms which have produced less CO2 (or more renewables.)  Australia's renewable energy target (RET) is of this type.  Or you can set high feed-in-tariffs (FITs) for, say rooftop solar.

Then there are reverse auctions.  The government puts a tender out to the market for supply of renewable electricity at the lowest price, and it accepts the lowest bidders.  But instead of buying electricity from the utilities, the government gives them a "contract for difference".  It sets a maximum (wholesale) price for the electricity output from the wind/solar farm and each entrant to the auction then bids at that price or one below it.  The cheapest bidders win the contract.  If in future the wholesale price for electricity turns out to be higher than  the contract price, the solar/wind farms return that to the government.  If the wholesale price is below the set price, the government pays the wind/solar farm the difference.  Since the contract is with the government, the utilities can borrow at a lower interest rate, which means that the cost of the electricity generated is lower.  This process was first pioneered by the ACT (Australian Capital Territory) in its move towards 100% green energy, and the architect of the ACT's contract for difference auctions is now working for the Victorian government to deliver the same outcome here.

Victoria’s Labor government is to sign contracts for six new wind and solar farms after an overwhelming response to its first, and Australia’s largest, renewable energy auction.

The response was so positive, and the value from the bids so great and the prices so low, that the government has reportedly elected to allocate 928MW of capacity – way more than the 650MW contemplated when the auction was first announced just over a year ago.

Details of the winning bids were released on Tuesday when premier Daniel Andrews and energy minister Lily D’Ambrosio visited the Ararat wind farm.

“This is great value – the bids were lower than what we thought they were going to be,” D’Ambrosio told Reneweconomy. “It just shows you that the market is really ripe for investment ….. when given the policy certainty.”

Not only does the auction result lock in lower power prices for the state, this auction and the recent rooftop solar support scheme also achieves as much in emissions reductions as the federal Coalition government planned to achieve over a whole decade with the defunct National Energy Guarantee. Now, the Morrison government has abandoned any attempts to achieve any emissions cuts.

The projects will not supply electricity to the government, but under an agreement known as a “contract for difference”, the Victoria government will guarantee the projects receive a minimum price.

This was set last November at $56/MWh for wind, $53/MWh for solar PV and $56/MWh for solar PV with tracking. If the actual wholesale price is higher than those numbers (and it has been nearly twice as high as that [$90/MWh] in Victoria for much of this year), then the wind farm owner returns the difference to the government.

If the wholesale price is lower, then the government makes up the difference to the renewable project owners to guarantee them a minimum ongoing income.

But this exposure is capped – and this is where the competition in the auction came from, as it is assumed that bids for a “base payment” came in at zero, at least for the wind farms, and possibly had “negative” prices.

It’s a remarkable outcome for the government. If wholesale prices do fall below $56/MWh, that’s a great result for consumers, and the costs to the government will be capped.

[From RenewEconomy]

The Victorian government hasn't released the detailed pricing but estimates are that wind was effectively contracted at A$50/MWh, and solar below that, which implies that contracts in sunnier places like Queensland and South Australia likely in the the low A$40s/MWh.  These prices are about half the average wholesale price and about 30 to 40% of the cost of new coal power stations.  (Existing coal power stations are probably around A$30-A$50/MWh, because they are fully depreciated, unlike new power stations)

In addition to this auction, the Victorian government has also announced two new initiatives, one a scheme to subsidise rooftop solar for families, and the other to subsidise batteries.  The government will pay half the cost of a 4 kW rooftop system, and lend the balance to the home owner at zero interest, repayable over 4 years.  The battery subsidy is up to $5000, depending on the size of the battery installed.

Together these policies will deliver more than the national (and now defunct) NEG (national energy guarantee).

Source: Simon Holmes à Court 

Australian electricity prices have doubled over the last 10 years, mostly because of privatisation of previously state-owned electricity generators, and poor regulation after privatisation.  Oligopolistic "gentailers" have rorted the system to guarantee large profits for themselves.  This huge rise in electricity prices has become a political hot potato.  The Right blames renewables, which is rubbish.  The Left is doing something about it.  The Labor government in Victoria will at a stroke reduce electricity bills by:

• expanding the role of renewables, which will produce electricity at nearly half the cost of the current grid
• increasing competition--these wind and solar farms are not owned by the oligopolists.   
• Households will be enabled to install rooftop solar and batteries which will substantially reduce household electricity bills.

And, just as good, this will lead to a 40% fall in emissions from electricity.

Way to go.