Reading many of the newspapers over the past few weeks you’d think South Australia had become a horrible case study in the dangers of too much renewable energy.



As one example the Adelaide Advertiser in an editorial titled SA power prices threaten future of economy complained,

SA pays around $70 per megawatt hour for wholesale power. The AER predicts that will rise to $94 in 2018. Victoria, in 2018, will be paying $41. SA’s reliance on wind and solar power is responsible for these absurd prices.

While the Australian Financial Review editorial said,

The South Australian Labor government’s rush into renewable energy, particularly wind power … has helped generate a surge in South Australian electricity prices.

Politicians are now responding, with Liberal Senator Chris Back calling for a ban on new wind farms until after a review by the Productivity Commission. Meanwhile Senator Nick Xenophon’s party are backing a Senate inquiry.



Yet everyone has missed the main cause of a doubling in SA power price rises – a doubling in gas prices.

What makes it all especially worrying is the blame attributed to renewable energy appears to have originated from a public relations campaign initiated by the lobby group for the big power generators.

Like all good PR spin it is built on a few grains of truth that can exploit people’s existing preconceived beliefs that renewable energy is expensive.

What has sparked all the concern has been a doubling in the contract price in South Australia’s wholesale electricity market which unfolded after June last year when it was announced South Australia’s coal power stations would be permanently shut down. Prices increased from around $50 per megawatt-hour up to something around $95 now.

Also South Australia does have one the world’s highest shares of wind and solar in its electricity mix – 36% last financial year . To be financially viable, wind and solar generally require prices for their power that are higher than what our other existing power generators receive.

Putting two and two together, some in the media appear to have concluded wind and solar must be responsible for price rises.

Yet wholesale market data suggests renewable energy has actually been depressing power prices, not increasing them. In the months before and after the Northern Coal Power Station was taken off-line, South Australia’s wind farms, without exception, bid their entire available output into the market for a price less than a single dollar. Meanwhile rooftop solar doesn’t even bid into the market, with its output just reducing the demand for generators that do bid into the wholesale market.

This is not to suggest renewable energy imposes no costs. It is certainly true that wind and solar require a subsidy, but its cost is distributed equally across all electricity consumption around the nation via the federal Renewable Energy Target scheme. It isn’t allocated to states depending on how many wind farms or solar panels they have installed.

The idea that renewables are to blame for the doubling in South Australian wholesale prices is an idea the Australian Energy Council, which represents big power companies, have been pushing since late last year. This campaign has sought to paint South Australia as an “accidental experiment” in the dangers of too much renewable energy.

If you scratch the surface they actually acknowledge renewable energy is depressing wholesale power prices. But they claim it pushes prices so low that, rather strangely, it is apparently increasing prices.

The logic is convoluted, but the gist is that renewable energy, by reducing prices, has driven Northern power station (and in the future other baseload generators) out of business. Therefore renewable energy is responsible for the subsequent rise in prices driven by bids from SA’s gas power plants.

Yet it turns out that if we took away all those wind farms and solar panels, leaving Northern Power station free to be its baseload self, we’d have experienced exactly the same price rise.

Back in 2002-03, when wind and solar were negligible and Northern coal power station was operating at about 90% of its full capacity, SA relied on gas for around half its electricity supply, while cheap imports from Victoria were about 20% of supply. This wasn’t much of a big deal at the time because gas prices were $4 per gigajoule which equates to an operating cost of SA’s largest power station – Torrens Island – of about $50 per megawatt-hour of electricity.

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However due to the start-up of gas liquefaction plants. the gas price has now doubled to around $8 per gigajoule. This increases Torrens Island’s operating cost to about $95 per megawatt-hour, which coincidently is almost the same as the current electricity contract price.

Given Northern Power Station had been operating at close to full capacity back in 2002-03, there’s no way it could have expanded output to prevent such gas price rises from flowing through to power prices.

It was only with the addition of wind and solar to the existing mix of coal plus the interconnector that gas could be driven down to less than a third of the electricity market. This acted to substantially shield SA from power price rises, not induce them.

So it is LNG plants, not wind and solar, that are responsible for South Australia’s “absurd” electricity prices.