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Power prices are on track to remain stubbornly high for east-coast homes and businesses as new modelling shows renewable energy is being built too slowly to wean Australia off fossil fuels, risking the Albanese government’s key election promises.
The government set a target for renewable energy to comprise 82 per cent of the electricity grid as part of its goal to cut emissions by 43 per cent by 2030 – a move it said would displace coal power with cheaper wind and solar and reduce power bills by $275 a year by 2025.
Power prices are expected to keep rising into 2024, risking the Albanese government’s election promises. Credit: iStock
However, power prices have soared due to a global energy crunch caused by Russia’s war on Ukraine, which has driven up the cost of coal and gas. This has been compounded by a spate of unexpected outages at coal plants, which still supply the bulk of the grid, further driving up prices.
From July 1, retailers can charge customers hundreds of dollars more per year as a result of higher wholesale prices that typically comprise a third of household bills, depending on where they live.
McKinsey and Co analyst Peter Lambert told the Australian Energy Week conference in Melbourne the renewable rollout was only on track to reach 65 to 75 per cent of the grid by 2030 unless the construction of new wind, solar, batteries and transmission accelerates significantly.
“We need to increase the rate of utility-scale renewable installation by about 60 per cent, we need to triple the rate of utility-scale storage installation, we need to increase the rate of transmission installation by about 80 per cent,” Lambert said.
Australian Energy Market Operator chief executive Daniel Westerman told the conference that renewable energy “is the cheapest form of new build energy” but projects were not “happening fast enough”.
“Bringing these new projects to market and connecting them into the grid urgently is critical.”
A spokesperson for Climate Change and Energy Minister Chris Bowen said the government recognised the concerns raised by the Australian Energy Market Operator and pointed to $30 billion of investment to build new transmission lines and build “dispatchable” power plants to back up renewables.
“We agree with Daniel Westerman. Our transformation needs to go at a rapid pace to deliver cleaner, cheaper energy to more Australians.”
Schneider Electric principal and senior director Lisa Zembrodt, an adviser to some of Australia’s largest energy users, said the fact renewables were not being built fast enough to displace fossil fuels, made it unlikely electricity bills will fall significantly.
“We are so exposed to global fossil fuel prices and we still have a significant portion of [electricity] generation coming from them that it’s unlikely we will see domestic electricity prices decline,” she said.
The price of wholesale electricity, which retail companies pay to coal, gas and renewable generators, is a major factor in household bills. In the first quarter of this year, the wholesale price averaged $101 dollars per megawatt hour in NSW and $56 per megawatt hour in Victoria.
There is no indication of these prices falling in the futures market, where large energy users such as manufacturers buy contracts for electricity supply in coming years.
The price of wholesale electricity price in the NSW 2024 futures market is $139 per megawatt hour, and $89 per megawatt hour in Victoria.
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