The effect of increasing the number of wind turbine generators on wholesale spot prices in the Australian National Electricity Market from 2014 to 2025

15 December 2015

Preface

This report investigates the effect of increasing the number of wind turbine generators on wholesale spot prices in the Australian National Electricity Market’s (NEM) existing transmission grid from 2014 to 2025.  This reports answers urgent questions concerning the capability of the existing transmission grid to cope with significant increases in wind power.  The report findings will help develop a coherent government policy to phase in renewable energy in a cost effective manner.

We use a sensitivity analysis to evaluate the effect of five different levels of wind penetration on wholesale spot prices. The five levels of wind penetration span Scenarios A to E where Scenario A represents ‘no wind’ and Scenario E includes all the existing and planned wind power sufficient to meet Australia’s 2020 41TWh Large Renewable Energy Target (LRET).  We also use sensitivity analysis to evaluate the effect on wholesale spot prices of growth in electricity demand over the projections years 2014 to 2015 and weather over the years 2010 to 2012.  The sensitivity analysis uses simulations from the ‘Australian National Electricity Market (ANEM) model version 1.10’ (Wild et al. 2015).

We find divergence in the prices between states and similar prices for nodes within states.  This pattern reflects the findings in our transmission congestion report (Bell et al. 2015a).  Only 14 of the 68 transmission lines in the ANEM Model (Wild et al. 2015) are congested but these 14 congested transmission lines include six of the NEM’s interstate interconnectors and eight of the intrastate transmission lines although only three of the intrastate transmission lines exhibited any significant degree of congestion.  This supports Garnaut’s (2011, p. 38) assessment on gold plating intrastate transmission and under investing in interstate transmission.

We find increasing wind power penetration decreases wholesale spot prices but retail prices fail to reflect the decrease in wholesale spot prices.  Victoria is the only state in NEM with a deregulated retail sector and the retail sector has increased profits rather than through the savings to retail customer.  The other states are regulated and unable pass through the savings.  There is a requirement for simply better regulation or increased competition by breaking up the large generator-retails companies into separate retail and generator companies.

Wind power has the potential to further reduce wholesale prices across the whole of the NEM but the congestion in the interconnectors limits this potential.  There is a requirement for a high capacity transmission backbone that can link the NEM’s peripheral states via Victoria and NSW (Bell et al. 2015d).  This requirement will become more pressing as Australia moves beyond its current 20% LRET.  However both the regulatory and institutional arrangements require some adjustment before such a project becomes feasible and for the NEM to avail itself of the full benefit of wind power to reduce both wholesale spot prices and carbon emissions.

In further research, we (Bell et al. 2015b, 2015c) investigate augmenting the NEM’s transmission grid to reduce wholesale spot prices across the NEM and address the price differential between states under increasing wind power penetration.

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Suggested Citation

William Paul Bell, Phillip Wild, John Foster, Michael Hewson, 2015, The effect of increasing the number of wind turbine generators on wholesale spot prices in the Australian National Electricity Market from 2014 to 2025, Energy Economics and Management Group (UQ), viewed 21 January 2017, <http://apo.org.au/node/60549>.

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