The Australian electricity sector is in a state of crisis, with rising fossil fuel prices driving wholesale electricity prices to unprecedented levels, leading to a growing number of electricity retailers trying to get rid of their customers.
But energy users in one jurisdiction can expect to be a little more relaxed about their electricity costs – those who live in ACT – and that’s because of renewable energy.
In an effort to reduce ACT’s greenhouse gas emissions, the ACT government has adopted an ambitious program to switch its national capital to 100% renewables.
To secure new supplies of wind and solar electricity, the ACT government has entered into energy purchase agreements with a number of new wind and solar farms and has agreed to purchase energy and renewable energy certificates from projects.
The last of these projects came online at the end of 2019, and ACT is virtually 100% renewable energy since that milestone – buying as much wind and solar power a year as its homes and businesses consume.
And the approach used by ACT to achieve this goal will effectively protect ACT households and businesses from the sharp rise in wholesale electricity prices – which have more than tripled in New South Wales in the last three months.
The energy purchase agreements signed by the ACT government under the Difference Agreement – meaning that projects receive a fixed level of revenue per megawatt-hour they produce – averaged around $ 90 per megawatt-hour.
If the wholesale market price falls below the contract price, then ACT consumers will actually pay to make up the difference.
Read a more detailed breakdown of how the ACT target works in the field of renewables: Dive deep into the ACT goal of 100% renewable energy
According to ACT government figures, consumers made a total of $ 96.8 million in rechargeable payments in 2021 for a total of 1.9 million megawatt-hours of electricity. This was an average recharge of around $ 50 per MWh, which is a relatively generous renewable energy premium.
This arrangement provides income security for wind and solar projects, as it provides a solid, predictable source of income that significantly reduces the risk of projects and their funders.
However, there are benefits to both parties, with ACT consumers effectively limiting the amount they pay for wholesale electricity.
Crucially, if the wholesale market price exceeds the contract price, as will be the case this year, then wind and solar projects are obliged to return the surplus to ACT consumers.
Electricity users in Canberra do not pay more (and not less) for their wholesale electricity than the average $ 90 per megawatt-hour.
At a time when wholesale market electricity prices have exceeded $ 320 per megawatt-hour – as was the case in May – this brings huge economic benefits to electricity users in Canberra.
This could result in tens of millions of dollars in refunds each month if wholesale electricity prices remain at current levels – and will work to limit the extent of any possible increase in electricity prices.
ACT has previously benefited from refunds of its wholesale electricity costs, with wind and solar projects paying a total of $ 4.3 million in refunds in the last three months of 2019.
Last week, the Australian energy regulator announced that it would increase the reference price of electricity in New South Wales, Queensland and South Australia by 7.2 to 14.1 percent.
The regulator cited soaring coal and gas costs as the main reason for the rise in wholesale prices, which in turn was caused by higher disruptions on world markets, along with several coal-fired power plant outages.
High prices have put significant pressure on electricity prices, with several smaller retailers facing difficulties in keeping supplies to customers at an affordable level.
Several retailers, including Reamped Energy, Amber Electric and Diamond Energy, have rejected potential customers, saying it would be better to choose one of the larger electricity retailers better secured against high wholesale prices.
Michael Mazengarb is a Sydney-based reporter at RenewEconomy who writes on climate change, clean energy, electric vehicles and politics. Prior to joining RenewEconomy, Michael worked in climate and energy policy for more than a decade.
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