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Revitalising the wind power induced merit order effect to reduce wholesale and retail electricity prices in Australia

journal contribution
posted on 06.06.2018, 00:00 by WP Bell, P Wild, J Foster, Michael HewsonMichael Hewson
This paper investigates the effect of increasing the number of wind turbine generators on wholesale spot prices in the Australian National Electricity Market's (NEM), given the existing transmission grid, from 2014 to 2025. We use a sensitivity analysis to evaluate the effect of five different levels of wind power penetration on prices, ranging from Scenario A, ‘no wind’, to Scenario E that includes existing and planned wind power sufficient to meet Australia's original 2020 41TWh Large-scale Renewable Energy Target (LRET). We find divergence in prices between states and similar prices for nodes within states. This supports the Garnaut Climate Change Review assessment on the prevalence of ‘gold-plating’ the intrastate transmission network and underinvesting in interstate connectivity. We find that increasing wind power penetration decreases wholesale spot prices but that retail prices have increased in deregulated South Australia and Queensland, similarly, in Victoria. We argue that there is a pressing need to split the large generator-retail companies into separate retail and generator companies and to reassess regulatory rules more generally. Interconnector congestion limits the potential for wind power to further reduce wholesale prices across the NEM. So the need for a high capacity transmission backbone in the NEM is becoming clearer and will become pressing when Australia moves beyond its current 2020 LRET.

Funding

Category 1 - Australian Competitive Grants (this includes ARC, NHMRC)

History

Volume

67

Start Page

224

End Page

241

Number of Pages

18

ISSN

0140-9883

Publisher

Elsevier

Peer Reviewed

Yes

Open Access

No

Acceptance Date

03/08/2017

External Author Affiliations

The University of Queensland

Era Eligible

Yes

Journal

Energy Economics