Following the Victorian Government’s announcement of Australia’s first offshore wind targets1 as part of its transition towards a net-zero emission future, Cornwall Insight Australia have released research showing the impact wind generation has on energy wholesale prices. The data shows that while high levels of wind generation lower the median prices of energy and reduce the variation in the wholesale prices, periods of low wind generation can cause significant price volatility.
With a higher wind generation penetration, less thermal generation is required to meet the demand. Following the principle of economic dispatch, wind generation replaces part of the thermal generation that has more expensive bidding prices, resulting in lower marginal costs.
However, the research which tracks half-hourly VIC energy prices against wind generation penetration for 2018 and 2021, showed when wind contribution was not as usual in meeting the demand, a wider distribution of the energy prices were observed in 2021 compared with 2018. This indicates that it will still be necessary to identify methods/technologies to enable cheaper generation capacity (such as batteries) during low wind periods to avoid price spikes.
Other concerns over the true costs and benefits of wind power to consumers were also raised, with the substantial network investments and subsequent raised network costs, potentially offsetting any savings in wholesale prices.
Figure 1: VIC wholesale energy prices against wind generation penetration – 2018 vs 2021
Han Wang, Energy Modelling and Analytics Analyst at Cornwall Insight Australia, said:
“The energy markets in Australia, and across the world, are all looking to diversify their energy generation mix. With recent world events showing how unstable gas supplies can be, it is only logical that countries want to turn to renewables such as offshore wind power to secure supply and stabilise prices.
“Our research shows the broad potential for offshore wind power in Australia, with its significant role in stabilising wholesale prices hopefully helping to reduce consumer energy bills. However, we should not go into this with rose tinted glasses. When the wind is blowing, we have a stable energy source, but what happens when it does not. Our data lays out the stark reality that renewables are not always reliable, and if we want to avoid volatile pricing during low wind periods, then investment in technology such as battery storage will be essential.
“It is also important to recognise that wholesale prices at only 34% of electricity bills are not the whole story. Installing offshore wind may require substantial network investment, the recovery of which will ultimately land with consumers through their network costs. Stabilising wholesale prices may be part of the consumer bill puzzle, but if this only leads to higher costs elsewhere the benefits will be negligible at best and at worst actually increase bills for consumers.
“Investment in renewables will be essential for the sustainability of energy supply, but we must be realistic, wind power is not a miracle cure to energy prices and without technological advancement to store energy created during high wind periods, it could truly be a double-edged sword in solving the energy crisis.”
–Ends
Notes to Editors
1. The Victorian policy targets 9GW of offshore wind to be installed by 2040, nearly quadrupling the total wind capacity in VIC.
For more information, please contact: Verity Sinclair at v.sinclair@cornwall-insight.com or Hollie Roberts at h.roberts@cornwall-insight.com.au
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About the Cornwall Insight Group
Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British, and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.
