Could Australia’s electricity market see a cost revolution as renewables make their mark?

Is the renewable energy economy set to permanently change Australia’s wholesale pricing structures and could this be an indicator for other markets?

With Fundamentally Speaking reporting regularly on the impact of renewable energy generation as it sweeps across Australia, a recent analysis posted on the Renew Economy website suggests the country’s electricity economy could be set for revolution.

According to Andrew Mears – CEO of micro-grid management specialists SwitchDin – the drive for decentralisation by many of Australia’s states leads him to question the stability and relevance of the nation’s existing market structure. 

Two for the price of one

In his analysis, Mears recognises the benefits of the existing two-market structure in Australia and how Distributed Energy Resources (DER), the term for domestic or commercial renewable energy systems, are influencing it.  In essence, Australia’s electricity is governed by two systems.

  1. The National Electricity Market (NEM) – claimed to be one of the world’s largest interconnected electricity systems covering some 40,000km of transmission infrastructure and supplying in the region of nine million customers and delivering around 80% of the national consumption.  The NEM is a wholesale electricity trading market for both generators and retailers in all territories except Western Australia and the Northern Territory.
  2. The Wholesale Electricity Market (WEM) – covering some 7,800km of transmission lines and servicing more than one million customers, the WEM performs a similar role as the NEM for Western Australia. 

According to Mears: Australia has entered a period where wholesale electricity prices are at their lowest in recent history thanks to a slew of new wind and solar generation capacity in the National Electricity Market (NEM). Even through a period of policy uncertainty, renewable energy has staked its claim on the grid.”

He also states that the exponential increase in renewable energy generation is potentially hastening the end of Australia’s coal-fired power stations, of which 16 currently remain. 

Unifying to avoid fragmentation

As previously reported, the launch of Australia’s DER Database could be just one element that may have a positive impact on effective integration of renewable energy into the network.  He also urges the need for the industry to look ahead to identify constraints, strategies and investment needs in order to prevent dissolution of the markets.

Whilst citing a number of independent distributors who are working effectively on DER integration – particularly through the use of smart management technologies – he offers a stark warning that unless key questions around legislation and interconnection solutions are answered, the likely outcome is a complete fragmentation of Australia’s Market structure.

In posing the question: “Is it even possible to keep these customers and stakeholders who operate on the NEM satisfied with this a model that was developed in a different era?”, Mears lays down a challenge to all those involved in the industry to consider the true impact of micro-grids and DERs on the future of electricity markets.   

For Fundamentals Australia’s Nick Yates, the way regulation develops is likely to have a significant influence in answering Mears’ question.  Yates comments: “As we continue to see increasing numbers of distributed energy resources the grid is under pressure to adapt; the regulatory environment has some catching up to do and only when the grid is operationally and commercially aligned will Australian consumers get the most out of the drive for net zero.”