Just in case you missed this – Explaining electricity markets to dummies

Explaining electricity markets to dummies

In speaking to members of the renewable energy sector about what they think is most important to the government’s review of the Renewable Energy Target there is universal agreement: electricity prices.

Abbott has been elected to a significant extent off the back of public anger about how electricity prices doubled between 2007 and 2013, and he knows it.

Getting rid of the carbon tax is task number one in Abbott delivering for these people (even though its 9% drop in prices is a long way short of a return to 2007 levels).

And for many members of the Coalition and their major supporters the RET is really a mini carbon tax in disguise that should be next for the chopping block. They believe it is driving up electricity prices as well, while undermining Australia’s competitive advantage in cheap and plentiful supplies of fossil fuel energy. OK, the RET might reduce greenhouse gas emissions, but for many of these people climate change just isn’t seen as a legitimate issue.

For these people there is a heartfelt desire that the RET is bad for the country; scrapping it for them is not about gaining political advantage. Indeed, they’d be willing to scrap the RET even if it came at a political cost. But they actually think that such is the household anger over electricity price rises, scrapping the RET and the associated cost they believe it places on electricity bills could be a vote winner. This is even though a range of polls suggest 70-90% of the electorate view wind and solar as their most preferred source of new electricity supply.

But those within the renewables sector believe they have a strong political defence. This is that while the RET involves an extra cost to subsidise the development of renewable energy systems, this cost is largely, or even completely, offset by reductions in prices across the overall wholesale electricity market.


When I check the AEMO front page I see that South Australia – the State with highest percentage of installed wind power – has the highest electricity price.

19 thoughts on “Just in case you missed this – Explaining electricity markets to dummies”

  1. This OECD/IEA report www.oecd-nea.org/pub/egc/docs/exec-summary-ENG.pdf states that Nuclear Energy in Asia is the cheapest source of power in the world and that wind and solar are not viable due to the irregular supply Denmark, which has the highest proportion of wind sourced power has the most expensive electricity in Europe and they import power from Sweden and Germany -the latter in turn importing power from France which has over 80% Nuclear.
    Green Dummies have a mental block and will not want to read or accept the truth.

  2. If wind power is the cheapest form of power then why is it economically unsustainable without huge subsidies plus penalty taxation on competitors? This is the situation world wide, even where crippling subsidies have been in place for twenty years or more.
    The truth is whenever governments hand out “free money” e.g. the RET scheme there will always be a queue of rent seekers with hands extended. If wind power is truly the cheapest, or even cost competitive with other forms of electricity generation then why must it be propped up with the RET subsidy and have competitors penalised with a carbon dioxide tax?

  3. Yeah, we do have the highest electricity prices, and it looks as though it will be going higher soon. One of the tricks they played though took me a while to work out how they did it. This was due to the fact that as they increased the wind power they also managed at the same time to mothball a peaking generator (Playford B) located in Port Augusta, although the Northern Power station which is also coal fired and is at Port Augusta stayed open.

    One day I was driving around the Mid North (where most of the wind farms are located) and saw this new power line going across a region I had never seen before and so following it back came across a small gas fired generator put up close to one of the big wind farms. It was off the road a fair bit though and you had to look hard to find it.

    Later on I found they had built 8 of these mini gas generators to service the Mid North region when the wind wasn’t blowing and because they had mothballed Playford B, it’s just they hadn’t bothered to tell anyone and didn’t advertise their presence. So, now we pay for the Northern power station, wind farms (lots of them), and also the capital and running costs of these 8 mini gas generators which is set to soar in price when gas starts going up in the next year or so.

    Therefore, its corporate rent-seekers as far as the eye can see, along with wind turbines and every possible device where the wealth of the poor (electricity users) gets distributed to the rich (rent-seeking wind farm owners) and almost everyone including the bird life is a loser

  4. Charles:
    I wonder if the emissions from those small gas fired plants are included with the statistics for wind? A rhetorical question, everyone here knows the answer. But small open cycle gas turbines will be less efficient, emit more CO2, and deliver more expensive electricity than a large closed cycle gas turbine. I wonder what the public reaction would be to a
    are you in favour of
    1. Electricity at $110-120 per MWh with 490 CO2 emissions OR
    2. Electricity at $65 per MWh with 400 CO2 emissions?

    Somehow I don’t think they will be given the choice.

  5. Oh dear, fancy South Australia having the most expensive power in Australia.

    At the end of Summer last year, 2013, South Australia turned off its remaining coal fired unit, Northern, thinking that because they had so much wind power, then this steady always there coal fired power would not be needed.

    Then, in May, June and July, the cost of South Australia’s power spiked, not just by a little, but by massively huge amounts.

    What happened?

    Well, you see, the bottom fell out of wind power generation. Because of that, Sth Aus sucked up all the power they were allowed to from Victoria, at an exorbitant cost, nearly all of that steady reliable brown coal fired power. At the same time, Victoria was sucking up all they could get from Tasmanian Hydro via Basslink, also at exorbitant cost, hence giving to Sth Aus with one hand and taking from Tas with the other hand, considering if they didn’t have to supply Sth Aus, then they could have got by without taking from Tas.

    At the same time, small peaking power plants in Sth Aust. required to supply for usually 4 hours a day tops, one hour in the AM, and 3 hours in the evening, during the peaks, well those plants were required to supply virtually non stop, costing an arm and a leg to operate.

    All because the bum fell out of wind generation, in fact down to around only 1% of actual whole of State demand at peak times, and not just once, but on a number of occasions.

    For the whole of June 2013, the average cost for electricity was around $150/MWH, that’s just the average, because on a number of days, it spiked over $200/MWH. On a couple of days, not just for hours but for the whole day, especially during Peak time (which the AEMO refers to as from 7AM till 10PM) the cost of electricity was well over what they could actually sell it for at retail, after everybody else took their cut, with one day, 3rd June, the cost for electricity for that whole 15 hour period came in at $866.41, with wind supplying nothing greater than 4% just before the Peak started, and then down to 1.1% for the remaining 15 hours, electricity that could only be sold at retail for around $300/MWH.

    Some time in mid July, the Northern power plant was quietly run back up again. Coal fired power can supply its power, covering all its costs for around $30/MWH, double that with a CO2 Tax in place.

    You can’t make this stuff up, so here’s the link to power costs for June 2013 from that AEMO site.


    So, when wind actually is supplying, you can see that the costs are higher in that State Sth Aus, than in any other State, and when Wind is not supplying power, then costs just go off the scale, directly attributable to Wind power.

    Please don’t ever try and tell me that Wind power is cheap, and getting cheaper.


  6. cementafriend:
    Denmark has a real problem as they built large off-shore wind farms after a pause in building new farms. The percentage being generated by wind was about 20% of which roughly half was sold cheaply to Norway, Sweden and Germany. Now they can get 34% from wind, but worse, the German wind industry has expanded enormously and is swamping the sinks for excess temporary supply.

    A few years ago Denmark could sell to Norway’s hydro/pumped storage for approx. $23 per MWh and buy it back at $89. (Weren’t their ancestors noted for looting and pillaging?) Now the rush from Germany has meant that the Norwegians don’t want any (except at negative prices i.e. you pay them to take it). Even that can be attractive as the wind farms get paid even if they DON’T deliver; a europe wide decree that if told to stop generating the wind farm can collect MORE money for stopping that if they generate. There are rumours (but nothing official) that around 20% of Denmark’s on-shore turbines no longer work. They were getting old and it doesn’t pay to do any maintenance.

    The rate of return to german wind farms has been estimated at 2-2.5% p.a. despite high subsidies, hardly the best investment around – and what if the public gets tired of paying out $360 per head even though CO2 emissions are rising?

    The Germans are building brown coal fired stations as hard as they can go; 5 new, 10 building, 15-20 planning. Originally to replace nuclear, but now they have to make up for the shut down of gas and pumped storage facilities as wind power being ‘dumped’ has left them losing money; but now also to cut dependence on russian gas.

    I note in passing that France has long claimed that their nuclear was the cheapest electricity in Europe, which might be true, but only because various governments actions made conventional power sources vastly more expensive that they should be (e.g. the UK, where the lunatics are in charge). Germany was an exception as they lumbered everybody with a surcharge, but that meant that as the % of ‘renewables’ went up, the surcharge increased exponentially e.g at 5% renewables the surcharge for the extra cost was spread over 95% of the supply. At 20% the much greater increased cost is spread over 80%). Factor in that big industry (also large Supermarkets etc.) were exempt you can see why german electricity costs ordinary citizens 50-55 cents per kWh.

    I don’t surpose it is worth mentioning that SA has the highest % wind capacity and electricity prices in Oz?

  7. Charles – I am interested in your account of gas fired generators in boondocks SA. Do you have any place names – is there a map online? Are any on this list –
    AGL a few years ago had plans for a unit at Dalton north of Canberra – central to many windfarms which I reckon was partly required to balance the fluctuations in wind power. As this article shows the general decline in consumption has caused the project to be shelved. Dalton gas power plant plans shelved

  8. The ‘injection of solar and wind power lowering wholesale prices ‘ sounds like the usual linguistic trickery we see from Warmists.

    Of course, when there is lots of extra supply (wind is blowing; sun is shining) prices go down, but when the wind isn’t blowing and the sun isn’t shining prices go up.

    The relevant question is, what is the total/average cost on say an annual basis of electricity prices with and without solar/wind?

  9. Graeme 3, I support power generation with coal of which there are very large deposits in most countries and at least 300yrs supply in known deposits. Generation with coal is safe (coal can be much easier and safer transported than liquid or gas fuels), it can be made none polluting (ie flyash can be captured and has some use for building materials) .
    Coal fired power stations can respond to quite large power changes -before gas became available the only peaking power was hydro but there was very little of that in WA, SA, Qld.
    With regard to Nuclear it should be noted that power stations are operating in Switzerland (with referendum approval) Sweden, Belgium, Finland, and many other countries safely. Finland are building new Nuclear Power Stations. This is a list www.euronuclear.org/info/encyclopedia/n/nuclear-power-plant-world-wide.htm Note Argentina have 2 and are building 2. Argentina put in a tender to replace the Lucas Heights Reactor. Australia should have been ahead of Argentina if not for the weak labor politicians bending to greens. Even South Africa has 2 nuclear power stations (and plenty of coal which they export)

  10. For mine, the most mind numbing example of the insanity promoted by green energy subsidies has to be the subsidised burning of American forests for fuel at the Drax coal power station in UK:

    The bonfire of insanity: Woodland is shipped 3,800 miles and burned in Drax power station. It belches out more CO2 than coal at a huge cost YOU pay for… and all for a cleaner, greener Britain!
    * Drax Power Station in Yorkshire is switching from coal to biomass pellets
    * The wood for the pellets is transported from North Carolina, U.S.
    * Drax is swapping to pellets as it is deemed ‘carbon neutral’

  11. Philip Bradley:
    Yes, supply and demand. When you have an intermittent source which is subsidised on the amount delivered, you must make the most of any generation. Hence wind farms were dumping electricity onto the market to get the subsidy. With a high subsidy it was still quite profitable to undercut conventional sources, but when more and more wind power came onto the spot market, it also disrupted the grid and made other suppliers like gas and hydro-pumped storage unprofitable, further destabilising the german grid.

    To avoid this disruption the EU brought in the policy allowing the grid authorities to stop the supply from wind farms. Modern turbines merely have to ‘feather their blades’ to stop generating (as they automatically do in too high winds). But the authorities set the compensation far too high, around 3 times what they could get by continuing supply. (That doesn’t include the fraud in the UK where initially the wind farms ‘bid’ a price and the most expensive were cut off, and paid at there bid amount; one supplier seemed to bid £999 a MWh too regularly and the legislation was amended.)

  12. cementafriend:

    Yes, nuclear is wide spread and logically the believers in “Global Warming” should be in favour of it, but they’re not logical (which helps them believe?).
    From the link supplied by Bob of Castlemaine a few costs.

    Current wholesale cost of UK electricity – £50 = $A 91 (exchange at 0.55)
    cost of proposed nuclear plant – £90 = $164 There was an outcry in the UK about the guaranteed price.
    cost of on-shore wind £95 = $173 All prices are for 1 MWh
    cost of wood fired at Drax = £105 = $191

    Off shore wind isn’t listed but is over $300

    Compare that with coal fired power in NSW and VIC. at $39-40 (after carbon tax!)

    One of the ironies is that if Australia up-dated its coal fired plants to the same standards as China or Germany then we would cut CO2 emissions from electricity generation by at least 25%, far more than could ever be achieved using wind.

  13. Graeme No.3 We should question validity the £95/MWhr quoted for wind too because the value of power that cannot be delivered as and when required (undespatchable power) is of significantly lower value to the grid than power supplied to order in the quantity required at the time required. This is because the load/generation balance of the power grid must be maintained second by second and adding intermittent generation increases the capacity of load following (balancing) generation that must be available both at short call, and as synchronised, spinning, standby to compensate for variations in wind generation output. This means essentially having additional generating plant idling, burning fuel simply to step in and pick up the load when the wind fluctuates or goes awol altogether. There is a cost for this standby/load following duty, a very high cost, which should rightly be factored into the cost of intermittent generation because without it wind power could not safely be connected to the grid. This standby duty is usually done by either open cycle gas turbine generators or in more recent times in the UK by Diesel generators, both fuel inefficient and expensive forms of generation.
    So called levelised costs also often also include invalid factors such as the treating standard business tax concessions, i.e. concessions available to any normal business paying tax, as “subsidies” to be loaded against the cost of fossil fuel generation.
    Oils ain’t always oils as they say!

  14. Bob of Castlemaine:

    Agreed. And in Germany the emissions and costs are quite high. I laid stress on the dumping of cheap wind electricity in destabilising the German grid. The short term response types such as OCGT and pumped storage have been driven from the market, as have the CCGT (less load responsive but less polluting). What the Germans are doing with excess supply is to dump it into the european connected grids, hoping that the Austrian, Swiss, Norwegian and Swedish hydro plants will accept it. Unfortunately the size of the german wind plants makes for difficulties. The Poles have objected strongly to their black coal plants being disrupted and are building phase change transformers to prevent german load surges reaching them, but allowing the Poles to supply electricity when the Germans need it. The Czech Republic likewise although that is to protect their nuclear generation.

    In the case of a drop in wind generation, the Germans have kept old clapped-out brown coal plants going way past their lifetime, as spinning reserve. The owners are forced to do so by law. So the emissions are quite high, and higher even than OCGT or diesel generators. One thing not often mentioned is the variability of the wind annually; i.e. you will get told that UK turbines have a capacity factor (or load factor) of 26% of their theoretical capacity, but that can vary year by year as low as 21%. (Much better than german on-shore wind at 15-16.5%.) That shortfall has to be supplied somehow.

    The UK authorities (I think Ofgen) issue the cost figures quoted. About 2 years ago they raised on-shore wind to £85, so this £95 value must include newer calculations, but I don’t they include any backup costs. If doing any checking note that the incidental costs of “renewables” are loaded onto the conventional sources; i.e. the cost of transmission lines to the wind farms, extra transformers, subsidies to wind farms, and the costs of maintaining the grid. This makes UK coal cost around £80 ($A145) per MWh. It wouldn’t surprise me if the costs of switching Drax to wood chip (special port facilities, special rail trucks and elaborate holding silos – the chips are prone to spontaneous combustion) are included.

    Drax is built on top of a coal seam, but the mine is closed and most coal used in the UK is imported.

    Australia wind farms seem to think their costs are between $90 and $111 per MWh in the few occasions that they have provided such, but these decidedly do not include the backup costs.

  15. Wazsah, I don’t have a map, or know where to find them, and as I said they play this pretty close to their chest for obvious reasons. I only found out there were 8 when I was speaking to the one of the people who service one of the windfarms and he told me.

    However, there is one near Barunga Gap between Snowtown and Bute, one between Blyth and Snowtown, and one near the Robertstown:Black Springs. I imagine there are one or two near Burra – Hallet and one at Mt Bryan as these are where a lot of windfarms are concentrated.

    TonyFromOZ, I think the power station closure you were referring to was Playford B as it was only ever meant as a peaking generator that ended up running all the time. The Northern power station is at the same place (Port Augusta) and as it supplies about 40% of SA electricity, it still runs. It is also supplied by a dedicated coal mine at Leigh Creek and I am sure that it hasn’t closed down and its only job is to supply coal for electricity generation at Port Augusta via a special train line.

  16. Charles,

    it was as I mentioned.

    Playford did close down completely, and ‘the plan’ was to only run both units at Northern for the Summer Months. After that, Northern did in fact close down at the end of Summer in 2103.

    Then, following the major problems with cost as I detailed in the earlier comment, Northern ran up one of their closed units some time in July of 2013, after being closed for only a couple of Months, and note the cost of electricity in Sth Aus for those Months of May and June, when Northern was not supplying power into the Sth Aus grid.

    In fact, the author of the headline article for Warwick’s Post Tristan Edis, has about the only link I can find to this closure, as all other articles now show Error 404. Hey, surprise surprise. (write Northern Power Station Closure into a search engine and try and find a link which opens. Good Luck!)



  17. Tony:

    I don’t think that Tristan Edis is the brightest lamp in the house. “SA is getting the benefit of cheap wind power” yet SA has the highest price for electricity ?????
    I heard something about Northern being shut down but I couldn’t remember where, until I just realised it was at that seminar (= propaganda/drivel/ wishful thinking/waste of time) about a solar power station for Pt. Augusta, and had to change what I had written.

    Alinta want to build a CCGT unit at Pt. Augusta to give them more flexibility, but guess who ? is against this.

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