Energy watchdog flags 5 per cent fall in power prices amid renewables surge

Household electricity prices could fall 5 per cent over the next five years as an influx of renewable energy pushes down the cost of generating power, according to a top industry watchdog.

In its second 10-year outlook on residential electricity prices, the Australian Energy Market Commission (AEMC) said a wave of wind, solar and battery projects would lower "unit" power charges out to 2030.

But the commission warned prices would then rise by as much as 13 per cent over the next five years unless new wind projects and high-voltage power lines were built in a more timely way.

The AEMC also acknowledged wholesale costs were expected to be about 70 per cent higher on average over the period than it had been projecting just one year ago.

It pointed to the slower development of renewable energy projects and less flexible demand from consumers for the blowout.

And it noted that while prices for a kilowatt-hour of electricity were projected to ease in the next five years, this did not necessarily mean people's bills would also fall.

"Our price outlook highlights a critical five-year window," said Anna Collyer, chair of the AEMC.

"Residential electricity prices are projected to fall through 2030 as renewable generation and batteries ramp up but then rise … if the pace of new investment doesn't keep ahead of growing electricity demand and planned coal retirement."

Electrifying energy savings

The projections from the commission, which sets the rules governing the national electricity market covering Australia's eastern seaboard, come at a time of renewed debate over power prices.

Opposition Leader Susan Ley has sharpened her attack on the federal government's climate and energy policies, saying they have driven power prices up 40 per cent.

Matt Rennie, the co-founder of energy transition consultancy Rennie Partners, said he doubted prices would fall as suggested by the commission.

Mr Rennie said even though more renewable energy was flowing into the system, most of it was coming from solar, which only generated power during daylight hours.

He said this left coal and gas plants to pick up most of the slack during the evening peak when the sun stopped shining.

"What [coal] is doing is making money at the end of the day by bidding in with gas into that night-time peak," Mr Rennie said.

Mr Rennie said more batteries in the next five years would help offset high evening prices set by coal and gas, but only to a point.

In its report, the AEMC said more renewable generation and transmission capacity would help lower prices over the remainder of the decade.

Similarly, the commission said households that electrified could slash their energy costs by up to 90 per cent and that, on average, electrification would cut bills by about $900, or 15 per cent, a year.

Electrification involves running everything from cooktops and water heaters to cars on electricity, which means it can be powered by renewable energy rather than fossil fuels.

The AEMC estimated that the time it would take an average householder to pay off the cost of electrifying was typically less than 10 years.

But it also acknowledged that many consumers "are currently unable to electrify due to barriers including up-front costs and where they live".

"Thus, ensuring all households have options to electrify would promote an equitable transition," the commission noted.

Despite projections of price falls in the short term, the commission warned that a lack of new renewable energy and transmission capacity would drive them higher after 2030.

Green pipeline drying

It said a dearth of new connections, particularly for wind farms, would leave Australia more heavily reliant on aging coal plants that were prone to failure and expensive gas-fired power.

At the same time, the watchdog noted that demand was rising sharply, putting further pressure on stretched supplies.

And the AEMC also struck a cautious note on the potential downside of household clean tech such as rooftop solar, batteries and electric vehicles (EVs).

According to the commission, the "uncoordinated use" of such tech "could add up to 13 per cent to electricity prices".

There are more than 4 million households and small businesses with rooftop solar in Australia, while the commission noted the number with batteries was also rocketing.

The AEMC said that if the resources were coordinated well, they would cut wholesale price spikes in the evening and the need for upgrades to poles-and-wires networks.

Ms Collyer said an example might be an EV owner charging their car in the middle of the day when solar output was abundant, or "using batteries to reduce evening demand when prices are higher".

By contrast, she warned that if clean tech was poorly coordinated, it could make the evening peak worse and cause the need for expensive back-up generation and network expansions.

"But the fundamental message remains consistent," she said.

Shallower savings flagged

The report is the second time the AEMC has published its outlook on electricity prices after last year's inaugural effort.

That document projected "residential electricity prices" would fall by about 13 per cent between 2025 and 2034.

But the commission noted that weaker electrification uptake, slower renewable energy development and less flexible demand had slashed those assumptions.

Federal Climate Change and Energy Minister Chris Bowen said the report vindicated the government's energy polices.

Under those policies, Australia has a target of getting 82 per cent of its electricity from renewable sources by 2030, by which time it is also supposed to cut emissions 43 per cent on 2005 levels.

Mr Bowen said any delays to the construction of renewable energy plants and the high-voltage power lines needed to connect them would put upward pressure on prices.

"The Australian Energy Market Commission make clear [that] slowing the renewables rollout and sweating aging, unreliable coal will drive up energy bills and pollution," Mr Bowen said.

"That's why we've got to keep rolling out reliable renewables and help more households embrace solar and batteries."

Energy transition adviser Matt Rennie agreed that households that could electrify stood to benefit from the transition, but he noted that not everyone could do it.

"The ability to install that kind of equipment and to take advantage of those technologies is very much inequitably distributed around Australia," Mr Rennie said.

Matt Rennie said the growing divide between those who could electrify their homes and those who could not was just one of many complexities at the heart of the transition.

He said the costs and the benefits of the transition were falling unevenly across the economy.

And he said while renewables were the cheapest way to replace the historic grid — which ran on huge, centralised plants fed by cheap, abundant coal — it would inevitably be more expensive.

But he argued it was a price worth paying to clean up the electricity industry and help Australia slash its emissions, and noted that Australia's fleet of aging coal-fired generators would soon need to be replaced anyway.

"It's a much more complicated system," he said.

"Solar, wind, firmed by batteries, and then hydro running overnight is a more complicated system and much more dispersed than having an enormous coal-fired power station sitting right next to a coal mine with a conveyor belt running in between them.