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It's gas, not renewables, that is pushing up electricity prices, report find

Author: Peter Marn Source: Date Published: 13 July, 2017

High gas prices, not high renewable energy prices, are responsible for the latest outsized increase in electricity prices, the second-largest on record, according to a new analysis by one of Australia's leading experts.

From July 1, Sydney prices climbed 15 to 20 per cent, Adelaide prices 16 to 20 per cent, and Canberra prices 19 per cent. Melbourne prices rise on January 1. Aer introducon of the carbon tax in 2012, prices jumped 19.3 per cent in Sydney and 23 per cent in Melbourne.

"When the rises flow through, retail prices will be the highest ever in real as well as nominal terms," writes Australian Naonal University specialist Hugh Saddler in a report to be released on Thursday by the Australia Instute.

Graphing the price movements for South Australia, the state with the highest proporon of wind energy, against its reliance on wind energy, Dr Saddler finds "absolutely no relaonship between the two".

South Australian wholesale prices have moved both down and up as the share of wind power grew to 45 per cent. Ahead of the latest increase, real prices in South Australia were lower than they were a decade earlier when the share of wind generators was only 5 per cent.

"More detailed analysis shows that market wholesale prices are consistently lower when there is a high level of wind generaon, than when there is lile wind. Over the past four or five years in the South Australia wholesale market, volume weighted prices received by wind generators have been around 20 to 30 per cent lower than volume weighted average prices for the market as a whole."

In contrast, the correlaon between wholesale electricity and gas prices is "striking". Both move down and up together.

"Higher wholesale electricity prices, and hence higher retail prices are almost enrely caused by higher gas prices," Dr Saddler concludes.

"A similar, though less stark effect is seen in the other mainland naonal energy market states. This is not a malfuncon of the market, but precisely how it was expected to operate."

"The launch of the market in 1998 was followed by a rush of construcon of gas turbine power staons in Queensland, NSW and Victoria and even in Tasmania, accelerated in Queensland by a gas generaon mandate policy introduced by the state Labor government.

Source: AER, AEMO, Hugh Saddler, Australia Instute

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