Electricity prices can be divided into retail and wholesale prices. Retail prices is that paid by consumers and the wholesale electricity price is the price generators receive for electricity produced.
The renewable energy target (RET) affects both of these.
The RET requires electricity retailers to buy renewable energy certificates (RECs) to ensure they have sourced a certain percentage of their electricity from renewable energy sources. These RECs cost money and this is passed on as an increase in retail electricity prices.
Renewable energy also puts downward pressure on wholesale electricity prices. Unlike the retail market which sells to consumers usually at a fixed price, the wholesale electricity price is set every 15 minutes depending on demand and can vary quite dramatically.
The average wholesale electricity price is around $55 to $70 per Megawatt hour. When electricity demand is low the price can fall all the way to zero whereas very high demand (such as on a hot summer afternoon) can see prices rise to $12,000 per megawatt hour. This is what is known as peak demand.
Renewable energy reduces the wholesale price in a number of ways. Renewable generators:
- have no fuel costs, so when solar plants and wind farms are producing electricity they can sell it at a lower price than fossil fuel producers
- tend to produce more electricity during peak times
- are adding additional generation into the market at a time when demand for electricity is falling.
At the moment the increase in the retail price caused by electricity retailers buying RECs is being partially offset by renewable generation putting downward pressure on wholesale prices. While the RET is currently a small factor (less than 5 per cent) in increasing electricity prices overall, unlike other factors, this influence will be offset by a larger downward pressure on wholesale prices in the next few years, after which the RET will begin lowering electricity prices overall.