Mistiming energy transition could prove a costly lesson
Households can expect electricity prices to fall over the next five years, but will rise further in the 2030s unless renewable energy sources become more widespread more quickly.
The crucial time frame was revealed in the Australian Energy Market Commission’s annual numerical analysis and 10-year outlook, which modeled prices using wholesale, network, retail and energy efficiency plan costs.
“As renewable energy generation and batteries increase, residential electricity prices are forecast to fall by 2030, but will rise by 2035 if the pace of new investment does not keep pace with rising electricity demand and the planned coal phase-out,” said Anna Collyer, chief executive of the national energy agency.
The scenarios are paired with the market operator’s plan to transform the energy grid into a net-zero economy, and the commission expects the per-unit cost of electricity (in cents per kilowatt-hour) to fall by five per cent over the next five years as more renewable energy comes online.
Although the trend is still downward, the figures have been revised higher than last year, reflecting a slower transition than expected. Planning delays, high project costs and transmission constraints are among the frequently cited reasons for slowing solar, wind and battery deployment.
Prices are on track to rise by 13 percent in the second half of the 10-year horizon set by the commission, partly due to increased reliance on expensive gas generators.
However, faster expansion of renewable energy sources and greater efforts to coordinate household consumer energy sources such as rooftop solar and batteries will help prevent price increases in the back half of the forecast period.
“Our analysis clearly shows that renewable energy and batteries are driving prices down, we see this in the first five years,” Ms Collyer said.
“The risk of rising prices after 2030 will only arise if we slow down the deployment of renewable energy as coal power plants retire.
“This is a timing issue, not a technology cost issue.”
Extending the life of coal plants to meet future demand growth has been flagged as a risk for higher prices as aging generators are prone to costly outages.
Earlier this week, the market operator warned that the main grid needed more investment to stabilize technology to cope with the exit of the country’s largest coal-fired power plant, potentially opening the door to another extension on Eraring’s retirement in mid-2027.
The focus on consumer energy sources and electrification was welcomed by Energy Consumers Australia policy expert Brian Spak.
“As the report notes, we can avoid rising prices by shifting our focus to consumers and their investments in rooftop solar, batteries, electric cars and other flexible devices,” he said.
The Commission estimates that a household switching entirely to electricity could reduce total energy costs by up to 90 percent, with typical payback periods of four years.
Climate Council member and energy sector expert Joel Gilmore said renewable energy sources are driving prices down.
“But if governments don’t put on their skates, greater dependence on gasoline will drive prices up again by 2030,” Associate Professor Gilmore said.
The report comes as the political climate on carbon neutrality has soured as the federal opposition backtracks on official targets to reduce net emissions to zero by 2050.
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