Consumers reap rewards of 100 pct renewables as wind and solar farms hand back windfall profits

crookwell stage 3 countryside and wind farm scenery - perfect

ACT is the only major grid area in Australia that has been spared steep increases in electricity bills, and energy consumers can thank the switch to 100 per cent renewables and the structure of their deals with wind and solar farms.

The ACT government has contracts with 11 wind and solar farms to provide the equivalent amount of electricity that ACT homes and businesses consume each year.

The nature of these deals – called contracts for difference (CfDs) – means that if the wholesale market trades below the agreed-upon strike price, the government (and consumers), increases the difference to wind and solar farms.

But if wholesale prices are above the strike price — as they have been by a large margin for the past six months — wind and solar farms return those windfall profits to the ACT government and consumers in the territory.

And last quarter, with wholesale prices soaring to record levels – averaging more than $300/MWh in NSW – wind and diesel paid a total of $58 million to ACT’s electricity consumers, shielding them from any significant bill spikes.

The biggest deductions came from Crookwell wind farm in New South Wales, which returned nearly $14 million. The difference between its contract with the ACT government and the average wholesale price in the June quarter was $204/MWh.

The three Hornsdale wind farms returned a collective $27.4 billion between them, although the difference in their contract prices was lower – about $110/MWh – because wholesale prices in renewables that dominated South Australia were much lower than New South Wales coal-fired state.

Source: ACT Government. Please click to expand.

Even the four solar farms returned excess profits to ACT consumers, even though their contract prices of $180/MWh are so high because they were among the first to be built in Australia. Solar farm contracts in Australia are less than a third of that price.

ACT isn’t the only energy consumer with big discount benefits – steelmaking giant Bluescope has also reported a $42 million bounty from its contract with Finley’s solar farm in New South Wales. It has a similar arrangement whereby windfall profits are returned to the customer.

What this has effectively done has been to provide certainty to consumers, whether they are in the ACT or corporate clients like Bluescope, and provide a shield when the impact of rising fossil fuel prices spins the wholesale market out of control.

As this graph shows, ACT has had to increase some payments to wind and solar farms in recent years, but it did so knowing that they would be protected if energy markets spiraled out of control.

However, it begs the question: If contracts with wind and solar farms can be designed to ensure windfall profits are returned to the consumer, why can’t the fossil fuel industry be encouraged to do the same.

As the oil and gas industry reaps what the United Nations describes as “terrible profits”, it may be time for the Australian government – as other governments do – to consider introducing a windfall tax to recycle some of those gains to paying consumers.

Note: For those interested in learning more about how the output of contracted wind and solar farms matches consumption in ACT, this story offers interesting insight: a deep dive into the ACT’s 100% renewable energy goal.

And for another explanation of how the ACT feed into tariffs works, you can read this story here: How 100% renewable energy will protect part of Australia from rising energy prices

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