Why Australia must heed the warning from one state’s electricity shock

by Tony Wood

Soaring South Australian wholesale electricity prices in July have exposed the urgent need for Australia to develop climate change and energy policies that combine to maintain reliable, affordable and sustainable power, according to a new Grattan Institute report.

Keeping the lights on: lessons from South Australia’s power shock documents how the state’s wholesale electricity price averaged $230 per megawatt hour over the month – three and a half times the price in eastern states.

The price even skyrocketed to nearly $9000 per megawatt hour on July 7, when a lack of wind, coupled with the closure of two coal plants and the temporary closure of a back-up electricity connection meant that gas was generating nearly all the state’s power needs.

The intermittent nature of wind – which now generates about 40 per cent of South Australia’s electricity – creates challenges for the price and reliability of power generation in the state.

Yet while the high July prices triggered a furious blame game, the report argues that criticisms of wind farms, gas generators or the electricity market are alarmist and unfair.

“The market worked, the lights stayed on and prices have since fallen to levels more comparable with the eastern states,” says Grattan Energy Program Director Tony Wood.

Nevertheless, the incident exposed two big potential problems for Australia’s power future.

First, the nation has no credible policy to reduce emissions in the power sector and enable Australia to meet its global climate change commitments.

Second, the current design of the wholesale electricity market may not provide the secure and reliable power that Australians take for granted.

The report urges Commonwealth and state governments to take three actions:

  • Use the 2017 Commonwealth review of climate change policy to develop a credible plan that all states support and that works with the electricity market.
  • Review the market to ensure that power flows reliably and affordably.
  • Explain that a transition to a low-emissions future will happen and that it will cost money.

“These events in one state were a canary in the coalmine, warning of the risks in our power future. It is time to listen,” says Tony Wood.

Read the report

For further enquiries: Tony Wood, Energy Program Director
T. +61 (0)3 8344 3637 E. media@grattan.edu.au