Electrifying Victoria: The impact of election policy on wholesale prices

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In the absence of a robust federal energy and climate policy framework, Australian states and territories continue to play an important role in shaping Australia’s energy transition.

Ahead of the pivotal Victorian state election, we consider the impact of the energy policies of the Victorian Labor Party, Liberal/National Coalition, and the Greens on wholesale electricity prices and greenhouse gas emissions to 2025. Analysis presents three scenarios based on each party’s announced policy platform, modelling the implications for renewable energy capacity, regional fuel mix, electricity emissions reductions, and wholesale electricity prices.

Key findings include:

Continuation of VRET to drive investment and lower prices

  • Under all three policy scenarios, wholesale electricity prices are projected to fall from their 2018 peak of $98 per megawatt hour (MWh) towards $70 per MWh in 2021. This is largely driven by the Victorian Renewable Energy Target (VRET), the National Large-scale Renewable Energy Target (LRET), and rapid declines in the cost of wind and solar.
  • Should the VRET be continued under the ALP, modelling indicates that a favourable policy environment is likely to drive over 2,200 MW of large-scale capacity beyond committed levels as developers seek to capitalise on capacity withdrawals in other markets.
  • Like the price decline to 2021, further competitive pressure is modelled to keep wholesale prices lower through to 2025, oscillating around $70 per MWh.
  • Despite stronger competition, no coal closures are modelled to occur before 2025 in Victoria, with the exit of Liddell providing a lifeline for marginal brown-coal facilities such as Yallourn.

 Repeal of VRET likely to dampen investment & trigger price rises

  • The proposed repeal of the VRET under the Liberal and National parties is likely to trigger a significant regime change in Victoria, with large-scale renewable energy investment to weaken – and effectively stop – similar to past periods of uncertainty under the federal LRET scheme.
  • Under this scenario, wholesale prices are projected to reverse their downward trend, rising above $70 per MWh after the closure of Liddell, toward $90 per MWh by 2025 as lower levels of supply reduce competition relative to the modelled ALP scenario.
  • The Coalition’s proposal to support ‘at least 500 MW’ of ‘new’ energy that could be available ‘24/7’ at least-cost is modelled to be built as new solar and wind generation firmed by existing gas and hydro facilities. Irrespective of the technology built,  any new capacity is likely to dampen the prospects for ‘baseload’ brown coal-fired generators.

 Transition to 100% renewables – achievable below today’s prices

  • Should the VRET be scaled up under Greens policy up to align with a 1.5 degree ambition under the Paris Agreement – a 100 per cent emissions reduction target by 2030, underpinned by targets of 30 per cent by 2020 and 50 per cent by 2025 – the transition to a wholly renewable powered system would necessitate an increased build out of around 500 – 600 MW of new capacity each year – around 150 MW per annum more than the ALP scenario.
  • Under such a scenario, the Victorian electricity generation is projected to grow to almost 65 per cent renewables by 2025, at prices less than today’s levels, ranging between $70 and $84 per MWh to 2025 to support greater dispatchable capacity.

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