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

crookwell stage 3 wind Countryside landscape and wind farm - optimized

The ACT is the only region of Australia’s main grid that has been spared sharp increases in electricity bills, and its energy consumers can thank the shift to 100 per cent renewables and the structure of their deals with wind and solar farms.

The ACT government has written contracts with 11 wind and solar farms to provide the equivalent amount of electricity consumed by homes and businesses in the ACT each year.

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

But if the wholesale prices are above the strike price – as they have been by some considerable margin over the last six months – then the wind and solar farms return these windfall profits back to the ACT government and the territory’s consumers.

And in the last quarter, as wholesale prices soared to record highs – an average of more than $300/MWh in NSW – the wind and solars paid back a total of $58 million to electricity consumers in the ACT, shielding them from any significant bill hikes .

The biggest rebates came from the Crookwell wind farm in NSW, which handed back nearly $14 million. The difference between its contract with the ACT government and the average wholesale price in the June quarter was a staggering $204/MWh.

The three Hornsdale wind farms returned a collective $27.4 billion between them, although the difference in their contract prices was lower – around $110/MWh – because wholesale prices in renewables dominated South Australia were significantly lower than coal dependent NSW.

Source: ACT Government. Please click to expand.

Even the four solar farms returned excess earnings to ACT consumers, even though their contracted prices of up to $180/MWh are very high because they were among the first to be built in Australia. The contracts for solar farms in Australia are less than one third of that price.

The ACT is not the only energy consumer to enjoy the benefits of a big rebate – the steelmaking giant Bluescope also reported a $42 million bonus from the contract it has with the Finley solar farm in NSW. It has a similar arrangement where windfall profits are returned to the customer.

What this has effectively done in providing certainty for consumers, be they in the ACT or corporate customers such as Bluescope, and provided a shield when the impact of soaring fossil fuel prices forces the wholesale market out of control.

As this graph shows, the ACT has had to top up some of the payments to the wind and solar farms in recent years, but it has done so in the knowledge that it would be protected if the energy markets got out of hand.

It does, however, beg a question: If contracts with wind and solar farms can be tailored 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 makes off with what the UN describes as “grotesque profits”, it might be time for the Australian government to consider – as other governments are doing – the introduction of a windfall tax to recycle some of those gains to the consumers paying for them.

Note: For those interested in finding out more about how the output of the contracted wind and solar farms matches the consumption in the ACT, this story gives an interesting insight: Deep dive into the ACT’s 100% renewable energy target.

And for another explanation of how the ACT feed in tariffs work, you can read this story here: How going 100 pct renewables will shield one part of Australia from surging power prices