The reason why green energy has been more expensive to buy from a consumer point of view, includes:
- renewable energy has been more expensive to supply to the main grid and the costs to move towards higher percentage of renewables costs will increase further. I explain why here.
- the premium was to encourage investment in renewable electricity. If consumers are willing to pay a premium, it creates a demand/market.
Other reasons can be found here…
In relation to segregation of prices, while some generators have short to medium term contracts to deliver electricity at a contracted price, the retail cost of electricity is very much influenced by the pool or market price. This means prices are not truly segregated as the pool price is the retail cost of electricity bought outside fixed price contracts. While there may be contracts,) most retail electricity is set by the state government energy regulators. The regulated price is directly influenced by the pool/market price. When the average pool/market price is high for extended periods, like it is at the moment, regulated prices which most domestic consumers pay for electricity also goes up. This impact is irrespective of the cost of generation and demonstrates there isn’t segregation.
It is worth noting that the market price is driven by two main factors (and a number of minor factors). These two main factors are the average cost if generation within the market and the demand. Where generation costs increase, say due to higher fossil fuel costs or through more expensive generation types (which is that happening at the moment), this impacts on the average generation cost increasing the average regulated or retail price. When demand meets or exceeds supply/generation (which has also happened recently), then standard economic principles apply where price increases. The same applies when there is excess generation capacity… cheaper/profitable forms of generation supply the market resulting in lower market prices.
Electricity in the grid also isn’t segregated. The flow doesn’t discriminate between renewable or non-renewable generation sources. To segregate, it would require two separate networks.
Edit: to clarify contract prices. Contracted prices stabilise short term price movements. Contracts are renegotiated regularly and are principally based on the pool price (a good example is the regulated prices set by state energy agencies for domestic consumers - when the longer term pool price increases, the benchmark/regulated prices also increase). Consumers are aware that for the 2022-23 year, their electricity prices have increased substantially due to a higher average pool price… When the pool price is higher, the contract and benchmark price is also higher. This is due to the fact that a generator has the opportunity to supply to the market electricity at the pool price. If the contract price was low, then there isn’t the incentive to sign a contract. This also shows why electricity prices aren’t segregated between generators or generation types. Even Diamond Energy has indicated this on their website by stating"
With the significant increases in wholesale electricity prices, the government regulatory bodies have announced increases to the benchmark electricity prices. We are expecting to increase our rates and amend our discounts and solar feed in tariffs.
The other example which shows that pricing isn’t segregated is using the FiT for domestic solar systems. If you have a PV system and have installed it more recently, you will know that the FiT changes from year to year. The FiT goes up or down, like the average market price. When the average market price goes up, FiTs also generally go up (our own FiT increases from 6.501/kW this year to 8.883kW next year - a 35% increase). Having a PV system one knows that the cost to supply the electricity to the grid hasn’t changed from year to year. If prices were segregated, then the price from year to year would be fixed and removed from the average market price. This isn’t the case as the price for generation isn’t segregated from the average market price.
As outlined in the previous paragraph, segregation could only be achieved with two separate networks (or a separate network for every generator) and possibly the regulator prescribing the price that the generator gets for supplying the market (this was recently done by setting $300/MW - and while it caused a cap on prices, it caused supply constraints - generators where cost of generation exceed $300/MW removed themselves from the market. Such an approach would be a strong disincentive to not invest capacity in the Australian electricity market.