Last Friday the ACT government announced it was bringing forward its goal of 100 per cent renewable electricity from 2025 to 2020. The original goal was already predicted to cost ACT households $5 a week extra, and bringing it forward to 2020 will add about 50¢ more to the weekly electricity bill – a total of $286 a year.
So why is this happening, and what are the ramifications for the rest of the country?
Part of the reason is the collapse in investment in the large-scale renewable energy market during the past few years that has enabled the ACT to cash in on the current glut of renewable energy projects. According to Bloomberg New Energy Finance, investment in Australian renewables in 2014 crashed almost 90 per cent from the previous year, and in 2015 was only marginally better.
This collapse has been due largely to the enormous energy policy uncertainty created in the federal sphere as a result of changes introduced by the Coalition government. These include backtracking on the Renewable Energy Target, removing the price on carbon pollution, and directing the Clean Energy Finance Corporation to defund wind projects and small-scale solar.
In this chaotic policy environment, any investment in big energy projects – whether fossil fuel or renewables – has been stalled.
The vacuum created by federal policy uncertainty has meant the ACT government's renewable energy program has been the only game in town. Renewable energy companies have flocked to the ACT government wind and solar reverse auctions, which have so far netted 400 megawatts generating capacity from five wind projects and 43MW from three solar projects, with another 200MW to come from the reverse auction announced last Friday to meet the 100 per cent-by-2020 target.
The result is that the ACT is a buyers market. Prices as low as $77 a megawatt hour make wind power the cheapest new-build energy source (fossil or renewable) in the country. When averaged with inflation for the 20-year lifetime of the reverse auction contract, this equates to a low $60/MWh at current prices.
The ACT government has got in early and secured the cheapest renewable resources in Australia. The ACT already has the cheapest electricity (about 20¢/kWh regulated price) mainly because it is a compact jurisdiction near major transmission lines and hasn't had the overbuild in poles and wires that has forced up electricity prices in other states.
This first-mover advantage will probably see the ACT hold its lead in electricity pricing through the coming decades as other states inevitably change their generating mix away from fossil fuels towards renewables. This is not just because of Australia's international commitment to lowering greenhouse gas emissions after agreement at December's Paris climate change conference and its recent signing in New York. It is because Australia's ageing fleet of coal-fired power stations will have to be retired during the next 20 years any way.
As a result there will be a race by all the other states to snap up the cheapest renewable energy in the country. Already South Australia is 40 per cent renewables and on its way to a 50 per cent-by-2025 target, and Queensland is committed to 50 per cent by 2030 – both well short of the ACT's 100 per cent by 2020.
The other states will be looking at the success of the ACT government reverse auction process – by which companies tender the lowest price for electrical energy – in order to reach these goals. But they face a dilemma – not just because the ACT has got in first and secured the cheapest renewables. They are much bigger players, and will need to guarantee supply from a much larger pool of the nation's potential renewable generators to overcome the intermittency of supply that characterises wind and solar.
The ACT, being a small player, doesn't have to worry about saturating the available renewable market, and has used this nimbleness to press home its already significant first-mover advantage.
So the result is that with the inevitable swing to renewables during the next 20 years, the ACT will most likely continue to enjoy the lowest electricity prices in the country. In any event, ACT households will be partly compensated for the $286-a-year increase by energy efficiency measures introduced by the ACT government.
Businesses may also be attracted to the ACT because of competitive electricity pricing. Indeed, renewable energy companies are already moving to the territory as part of the reverse auction process, and the ACT has the opportunity to become a renewable energy hub not only for Australia, but also for south-east Asia if these international companies look to headquarter their operations here.
Australia is moving inevitably towards placing a price on carbon pollution – whether through an emissions trading scheme or other mechanism – in order to avoid economic isolation from the rest of the world in the post-Paris climate change era. The ACT is now well placed nationally and internationally as a leading renewable energy jurisdiction.
Professor Ken Baldwin is the founding director of the Energy Change Institute at the Australian National University.