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The effect of wind and solar power generation on wholesale electricity prices in Australia

Zsuzsanna Csereklyei, Songze Qu and Tiho Ancev

No 2019-09, Working Papers from University of Sydney, School of Economics

Abstract: Our paper investigates the effect of wind and utility-scale solar electricity generation on wholesale electricity prices in Australia over 2010-2018. We use both high frequency (30-minute) and daily datasets for the Australian National Electricity Market (NEM). We estimate autoregressive distributed lag models (ARDL) to decompose the merit order effect of wind and utility-scale solar PV generation over time and across states. We find that an extra GW of dispatched wind capacity decreases the wholesale electricity price by 11 AUD/MWh at the time of generation, while solar capacity by 14 AUD/MWh. The daily merit order effect is lower. We show that the wind merit order effect has been increasing as a function of dispatched wind capacity over time. Despite of this, wholesale electricity prices in Australia have been increasing, predominantly driven by the increase in gas prices. Our findings further strengthen the evidence of the merit order effect of renewable energy sources, with important implications for the current energy policy debate in Australia.

Keywords: electricity price; merit order effect; natural gas price; solar generation; wind generation. (search for similar items in EconPapers)
Date: 2019-03, Revised 2019-03
New Economics Papers: this item is included in nep-ene and nep-reg
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