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This is what will happen to power prices if we invest in renewables

·Finance reporter
·4-min read
Wind turbines turn behind a solar farm in Rapshagen, Germany.
"When the sun doesn't shine and the wind doesn't blow" is an argument that has been called into question by several studies. (Source: Michael Sohn / AP)

Worldwide, we are in the midst of an energy crisis.

Russia's ongoing invasion of Ukraine has caused major energy supply chain issues, supply chains that were already under significant stress thanks to the impacts of the COVID-19 pandemic and lockdowns.

But if you take notes from conservative sources, it's not these global supply chain challenges that are causing skyrocketing prices, it's investment in renewables and green energy.

So, what is the truth here?

Will power prices go up if we invest in cleaner, greener technology, and move away from fossil fuels?

Greater green investment required

Green electricity retailers say we wouldn't be in this mess if Australian governments had done more to invest in renewables over the past decade.

David Ireland, founder of electricity retailer Radian Energy, recently told Yahoo Finance that Australia is in something of a perfect storm for high prices: unusually high amounts of rain, an exceptionally cold winter and a swathe of coal plants down for maintenance.

"We do need a lot of investment in renewables that provide base load power, day and night," he said.

"We need to upgrade our networks to be able to support this, and we need to continue to incentivise home owners and business owners to install solar and battery."

Ireland says the argument that a shift to using more renewable energy will lead to higher energy prices is flawed.

"As electricity gets more expensive, the equations on affordable, as in how affordable solar and battery is, are changing," he said.

"When prices rise, batteries and solar will become more affordable. So that will help to drive uptake. We’re seeing a big increase in interest in solar and battery demand right now, which is great."

Dan Adams, co-founder of Amber Electric, is direct when posited the argument that green energy will drive power prices higher.

"I would say the exact opposite," he said.

"The reason we have this crisis is because we are far too reliant on fossil fuels, and their prices have gone up because of world events.

"Coal and has generators are unreliable and their prices are volatile.

"The only sustainable way out of this crisis is to invest in renewables and large-scale battery storage."

Aerial photo taken on March 4, 2019 shows the Jiangbei Energy storage power station in Nanjing, capital of East China's Jiangsu Province. The Jiangbei power station is scheduled to be connected to the grid in April and can store about 190,000 KWH of electricity. Energy storage stations plug into the grid to recharge during off-peak periods and release power during peak periods, effectively filling the gap. (Photo credit should read Costfoto/Future Publishing via Getty Images)
Australia needs more energhy storage stations, like this one in China. (Source: Getty Images)

'Green pool': An innovative solution

The research on renewables versus fossil fuels is quite clear: the former are cheaper, and costs are continuing to fall.

However, whilst the green transition slowly manifests, it is likely that power prices will remain beholden to the world events driving higher prices for fossil fuels.

"With the drive to cut emissions and the advent of cheap renewables, electricity is likely to dominate the energy system in future, powering heat pumps, electric vehicles and more, but this golden age of electricity cannot arrive as long as the price of electricity is decided by fossil fuels and their carbon costs," says Michael Grubb, professor of energy and climate at University College London, in proposing a plan that could help the shift.

In research conducted by the university, Grubb and colleagues propose a "green power pool which would aggregate long-term contracts with renewable energy generators and sell the power on to consumers".

"The price would mainly be set by the actual investment costs of generators, rather than gas-driven wholesale markets," Grubb said in a piece for The Conversation.

"When there isn’t enough renewable power being generated or stored – like on cold and calm winter days – the green power pool would buy electricity from the wholesale market for limited periods and quantities."

The research also aligns with the views of Adams, Ireland, the Climate Council, the International Energy Agency and many others - lack of investment in renewable energy and battery storage is one of the leading factors in rising power costs.

"Although there has been a high initial deployment cost, renewables across Europe are now starting to reduce wholesale electricity prices," the study found.

"Removing barriers to investment in mature renewable energy projects... will give investors confidence that they will save on fuel and rising carbon costs."

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