CLIMATE SPECTATOR: Why big energy wants to kill the LRET

Fossil fuel generators are agitating for the large-scale renewable energy target to be curbed or scrapped, and all because it is causing energy prices to fall.

By Giles Parkinson ·
16 Dec 2011

Climate Spectator

Ever heard of the merit order effect? Readers of this column may be familiar with it, because it is emerging as a key issue in the Australian electricity sector, and a flashpoint between the established fossil fuel generators and the new wave of renewable energy technologies.

The National Energy Market, like many around in the world, is based on a merit order, where the plants with the cheapest marginal cost of fuel get preference. They bid into an energy stack until demand is filled. The price of electricity for that period is set by the bid of the last generator into the stack.

For decades, this has meant that the brown coal generators in Victoria, shovelling in cheap and dirty coal from their doorstep, go first, followed by black coal, gas, and then gas peaking stations when demand is really high. But the rollout of renewables has changed those dynamics, because their marginal cost of generation is next to nil, so they go first, forcing other generators further up the stack, meaning prices are pushed down, and some fossil fuel generators miss out altogether.