The impact of generation mix on Australian wholesale electricity prices

Abstract

This paper examines the impact of generation mix, encompassing fossil fuels (black and brown coal and natural gas) and renewables (hydropower and wind power) on daily spot electricity prices across the five regional electricity markets in the Australian National Electricity Market (NEM) from January 2006 to June 2012. The objective is to gain insights into the emergent effect of government policy and industry developments regarding the choice of generation on wholesale electricity prices. Using least squares and quantile regressions, it is found that the changing generation mix used for producing electricity exerts a strong influence on wholesale prices. This is especially the case with prices expected to increase markedly with the increasing utilization of gas-fired generation used to support the intermittent and variable production from renewables and from the policy-driven use of renewables wind power associated with the current renewable energy target and carbon taxation in Australia.