Lack of transmission infrastructure causing corporate Power Purchase Agreement bottlenecks as wholesale electricity prices sit at record lows

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Lack of transmission infrastructure is causing big bottlenecks for corporate Power Purchase Agreements according to Snowy Hydro’s Chief Commercial Officer.

Speaking during the Australian Energy Week Conference in Melbourne, Gordon Wymer said: “To our knowledge, there are very few wind and solar power purchase agreements being written because the issue simply is grid connectability and the risk of being congested off.”

He said about 10,000 megawatts of renewable projects in the system were not being catered for by the current transmission network, which was at full capacity.

He said that this lack of transmission infrastructure means that customers cannot benefit from cheap renewable energy until capacity on the grid is increased.

However, there is another side to the story. 

The historic drop in wholesale energy futures prices has made many existing corporate PPA’s quite expensive for businesses that are more focused on the financial, rather than environmental aspect of PPAs. 

Rock-bottom wholesale electricity prices making PPAs look expensive

electricity substation

With prices on the wholesale market hitting rock bottom and not looking to improve much before 2022-23, some argue that a PPA is not worth it, especially if customers can take out a renewable energy plan with retailers. 

Mr Wymer said that congestion on the grid was playing havoc with solar and wind farm economics and deterring some developers from embarking on new projects. 

He said that unless more transmission lines are built, industrial and corporate energy users will not be able to take advantage of low cost firming generation from Snowy Hydro.

Mr Wymer explained that Snowy had made up ultra-cheap electricity packages from wind and solar, even undercutting coal.

These packages have now sold out and grid congestion is preventing more contracts from being signed. 

Massive electricity transmission projects facing undue delays

The warning comes at a time when huge transmission projects such as the $2.4 billion EnergyConnect line between South Australia and NSW and the VNI West line linking Victoria to NSW are facing delays due to regulatory, planning and financing issues. The HumeLink project will connect Snowy 2.0 and other major transmission projects. 

Chief Executive of Transgrid, the high-voltage network distributor involved in the EnergyConnect and HumeLink line, said that streamlined and efficient policy and regulatory settings for new transmission projects are the “missing piece” in the drive to push Australia to a greener and more competitive energy sector future. 

Last month, Transgrid pushed for urgent changes to the electricity market rules to help fund EnergyConnect and other projects, but the move was rejected.

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