Question details

The revenue earned by renewable energy generators, such as wind and solar farms, for their electricity generation will depend on the wholesale electricity prices in the National Electricity Market (NEM) at the time they are generating, as well as any contracting arrangements they have made to manage their revenues.

Wholesale electricity prices in the NEM are set by the Australian Energy Market Operator every 5 minutes based on demand in each region and the prices bid by available generators to supply electricity at that time. In 2023/24, wholesale electricity prices in Victoria averaged around $63 a megawatt hour (MWh), which was the lowest in the National Electricity Market.

To reduce their exposure to price volatility in the NEM, many renewable generators engage in hedging contracts, such as power purchase agreements (PPAs), with counterparties, such as electricity retailers, for part or all of their output. Under these contracts, the parties agree to a fixed ‘strike’ price that will apply to electricity generated by the generator under the contract over a certain period. These contracts are given effect through use a series of ‘unders and overs’ balancing payments between the parties, which result in the generator earning the agreed strike price for generation under the contract, regardless of the actual wholesale prices in the NEM at those times. As these contracts are between the retailer and the generator, the Victorian Government has no visibility on the agreed prices. However, we know that wind and solar are the cheapest forms of power generation available.

Hon Lily D’Ambrosio MP

Minister for Climate Action

Minister for Energy and Resources

Minister for the State Electricity Commission