The renewables sector in Australia will be the winner as COVID-19 hastens the demise of the Fossil Fuel Industry.
In 2020 businesses were forced to shut the doors resulting in a large proportion of students and corporate employees working from home. As a result, there has been a sharp drop in commercial electricity demand and a decline in wholesale electricity prices.
While this shift has led to higher residential demand, it's has not offset the decline in demand from commercial markets. Why? Because small scale residential solar energy systems are prevalent in Australia - a big tick for the renewables sector here.
What is the impact of wholesale electricity pricing on Consumers, the Fossil Fuel Industry & Renewables?
Consumers will see reduced prices at a retail level
Wholesale electricity prices make up about one-third of consumer electricity bills. The declining prices are expected to be passed on resulting in reduced prices at the retail level. While this means lower prices to consumers, it also means a decline in revenue for the electricity retailing industry.
A sharp decline in the price of fossil fuels
Those in the fossil fuel electricity generation industry will have lower operating costs. This is due to the sharp decline in the price of fossil fuels. However, they won’t be able to convert these savings into greater profit margins as they need to drop prices to be competitive with wind, hydro & solar energy.
The renewables sector will emerge as the winner
The winner will be the renewables sector, where the share of electricity is expected to skyrocket over the next 5 years. Due to the falling costs of setting up renewables electricity generation facilities over the last decade, this sector has captured an increase share of the energy market.
It is expected that energy generated from renewable sources will account for an estimated 20% of electricity consumed in our Australian market. This will continue to increase as more and more renewable electricity generation facilities come onboard over the next few years.
Lower immigration, weaker business investment & low consumer income & spending means demand for electricity is expected to grow at a slower rate.
These factors will hasten the demise of fossil fuel generators, particularly as investment in renewable energy continues to rise.
Revenue for the Fossil Fuel Electricity Generation industry is projected to decline at an annualised 0.3% over the 5 years through 2024-25.
In contrast, revenue in the Solar Electricity Generation industry is forecast to rise at an annualised 14.1% over the same period.
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