Too much of a good thing? Australia’s renewable energy boom faces a power glut

Australia’s transition to renewable energy has gained momentum, with wind and solar playing an increasingly significant role in the country’s power mix. While this shift aligns with decarbonisation goals and energy sustainability efforts, it has also introduced some unexpected growing pains—chief among them, negative pricing and curtailment. Imagine an overflowing bathtub where the taps won’t stop running. In Australia’s case, the water is renewable electricity, and the drain is the outdated grid struggling to keep up.

The problem? When renewables generate more electricity than the market can handle, prices plummet—sometimes below zero. Yes, you read that right. Instead of making money, power generators actually pay to offload excess electricity. It’s a paradox: too much clean energy, but nowhere for it to go.

Understanding Negative Pricing and Curtailment

Negative pricing occurs when electricity supply surpasses demand, forcing generators to pay consumers or retailers to take surplus power. Curtailment, on the other hand, is when grid operators pull the plug on excess renewable generation to prevent the system from short-circuiting itself. As discussed in the recent BMI webinar: Power & Energy Transition Key Themes, investment in intermittent power sources like solar and wind has grown, but investment in grid flexibility measures has lagged behind. Translation? We’ve built a Ferrari but forgot to design the road network.

This trend is particularly evident in states with high renewable penetration, such as South Australia, Victoria, and Queensland, where the energy surplus is both a blessing and a logistical nightmare.

Impact on the Australian Energy Market

The National Electricity Market (NEM) is experiencing a rollercoaster ride of pricing fluctuations. In 2024, Australia recorded increased instances of large-scale solar and wind curtailment, reflecting similar patterns in high-renewable nations like Finland and Chile.

"Curtailment is becoming a serious challenge," stated Thomas van Lanschot, Head of Power & Energy Transition Research at BMI. "If left unaddressed, it could reduce profitability for renewable developers and slow further investment."

Renewable energy is meant to be the future, yet some projects are being switched off just when they’re needed most. It’s like training for a marathon, only to be benched on race day.

This issue highlights the necessity for policy adjustments and infrastructure enhancements to align grid capabilities with the rapid growth of renewable energy. Without action, Australia risks stalling its clean energy momentum just as it’s hitting its stride.

Potential Solutions for Grid Stability

Experts at BMI suggest a multi-pronged approach to tackling negative pricing and curtailment.

1. Expand the Grid: Transmission capacity and interconnectors need serious upgrades. The planned Victoria–New South Wales Interconnector (VNI West) is a step in the right direction, but more projects are needed to ensure surplus power can be shared efficiently across regions.

2. Supercharge Battery Storage: Large-scale battery initiatives, including the Hornsdale Power Reserve in South Australia (also known as Tesla’s big battery) and the Waratah Super Battery in New South Wales, offer a promising buffer. These energy reservoirs can soak up excess electricity when supply is high and release it when demand spikes.

3. Encourage Flexible Demand: Imagine shifting high-energy tasks—like running factories or charging electric vehicles—to the middle of the day when solar is at its peak. Smart appliances, demand-response programs, and financial incentives can nudge consumers and industries towards using energy at the right time.

4. Rethink Market Structures: Electricity pricing models were built for the coal era. Updating market rules to better integrate renewables while maintaining grid stability is crucial. Shioly Dong, Energy Transition Analyst at BMI, noted that adapting pricing mechanisms could ensure stability while maximising the value of clean energy.

"Battery storage and demand response programs will play an increasingly important role in stabilising Australia’s power markets," said Lerato Monaisa, Senior Energy Transition Analyst at BMI. "The challenge now is ensuring they are scaled effectively."

The Big Picture: Where Do We Go from Here?

While negative pricing and curtailment present short-term challenges, they signal something positive—Australia is generating a surplus of clean energy. The key now is making sure that power is used wisely rather than wasted.

"We’re seeing some governments take steps to address these issues," noted Shioly Dong. "But more action is needed to ensure renewables remain viable."

From grid enhancements to battery expansion, the tools to fix these growing pains are available. The challenge lies in implementing them quickly and effectively.

For now, Australia’s renewable energy sector is experiencing an odd paradox—an embarrassment of riches, yet nowhere to put them. But with smart policies, upgraded infrastructure, and strategic investments, the nation could soon find itself leading the world in renewable energy management rather than just generation.

And who knows? Maybe in a few years, we’ll look back at negative pricing and curtailment as mere teething problems in Australia’s journey to a fully renewable-powered future.