The Spot Mirage: Low Wholesale Prices Show the Future, but Are a Poor Signal for New Wind and Solar

Why It Matters

Without targeted subsidies, Australia risks a renewable capacity shortfall that could jeopardize grid reliability and its climate‑transition targets. The funding gap also threatens the economic viability of existing coal generators slated for retirement.

Key Takeaways

• Spot prices below $100/MWh cannot cover wind LCOE.
• Only 4 GW of new wind/solar under construction now.
• NSW leads transmission build, but lacks new generation commitments.
• Proposed solution: convert CIS awards into flat‑swap PPAs.
• Expected 2‑year gap in new capacity after current projects finish.

Pulse Analysis

Australia’s National Electricity Market is experiencing an unprecedented oversupply that has driven spot prices to historic lows, well beneath the $100 /MWh level needed to cover the levelised cost of wind generation. While consumers enjoy cheaper power, the depressed price signal erodes the internal rate of return for new renewable projects, stalling investment at a time when demand from data centres, AI workloads and industrial users is accelerating. This dynamic mirrors the post‑Ukraine price spikes, but in reverse, highlighting how market‑driven pricing can undermine long‑term supply security.

To keep the transition on track, policymakers must replace the missing price signal with predictable, contract‑based subsidies. The author proposes linking the existing Competitive Incentive Scheme (CIS) awards to flat‑swap power purchase agreements (PPAs), a model already proven by Simon Corbell’s team in the ACT. By offering a fixed revenue stream that mirrors the LCOE minus expected spot prices, developers can secure financing within weeks rather than months, and the government can tie payments to concrete construction milestones, reducing the risk of stranded assets.

If the subsidy gap persists, the NEM could face a one‑to‑two‑year period with little or no new capacity coming online, forcing reliance on aging coal plants and increasing the likelihood of price spikes during peak demand or supply shocks. Aligning CIS awards with PPAs, imposing penalties for missed deadlines, and accelerating transmission work—especially in NSW—would create a more resilient investment pipeline. Such reforms not only safeguard grid reliability but also reinforce Australia’s commitment to a 50 % renewable mix within the next decade, delivering both economic and environmental dividends.