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Published on August 23rd, 2013 | by Giles Parkinson

21

Renewable Future No More Costly Than Fossil Fuel Future

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August 23rd, 2013 by  

Originally published on RenewEconomy

The Australian government appears to have made a remarkable concession following the release of the 100% renewables report by the country’s energy market operator – a renewables future will be no more costly than the largely fossil fuel alternative.

As we reported earlier this month, after the release of the Australian Energy Market Operator’s 100% renewables scenario, the estimated wholesale cost of electricity from a system based largely around wind, solar, geothermal and biomass would cost around $110/MWh and $130/MWh between 2030 and 2050 – depending on the speed of that transition.

A “community summary” posted on the Department of Climate Change website, highlights the fact that the various scenarios painted by Treasury, the CSIRO, the UNSW, and now the AEMO modeling suggests that wholesale prices – whatever the scenario – will fall in a generally narrow range of around $100/MWh to $130/MWh in 2030, and $110/MWh to $150/MWh in 2050.

Here is the relevant piece from the document:

A number of other studies have looked at generation and wholesale electricity prices in 2030 and 2050: the Treasury’s Strong Growth Low Pollution (SGLP) modelling from September 2011, the CSIRO’s eFuture modelling tool, and the University of New South Wales’ least cost 100 per cent renewable electricity scenarios in the Australian NEM study.

Importantly, each model has a specific purpose and each has significantly different assumptions, methodologies and cost inputs. Furthermore, each model emphasises different aspects of the electricity system and simplifies others according to purpose. For example, the study’s cost numbers are based on a total revenue requirement (average costs) while others (such as CSRIO) are marginal costs. Average costs are likely to be lower than marginal costs.

As a result, differences in the models, the exclusion of some costs and the framework which does not build the system incrementally means that is it not possible to accurately predict the quantum of additional costs that would result from any new policies to achieve 100 per cent renewable energy.

Nonetheless, despite the differences between the modelling exercises, indicative wholesale electricity prices generally fall within a reasonably narrow range of around 100 – 130 dollars per MWh in 2030 and around 110 – 150 dollars per MWh in 2050.

So it seems that Canberra bureaucrats, if not the politicians, are conceding that there is little difference in costs between the relatively modest climate and clean energy goals proposed by the current government, and the more ambitious targets proposed by The Greens, and environmental groups.

This should not be a surprise to anyone who has properly considered the costs of new generation – as ACT minister Simon Corbell has – and their likely progress in coming years. Wind, and then solar, clearly offer the cheapest options.

New coal and gas plants will be priced out of the market, an important consideration when taking into account that most current generation needs to be replaced in coming decades. (Some pro-nuclear web-sites and commentators like to say that nuclear energy will be within the same cost bracket, but that is only if the cost of capital is ignored.)

The consideration of future costs is a crucial point in the current federal political debate, where policies such as high emission reduction targets and high renewables scenarios – as proposed by The Greens – are seen as reckless, dangerous, marginal or fringe policies.

The frustration is that while such targets form part of the mainstream policy discussion in most other countries, each of the big parties in Australia are as keen as the other to put as much distance between themselves and the Greens. So while most other countries debate how quickly they should be moving to decarbonise the economy, the overall theme in Australia is how slowly it should be done.

The common reason for this is cited as cost to the consumer, but the reality is that the cost to consumer is no greater in these ambitious scenarios than it is under the more modest transitions modeled by Treasury. And if other environmental costs are included, such as the health impacts of fossil fuels, then the numbers change again.

As Corbell (he’s from the Labor Party) noted in his interview with RenewEconomy this week, a 90 per cent renewables target would cost no more to consumers if tied in with energy efficiency and other measures. It’s a shame that no other politician from a mainstream party is talking in those terms on a national scale.

As Corbell noted, the real push back comes from incumbent generators and vested interests, because it is they who face lower revenues and profits – which is why their industrial lobby groups are calling for a dilution of Australia’s relatively modest 20 per cent renewable energy target by 2020 (in the case of the generators), or for climate policy to be completely re-evaluated (in the case of the Business Council of Australia).

Both strategies are focused on creating further delay in the inevitable transition to a low-carbon economy. Unions and environmental groups operating under The Southern Cross Climate Coalition this week released a policy platform that stressed that environmental policies can be directly linked to employment growth and economic expansion.

It says that low-carbon and energy productive technologies and practices are essential for maintaining and growing jobs, and this applies as much to traditional industries as it does to innovate industries of the future.

Despite efforts by some media to bring climate change to the forefront – as witnessed by the SMH editorial today – such pleas are likely to fall on deaf ears in the current campaign.

Neither Treasurer Chris Bowen nor Opposition spokesman Joe Hockey mentioned climate change or a clean energy transition in their hour-long debate on Monday, focusing instead on an absurd argument about revenue and budget forecasts in forward estimates – a complete irrelevance to everyday Australians and the major issues confronting the country.

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About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.



  • Doug

    There’s also huge value in stability. When you put the cost of unknowns into the equation – renewables will be even more attractive. Fossil fuels have huge prices swings, but wind and solar just keep getting cheaper every year.

    • Turboblocke

      Exactly, who’s going to invest in conventional plant when you’ve got fuel price uncertainty for its lifetime, whilst renewables are getting cheaper all the time.

      • Bob_Wallace

        Idiots spending other people’s money.

        In evidence I give you Southern Company currently building two new reactors at their Vogtle plant in Georgia.

        • Turboblocke

          Right and when were those projects started…

          • Bob_Wallace

            On March 12, 2013 construction on Votgle 3 officially began with the pour of the basemat concrete for the nuclear island.

            By June 2013, construction schedule has slipped 14 months.

            “On July 18, 2013 the Georgia Public Service Commission (PSC) held the first of two scheduled hearings on Georgia Power’s request to pass 381 million dollars in cost overruns, in connection with the construction of two new nuclear reactors at Plant Vogtle, onto ratepayers, in the form of higher electricity bills.

            Georgia Power had also asked the PSC to change the certified cost, or budget, to complete the project from 6.11 billion dollars to 6.85 billion dollars, adding another 737 million to the current, or first amended, budget for the new reactors.”

            http://www.atlantaprogressivenews.com/interspire/news/2013/08/02/advocates-ratepayers-oppose-paying-for-vogtle%E2%80%99s-cost-overruns-%28update-1%29.html

            Charlie let’s Lucy hold the ball one more time….

          • Turboblocke

            Actually I wanted to know not when construction started, but when those projects started…

            Certainly before 2008… In 2008, construction at Vogtle Electric Generating Plant began for two new nuclear power units and related facilities…

            http://www.cbi.com/project-profiles/vogtle-electric-generating-plant-units-3-and-4 According to this brochure they were originally planned but then cancelled in the 1970’s http://www.gpb.org/files/pdfs/georgiagazette/Plant_Vogtle_Brochure.pdf

            Looks like the owners will most likely end up with buyers’ remorse.

          • Turboblocke
          • Bob_Wallace

            Perhaps they won’t. Those reactors are in a state where prices for electricity are regulated, the free market does not control the price.

            Because of that the utility company was able to get the price of electricity jacked up before they started working on the reactors. They “collected contributions” from their customers to help them pay for their new builds.

            After the reactors go on line the electricity they produce will likely be more expensive than other sources of electricity so the state will let them jack prices up again. Enough to cover their additional costs and to make sure the owners make a nice profit.

            As for the project start date, it was certainly years earlier. It takes years to design and review plans for a new reactor.

            And site preparation was done earlier when the project received initial permission to push dirt around, build roads, etc. Actual construction began in March of this year.

            Georgia’s residential electricity rate ($0.1217) is just below the national average ($0.1254). Taking it up a bit higher is likely to drive a lot of people to solar.

  • Bob_Wallace

    I can see electricity getting only cheaper from 2030 to 2050. By 2030 we will have a tremendous amount of solar and wind installed and it will have already paid for itself. A large portion of our electricity will be coming to us for almost no cost.

    Twenty years of solar panels will be paid off and they will continue to give electricity for another 20+ years. Once we get all our solar in place we’ll have electricity from them at ~6c/kWh for the first 20 years and for ~1c/kWh for 20+ more. At any one time we should be about half “6c” and half “1c” as we do a slow turnover of panels.

    Our first generation turbines at Altamont Pass are now being replaced after 30 years, newer tech should last even longer. Plus, we’re seeing turbines taken down after a couple of decades, refurbished and reinstalled in less developed parts of the world. Our current turbines could have 50 year lives with only minimal parts replacements.

    We’ll be adding storage before 2030. Pump-up hydro is not a 20 year system. It’s a 100+ (?) year system. Flow batteries (and liquid metal batteries) should be doing storage work for decades.

    The large transmission lines we’ll need to bring wind to market will likely be in place long before 2050.

    Unlike fossil and nuclear plants which still have significant operating expenses after their capex and finex have been retired, renewables, storage and transmission generally don’t.

    • JamesWimberley

      Australia has a specific problem on transmission. The best resources for EGS geothermal and CSP – the technologies AEMO identified as best value for dispatchable backup for coastal wind and solar – are in the virtually uninhabited centre of Australia. So they will need specific long-distance transmission to be built. The USA has regional variation, but not to the same extent. There´s an existing grid more or less everywhere, it just needs to be upgraded and interconnected (Tres Amigas.).

    • Otis11

      Bob – do they take inflation into account? Because otherwise in the 20 years between those two spans, while the absolute cost may increase, the real cost after inflation will have decreased substantially

      (Heck, even at 3% inflation you’d expect prices to double in roughly 24 years… )

      • Bob_Wallace

        One would think so. That is such a basic consideration.

        Just about everything I read uses costs normalized to a specific year.

        OTOH, someone did make a simple conversion error and crash a lander into Mars….

  • JamesWimberley

    It´s noteworthy that the 2050 projections of the models for average costs are higher than the 2030 ones, in spite of the secular trends for renewables to get steadily cheaper. I suppose this is because the massive investments in dispatchable backup sources (CSP, geothermal, and batteries) needed to get to very high renewables penetration come later. But you have to be deeply pessimistic to think that none of these will be very significantly cheaper in 20 years´ time.

    • Ross

      Since when is geothermal considered dispatchable? What’s your source for claiming that massive investment in dispatchable backup is required for very high renewables penetration?

      • Bob_Wallace

        Geothermal is dispatchable because it can be turned on and off. Just close the steam/hot water intake.

        Clearly it’s going to take a lot of investment in storage or generation to fill in when solar and wind drop out. The question will be one of amounts, whether it is cheaper to install extra generation or storage and that question will be answered later as we develop more storage options and determine their price.

        If you look at the Budischak, et al. study they overbuilt wind and solar generation in order cut storage requirements. The cost of wind and solar has dropped below the numbers they used so a “right now” real world grid might build even a higher proportion of wind and storage. But if a cheap storage option appears the ratio of generation to storage could flip in the other direction.

        • Calamity_Jean

          When Budischak et al. did the study, the price advantage of wind over solar was very large, and the study used vastly more wind than solar. Today (2014), although wind still has some price advantage, the difference between it and solar isn’t as large. I suspect that if they redid the study today, they would add solar only to cut their storage requirements. The five times that they thought they would have had to use fossil fuel were all in summer.

          I hope a similar team reruns the study in two or three years. By then solar and wind prices may be down so much that renewables will be head-smackingly cheaper than fossil fuel power.

          • Bob_Wallace

            I was just looking at that study again a few days ago. Here’s some notes I made….

            Buduschak, et al. used capital cost from other published papers.

            They assumed PV solar in 2030 at $1,958/kW. At the end of 2013 it was already $1,960 with expectations of dropping at least 50% over the next few years.

            They assumed onshore wind at $960/kW and offshore wind at $1,886.

            And battery storage at $503/kW with 81% efficiency. We’ve already passed the $400/kW price point with Eos Systems claiming $160/kW at 75% for their zinc-air batteries.

            They used a 3x overbuild for wind and solar. But they also did not factor in the likely replacement of ICEVs with EVs and EVs serving as dispatchable load. This means that EVs can drop off charging during peak demand hours, freeing up all generation for other loads and then utilize supply at other times to charge.

            And they did not include power swaps with other grids, something that should also cut the need for overbuilding/storage.

          • Calamity_Jean

            I agree completely with your other points, but you’re half wrong on this one:

            “But they also did not factor in the likely replacement of ICEVs with EVs and EVs serving as dispatchable load.”

            They did in fact model vehicle-to-grid energy storage, which would include EVs as dispatchable load and EVs as dispatchable supply. I just went & looked again and couldn’t tell whether V2G was included in their final model. My own feeling is that EVs as dispatchable load is eminently doable, but EV’s drivers aren’t going to want to feed power back to the grid unless paid rather well for it, so it wouldn’t be the least cost solution.

            In any case, the study is already starting to be out of date, because of changes in the relative cost of wind, solar, and storage. The optimum solution based on 2014 prices would be different than the optimum they arrived at in 2012. Things are changing just that fast!

          • Bob_Wallace

            I missed the EV thing. I’ll have to reread.

            This should be an annual or two year redo on a regular basis. Would be fun to watch the solution evolve.

            One thing that may have changed in addition to cost is the number of hours that wind provides. I’m seeing higher CF numbers and I suspect some of that may come from later model turbines being able to pull power out of low speed wind. That would mean more hours covered with less storage.

            Agree on EVs feeding back to the grid. Utilities are going to be able to find cheaper storage than renting EV batteries at the retail level.

      • JamesWimberley

        The AEMO report.

  • http://www.energyquicksand.com/ Edward Kerr

    Considering that a fossil fuel future will entail a cost that no one wants to pay, a Permian-Triassic type extinction event, I can’t fathom that we are still having this, “arguing over the seating on the Titanic”, conversation.

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