Adding more renewables will not fix Australia’s energy price crisis
To Sims’s way of thinking, the problem with our electricity prices is all about the cost of gas and our ageing coal-fired plants that are prone to break down.
Windmills, solar panels, batteries, hydro and a touch of gas can do the trick of achieving the holy grail of affordable and reliable energy while also meeting emissions reduction targets.
Not everyone agrees. There is a logical disconnect to Sims’s story because he omits the ad hoc expansion of subsidised renewable energy and the consequences it would have for the workings of the electricity grid and prices. It certainly wasn’t market forces.
While early interventions in the electricity grid were small-scale, across time the preference given to sustainability over affordability and reliability has led to an overdependence on weather-dependent generation, the intermittency of which has led to a series of problems.
These include the need for a massive overbuild of renewable installations and the requirement for expensive backup to cover situations when renewables, even with batteries, cannot meet demand.
This is why the estimates of wind droughts, for instance, are so critical. The grid must be designed to deal with worst-case scenarios; averages are highly misleading.
By favouring renewable energy with financial backing and dispatch preference, the business model of the backbone of our electricity grid, coal-fired power plants, was quickly eroded.
In another scenario, these plants would been refurbished and/or rebuilt. Sims’s estimate of the cost of the new build of coal-fired power station is simply inaccurate. Using current sites and existing connections to the transmission system, Australia could have had a new suite of high-efficiency, low-emissions coal-fired plants that would have kept electricity prices competitive while providing free ancillary services that the grid requires.
It may be water under the bridge, but it is still worth thinking about what has been forgone.
It’s hardly surprising that China continues to build new coal-fired plants because they offer affordable and reliable power to service industry as well as provide cheap power to households.
Certainly, gas has increasingly become the price-setter in the east coast grid, the national electricity market. Open-cycle gas plants are a much better fit to provide backup to the uncertain flow of electrons from wind and solar than coal plants.
But it should not surprise anyone that the domestic price of gas has surged, given the strong antipathy of the Victorian and NSW governments to any new gas developments. For a long time, this aversion was shared by federal Climate Change and Energy Minister Chris Bowen, although recently he has described gas as “the ultimate backstop in our energy grid”.
The fact remains many gas producers view Australia as a difficult place to explore for and exploit gas fields. Just look at the interminable delays in the development of the Narrabri project in NSW, the output of which is slated entirely for the domestic market. There is also insufficient infrastructure to support several potential gas projects, including in Queensland and the Northern Territory.
The bottom line is the push into renewables has not gone well. There is a great deal of volatility in the market, with prices often hitting the maximum allowed. You see this particularly in South Australia with its high penetration of renewables. Bankrolling the installation of wind and solar farms, as well as promoting rooftop solar for households, has been insufficient to accommodate the planned exit of coal-fired stations. The owners of Yallourn, Loy Yang A and Eraring are all receiving substantial annual subsidies – in the ballpark of hundreds of millions of dollars – to keep the plants operating.
The construction of the new transmission lines required to link far-flung renewable installations also has been delayed and the costs have blown out. The transmission companies are hurriedly ordering synchronous condensers to provide the ancillary services that coal provides for free. These costs will be added to consumer bills in due course, along with the costs of the extra transmission lines and other infrastructure.
The net effect has been to dramatically push up electricity bills for households and businesses. According to the recent consumer price index figures, electricity costs increased by nearly 40 per cent across the year ending in October. Were it not for the rebates in place – yes, more subsidies – householders would have really felt the pinch. The decision by Jim Chalmers to discontinue the rebates next year could prove to be a courageous one.
In the meantime, energy-intensive operations – mainly smelters and refineries – have been operating at a loss, in part because of rising energy bills. Both the federal and state governments have stepped in with substantial subsidies to prevent their closure.
The point is that once upon a time we had affordable, reliable electricity where the market determined investment decisions. After two decades or so of forcing renewable energy – a very low-density form of energy requiring a great deal of land –the situation in which we find ourselves is dire.
Realistically, there is no prospect of green hydrogen or offshore wind filling the gaps, although that was the federal government’s plan at one stage.
Consumers are reluctant to sell electricity back to the grid and the take-up of electrical vehicles has been disappointing.
It is simply disingenuous therefore to suggest that the way out of this pickle is to install even more renewable energy – the Sims solution. Adding more renewables doesn’t overcome the problem of intermittency.
In fact, wind has become a relatively expensive option and landowner objections to its installation are getting stronger, if anything. Several large-scale solar farms in New South Wales are going broke because the prices during the day are often negative due to the glut caused by solar rooftops.
The Australian Energy Market Commission is now walking back from its prediction that electricity prices would fall over the decade due to the penetration of renewables. The expectation is that real prices may rise by 13 per cent over the coming decade; there are reasons to think that this is an underestimate.
Victoria’s Auditor-General is also warning that the state’s grid is not well-placed to cope with the anticipated closure of the Yallourn coal-fired power station in 2028. The expectation now is that further subsidies will be required to ensure its continuation. The state’s plan for offshore wind is in tatters as the recent round of auctions had to be cancelled. In any case, offshore wind is a particularly expensive means of generating electricity.
As for the proposition pushed by Bowen and other cabinet ministers that renewables are the “cheapest form of new energy” – note the inclusion of new – it is becoming clear that when all the system costs are included, this assertion simply doesn’t stack up.
Add in the risk of total blackouts, such as the one that happened recently in renewables-dependent Spain and Portugal, and the case for a Plan B that is not based on the further expansion of renewables becomes compelling. It would be better for everyone if some of these coal plants were rebuilt rather than allowed to limp on.
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