The truth behind the cost of offshore wind

If Donald Trump becomes the 47th US President he has vowed to make US energy costs the lowest in the world. This will not end world decarbonisation but it will concentrate attention on the emerging high costs of renewable power — the missing element in the Australian debate.

Andrew Forrest has woken up to the change and his withdrawal from green hydrogen should start the debate. The green hydrogen plan was always going to be too expensive without a major technology breakthrough.

Such a debate in Australia will highlight recent high cost decisions taken in both Victoria and NSW as they start the process of establishing offshore wind-driven power farms.

The detailed costs are being kept secret so I have done my best to obtain “the truth” and my calculations (obtained from experts who are not insiders) will stand until Victoria and NSW reveal the costs to their voters and industry.

I believe the two states are locking in huge power costs which will require massive tax payer subsidies to be economic. Once those offshore wind costs are understood, the cost aspect of the nuclear debate ends: nuclear power is much cheaper than offshore wind.

The operating costs of both wind and nuclear are very low so don’t impact the calculations.

Accordingly, the issue for the electricity consumer is the installed cost paid upfront by power investors. This outlay must be recouped over the life of the plant as well as delivering a return on investment.

Rather than throwing billions around like confetti, the only way to have a sensible discussion on offshore wind versus nuclear is to compare the cost of producing one MW (one million watts).

The generally accepted cost of offshore wind construction is between $3.5m to $4.5m per installed MW.

A recent UK offshore wind development cost $4.5m per installed MW. The Bass Strait would be easier but construction is in the future so costs will increase. Let’s assume a Bass Strait cost of $4m per MW.

Minister for Climate Change and Energy Chris Bowen. Picture: Martin Ollman

Some of the estimates from Bass Strait suggest only 30 per cent of the installed capacity would actually be generated but, again, being generous to wind, let’s assume 40 per cent of the nominal power generation capacity is actually produced.

This means to generate one MW will cost around $10m because an extra one and a half plants must be built.

The United Arab Emirates, the first of the Arab nations to install nuclear power, is installing four nuclear reactors of 1400MW each with the first up and running.

This was built by the South Korean group KEPCO and took eight years to build. The cost was $6.5m per installed MW with a life estimate of 80 years.

Nuclear power plants might lose, say, six or seven per cent of generating capacity for maintenance, but in essence the base cost of erecting plants to generate one MW is around $6.5m for nuclear and $10m for offshore wind. This puts nuclear way out in front.

Now I’m the first to admit there is a clear element of speculation in the above calculations — but there was a clear margin.

But, let’s puts some artificial weight in the nuclear saddle bag and say the construction costs are equal.

At the end of 30 years the windmill must be replaced at a cost which will be exploded by 30 years of inflation. This makes the cost of offshore wind nowhere near the cost of nuclear. And, if we want to go a step further, after 60 years another set of wind farm apparatuses must be erected.

At least when compared to offshore wind the government appointed and paid regulators and researchers are simply being “politically correct” in supporting their employer (the government) by stating nuclear is more expensive than offshore wind. Their conclusion has nothing to do with the facts.

But, now we get to the horrific part.

A number of groups have applied to erect offshore wind farms in the Bass Strait and a smaller number are tendering off the coast of NSW, which would be more expensive.

Those building these massive installations are going to outlay vast sums and require high-cost contracts so that they gain a return.

The people who have the knowledge to make likely price calculations say if everything went right it might be possible to gain a return by charging $150 per MWh but it is much more likely to require a price of around $200 per MWh. To this must be added the costs of delivering the power to the customer.

Can Peter Dutton frame the debate so Australians understand offshore wind better? Picture: Tom McGann.

The current and former Victorian coal fired power stations used to be very fiscally happy if they received a rate of $50 per MWh, when they were then able to operate at 90 per cent of capacity prior to being forced out of a lot of the market by renewables, which have first right of entry to the grid system.

So, Victoria is going to saddle itself with power which costs three to four times the old coal priced power. All the indications suggest NSW offshore power will be even more expensive.

Under a smoke screen erected by government-paid regulators and researchers, these tragic blows to our industrial base and cost of living we are being concealed.

At the same time, we are beginning to again understand part of our defence is actually having our own industrial base, but we are creating an unnecessarily set of high costs.

We are making these decisions without public consultation, instead relying on fictitious conclusions and public concealment.

Hopefully Peter Dutton does his homework and explodes this concealment in the next election campaign.

And one more point. The eight years it will take to erect a nuclear plant means these plants will come on-stream when we will have vast numbers of land windmills which need replacing.