True cost of renewables has long been hidden in the small print

It was one thing to allow a small portion of RE on to the grid; it’s another thing altogether to have RE as the main source of generation. Picture: Getty

One incidental benefit of the release of the dubious CSIRO GenCost report damning the economics of nuclear power is the opening up of the debate on the future of the National Electricity Market.

No one in their right mind thinks it’s going well. But where there is money and ideology at play, strong opinions will be expressed, even if they make no practical sense. Let’s face it, low-density, intermittent and decentralised energy can’t possibly be a match for high-density, continuous and centralised energy if affordable and reliable power are the only criteria.

And let’s not forget about the trampling of the property rights of those in rural and regional communities as a result of renewable energy. Under other circumstances, this onslaught would simply be rejected – mainly on environmental grounds, no less.

But the RE industry would have us believe multiple turbines, hectares of solar panels and kilometres of ugly transmission lines are the highway to cheap electricity as well as lower emissions. This is notwithstanding the noticeable slowdown in the rollout of RE and associated facilities over several years. It’s something dear to the heart of Climate Change and Energy Minister Chris Bowen. But in his case, the stark reality of the need to keep the lights on has led to his support, albeit faint-hearted, for the role of gas in the grid, much to the horror of his deep-green-tinged colleagues and political allies.

The progress of the NEM these past two decades has been both ill-conceived and badly executed. It was one thing to allow a small portion of RE on to the grid; it’s another thing altogether to have RE as the main source of generation. It’s hard not to laugh when we are told, for example, that South Australia was powered entirely by RE for seven hours on one particular day. What about the other 17 hours? What about the other days? And beware the claim that a new RE installation will power 50,000 homes. That’s if they want power some of the time.

In the meantime, RE has contributed to the destruction of the business cases of reliable coal-fired plants without providing the alternative of reliable, affordable electricity. By and large, RE investment has only happened because of the massive subsidies – billions of dollars. The combination of priority dispatch, renewable energy certificates and other government interventions, particularly from state governments, has made RE one of the most highly subsidised industry in Australian history – and that’s saying something.

The economics of storage that is needed to offset the intermittency of RE is not promising. Think Snowy 2.0, but also the non-existence of long-duration, affordable batteries – which in part explains the immediate need for the continuation of coal-fired power stations. Here’s my bet: the coal-fired Eraring plant will continue into the next decade propped up by the NSW government. Loy Yang A in Victoria will keep chugging along as well, courtesy of the Victorian taxpayers.

Origin Energy's Eraring power station in NSW. RE has contributed to the destruction of the business cases of reliable coal-fired plants without providing the alternative of reliable, affordable electricity. Picture: Supplied

The reality is that coal is still the cheapest form of 24/7 generation at a system level. A more realistic working of the CostGen report confirms this. Of course, coal-fired plants break down often these days – there’s hardly been strong incentives for the owners to spend on maintenance. Even so, with realistically priced coal – the impact of the war in Ukraine can now be discounted – coal is still king. The grid would not work but for coal.

The loss of ancillary services associated with the uptake of renewable generation – voltage and frequency control, system strength – is a further complication. Prior to renewables, these services were provided incidentally and free of charge by virtue of constantly spinning turbines. These must now be provided separately – some expensive installations are being rolled out by the transmission companies – and will significantly add to the retail price of electricity. Large-scale batteries can also perform this function – again, for a price.

One reason there has not been a widespread public revolt (and the associated political response) about the mollycoddled RE industry is the prevalence of small-scale solar panels installed by many households. The benefits for those households include generous upfront support as well as ongoing feed-in tariffs, with very high tariffs grandfathered in some states.

From a technical point of view, however, small-scale solar panels are probably more trouble than they are worth. All the electrons flow at the same time – in the early afternoon when demand is low. This puts massive pressure on local distribution systems, which need upgrading. It has got to the point that power is not even accepted from some homes; in other cases, money is spent on curtailing the flow. Subsidising household solar panels is highly regressive: higher-income households are subsidised by lower-income ones and renters. But for those households who manage to cut their electricity bills this way, it’s understandably popular. They think they are helping the environment as well as saving money.

There is also a degree of conflation in the minds of many voters between small-scale and large-scale RE. This is an important political consideration, particularly as it is only folk in rural and regional areas who bear the external costs of large-scale RE installations and new transmission lines.

One reason there has not been a widespread public revolt (and the associated political response) about the mollycoddled RE industry is the prevalence of small-scale solar panels installed by many households. Picture: Supplied

It is worth looking at how costly it has been to reduce emissions from electricity generation sourced from RE. The costs of large-scale RE range from $60 to $220 per tonne of carbon dioxide abated. Higher figures above $100, say, cast doubt on the environmental case for the use of renewable energy certificates.

(The interventions designed to promote the uptake of electric vehicles are simply impossible to justify. The cost of the exemption of EVs from fringe benefit tax range from almost $1000 to $20,000 per tonne of carbon dioxide abated. Add in the state-based schemes promoting EV uptake and these interventions are the most inefficient by far. And, of course, they are also highly regressive.)

It all comes down to the trilemma: reliable, affordable and sustainable electricity. We were expected to believe these objectives could be simultaneously met. It turns out that we were misled.

The regulatory and financial backing for RE always involved placing a much greater weight on emissions reduction than the other two factors. We are paying the price for this.

Absent some rapid development of gas plants to offset the intermittency of RE – which will be expensive – we should expect problems down the track, with the lives of coal-fired plants further extended. It has been the antithesis of good policymaking, with the main culprits being misguided state governments (which own the NEM) with a large dose of bad decisions by the federal government.