Guest Post: The Magic Pudding Electricity Theory

In writing a response to a letter from NSW Energy Minister Don Harwin, Michael Crawford illustrates the demise of the electricity industry’s efficiency with this graph.

Dr Crawford continues

“The National Electricity Market (NEM) was established at the end of 1998. Being a politician you will understand it was promoted to the public on the grounds that it was going to reduce electricity prices.

“As the graph clearly shows, real electricity prices have doubled since the turn of the century, with almost all the increase occurring since 2005, and with that increase highly correlated with the increasing proportion of intermittent power generation (i.e. wind and solar), which has also brought us massive threats to our power supply since they don’t work when the sun is not shining and the wind not blowing (or blowing too strongly, as South Australia discovered).”

The  Minister’s support for the Finkel “blueprint” to restore cheap and reliable power

“This is a plan to plan (by various bureaucratic bodies):

  • which proposes a 42% “renewable energy” target (most of it from intermittent power supplies);
  • whose author had such a grip on the reality of our electricity system he failed to forecast anything like the 20% increase in consumer prices announced within a month of the report’s release;
  • which relied on cost and price forecasts from a body whose previous forecasts to the Australian Government had proved woefully wrong; and
  • Dr Finkel’s forecasts relied on assumptions about adding power generation backup or storage facilities in order to try to counteract the insecurity due to intermittent power generators, but neglected to include those in the costs of the system for which industry and consumers will have to pay.

”The Finkel report is a recipe for even more disaster for the NSW electricity consumers. But aside from the “Finkel Blueprint” you want us to be reassured because there are multiple bureaucratic activities by or related to the:

  • COAG Energy Council;
  • Australian Energy Market Operator (AEMO);
  • Australian Energy Market Commission (AEMC); • Australian Consumer and Competition Commission (ACCC);
  • NSW Energy Security Taskforce;
  • NSW Renewable Energy Action Plan; and
  • NSW Climate Change Fund Strategic Plan.

“These are precisely the agencies which presided over the 100% increase in real consumer power prices over the last decade, and have brought our electricity system to the brink of failure. When NSW Governments almost halved the real consumer price of electricity from the mid 50s to the 80s, they did it without the phalanx of bureaucrats writing endless papers and reports and holding meetings which preside over failure.”

The Magic Pudding Electricity Supply policy

According to the Minister NSW is ‘well positioned for reliable supply’, particularly because “NSW can also draw on supply through connections with Victoria and Queensland”.

Dr Crawford continues,

“But when it is high summer in NSW it also is high summer in Victoria and Queensland and all are seeking support from each other.  The linchpin in this system of mutual dependence was the Hazelwood power station which was shut through a combination of wilful destructiveness on the part of the current Victorian Government and dithering by the Federal Government.

“In the event that the Magic Pudding doesn’t work as you hope, you offer a backup plan, attributed to the Energy Security Taskforce led by the State’s Chief Scientist, which is ‘get some people to turn off their power’. That policy is in fact a blatant admission of failure by the gaggle of incompetent officials to whom you have ceded your responsibility to ensure the lights stay on.

“According to (Minister Harwin’s) letter ‘Private sector investment in new generation, like wind power, is important to ensure our system security’. (Yet) our electricity insecurity has been caused precisely because of the inclusion of highly subsidised intermittent electricity generators (wind and solar), which have also caused our high prices for electricity.

“(The Minister’s letter) includes the dishonest claim that we are undergoing ‘an industry-led transition to a lower emissions generation mix’. The rush to install intermittent electricity generators is not ‘industry-led’. It is government-driven via two mechanisms.

“The first is the Federal Government’s, Large-Scale Generation Certificates (LGC), mandated under the RET, which enforces a direct subsidy for all intermittent power, which electricity consumers in NSW and other states are forced to pay.

“The second is the practice of the NSW Government’s planning agencies to approve intermittent power generation applications without any consideration of the impact that will have on NSW electricity security and NSW prices.

“Were the Federal Government not forcing all electricity consumers to subsidise intermittent electricity production, and were (State) government not approving connection to the electricity grid of generators whose supply is both intermittent and unpredictable, the disaster would not be happening.”

Dr Crawford goes on to criticise the NSW mitigatory plan to spend $400 million on emission reduction and energy efficiency and to get households to use less energy.  He comments that the minister’s claim that the ‘Renewable Energy Target will deliver thousands of jobs across the State’ fails to mention the tens of thousands of jobs lost in other industries as a consequence of the higher prices and reduced reliability, adding, perhaps optimistically, that “there are junior economists in Treasury who can explain to you the fallacy you are promoting”.

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39 Responses to Guest Post: The Magic Pudding Electricity Theory

  1. John Bendall

    Correct me if I am wrong BUT, Australia (and more to the point Sth Australia) were never likely to be paying the enormous price we are now experiencing were it not for the introduction of SUBSIDISED solar & wind generation

  2. miltonf

    Vandalism of our economy by the political class.

  3. teddy bear

    Has anyone worked out what our emissions would be if we had replaced all our old coal fired power stations with supercritical coal ones?

  4. John Constantine

    Lucky we have smart electricity meter robots that can be linked to the nbn and shut down Tories and deniers and deplorable, while permitting progressives to power on triumphantly.

    (Wait for those that sign up to more expensive green power to be supplied through smart meters when the proles are cut off.)

  5. PeteD

    That graph says it all.

    Sadly the commonsense of the NSW Government in other areas hasn’t yet infiltrated Energy Policy, though we have been spared some of the excesses of other states.

  6. Roger

    While politicians lie and governments dither the basket weavers progress inexorably towards their goal:

    A “de-carbonised” economy.

    And like all Socialists they’re not as benevolent as they pretend, either.

  7. Irreversible

    Goodness me. A graph is such a wonderful thing. In this case it indicates that power cost inflation rose ahead of a change in the supply. Ahead, for example, of the Hazelwood closure.
    Old people might recall that a very large amount of power capacity was built by the Phil Lynch infrastructure borrowing program, giving the world such profoundly socialist industry outcomes as the Gladstone, Portland and Newcastle aluminium smelters. That capacity is now approaching its retirement. Old people will also recall that the price of power jumped enormously when the new capacity was installed in the 1980s.
    Younger people will recall that the stupid regulation of power prices promoted capital investment in distribution and that “gold plating” gave us one round of gouging. Then our Government sat back and watched while Santos et al totally wrecked the local gas market, driving local supply to shortage and prices through the roof. Now we have the pricing effect changing demand so that base load is shrinking as we kill off energy dependent industry while at the same time household appliances are pushing peaks upward, a certain formula for price hikes.
    It is entirely possible that the RET will be a disaster. But we already had one.

  8. Bruce of Newcastle

    As the graph clearly shows, real electricity prices have doubled since the turn of the century, with almost all the increase occurring since 2005, and with that increase highly correlated with the increasing proportion of intermittent power generation (i.e. wind and solar)

    Exactly. As I’ve previously said the empirical data is quite clear: the more intermittent non-dispatchable electricity in the generation mix the higher the electricity price that consumers pay.

    The minister should realise that proponents who say that solar and wind energy are the cheapest forms of electricity are talking out of their rear orifices. The real world data completely refutes this claim.

  9. .

    Good analysis Alan.

    Pretty obvious if you stop building plants, ban cheap power and subsidise second rate garbage….well it should be.

  10. miltonf

    Interesting too is the success of the NSW Electricity Commission. Also note how the upward slope started under JH’s reign.

  11. Entropyty

    Re gas, irreversible, the governments did not sit back. They prevented gas exploration in southern states. You just identified another example of active government intervention buggering the development of a decent energy mix.

  12. Entropyty

    I wonder if someone in Queensland will campaign at the next state election on exporting coal powered electricity to Newcastle?

  13. Entropy

    Rego plate logo:

    Queensland the Energy State

  14. jupes

    Has anyone worked out what our emissions would be if we had replaced all our old coal fired power stations with supercritical coal ones?

    A meaningless exercise.

    A more relevant one would be to work out how much effect Australia’s current and proposed reductions in CO2 emissions will have on global temperatures.

    Next work out how much all that will cost.

    Then it is a simple matter of conducting a cost / benefit analysis.

  15. H B Bear

    Interesting too is the success of the NSW Electricity Commission. Also note how the upward slope started under JH’s reign.

    The Father of Middle Class Welfare got the ball rolling with the MRET in 2001.

  16. GK

    But unfortunately nothing will change, just look at inflation over the past five years. Private sector pric rises approx 3% Public sector good and services price rise 28%. Always remember public servants make decisions based on what they perceive is best for everybody not what is best.

  17. duncanm

    Has anyone worked out what our emissions would be if we had replaced all our old coal fired power stations with supercritical coal ones?

    pp86 of this report says emissions drop (from 880kg CO2/kWh) by about 10% for sub-critical vs. super-critical, another 5% for ‘ultra super-critical’, and another couple of percent for the latest tech (ultra super duper).

    Quickest ref. for coal-power emissions I could find is here – and those numbers suggest that emissions are more like 980 kg/kWh – maybe due to old (and brown-coal) stations.

    So you’re looking at 10-25% drop in emissions.

  18. duncanm

    So you’re looking at 10-25% drop in emissions.

    of life-sustaining plant food, by the way.

  19. teddy bear

    jupes it is not a meaningless exercise because it helps to expose their lies, your proposal to work out what effect any reductions in our emissions would have on global temperatures however is a meaningless exercise as non of them have the faintest clue as all their models have shown.

    We need to force them to detail the carbon cost of their “emissions free” renewables which includes the extremely inefficient backup generators they need to work with them as normal coal and gas generators don’t work well with them. Then we would have a figure which we can compare against brand new coal fired power stations

  20. Rabz

    it (the NEM) was promoted to the public on the grounds that it was going to reduce electricity prices

    Then, thanks to a mixture of fact and evidence free, hysterical superstitious idiocy, blatant dishonesty and unrepentant treason, the exact opposite happened. Gee, no one could have foreseen it, I tells ya.

  21. Entropy

    Well the NEM did reduce prices. Unfortunately that gave the pollies room to find new and innovative ways to raising prices. And h overshoot is a bitch.

  22. Tezza

    That is a ball-tearer of a letter. My congratulations to Dr Crawford.

  23. Myrddin Seren

    The Fix is in.

    Gulagoogle

    Andrew Clennell: Gladys Berejiklian has given the lobbyists a green light

    to get behind the barricade at the Terrorgraph.

    High(?)lights:

    IS the Berejiklian government’s handling of energy policy in danger of becoming a Photios Inc problem?

    One reason the question arises is because of the rather curious establishment by Kristina Photios of the “Conservatives for Conservation” movement at the same time she and her lobbyist husband Michael have set up a lobbying firm called “Clean Energy Strategies”, whose clients include AGL.

    Ka-ching !

    A happy day for Photios. He keeps young Mrs Photios-the-Second happy with her green activism AND coins more money for Photios-Campbell Inc. ( In case you are unfamiliar – these two are the Lobbyists who effectively run the NSW Liberal Party ).

    Photios supporters argue Kristina Photios has a genuine passion for the renewables area. That is without question.

    But as long as Don Harwin is ­energy minister, it seems to me from now on there will be questions as to whether he and his office are doing what is best for the state — or what his moderates mates would want.

    No question at all. All sitting and aspiring NSW Liberals are either performing monkeys for the Photios-Campbell organ grinders OR targeted for extinction for not being performing monkeys ( T. Abbott )

    Dr Crawford’s full letter ( linked above ) calls upon the Minister to either do his job for the people of NSW or stand aside.

    Bravo. Very commendable. Not a snowflake’s chance in hell these troughers are going to do anything but what serves their minuscule self-interest and the much grander aspirations of their factional masters.

    If you want a sensible energy policy in NSW, it looks like you need to drive to the offices of Photios, Photios & Campbell Inc with a truckload of money and find out how much it will take to get Mr P to agree to allow his lackeys to do something which will annoy young Mrs P.

  24. Stan

    GK: Always remember public servants make decisions based on what they perceive is best for everybody not what is best.

    No, they make decisions based on what they perceive is best for themselves.

  25. miltonf

    Enough to make you long for the days of Carr and Egan. Wow, never ever thought I’d say that. Does anyone know what happened re LP rank and file getting a say in pre selections?

  26. Rafe Champion

    The Conversation has fact checked the claim by Matt Canavan on Q&A that coal is still cheaper than wind power. They find that he is wrong. Can someone look at the figures and find where the subsidies are included in the cost of renewables. Not to mention the royalties paid by coal miners.

  27. incoherent rambler

    They find that he is wrong.

    Maybe they are excluding capital costs?
    My memory from somewhere on JoNovas site says – coal 4c, solar 50c, wind 70c.

  28. incoherent rambler

    Rafe – post the question to jonava or wuwt.

  29. Rafe Champion

    I want to see the fact checker checked and I don’t have time to do it.
    They need to say what we know that the people overseas building over 1600 new coal fired plants don’t know:)

  30. Rafe Champion

    I appreciate that many cost studies have been done to demonstrate the higher cost of wind.

    A typical example.

    I just want to know where in the calculations of the fact checker they have overlooked some serious numbers.

  31. Myrddin Seren

    Rafe

    Can someone look at the figures and find where the subsidies are included in the cost of renewables. Not to mention the royalties paid by coal miners.

    Not a strong numbers wonk, but I had a quick look at the document Their Coversation links to to justify the ‘Wind is Competitive Cost’ claim.

    Which when you read down Their Conversation becomes, ‘the PRICE of NEW wind electricity generation’ is cheaper than coal.

    They link to some ACT justification for the award of two wind-generation contracts and conflate the low bid PRICE of $77/MWh as being THE COST of wind power versus new coal power.

    Price and Cost not necessarily being the same thing. The lowest bidder in the ACT auction will doubtless be factoring a stack of subsidies and those darn RET certificates in their bid price.

    Certificates generated from large coal fired power stations. Who, if they all close early, won’t be generating those tasty RET subsidy certs.

    Plus Page 17 of the actual .pdf. The ACT admits they ( ie the taxpayer ) wears the risk of spot prices below the bid price. That will tend to help sharpen the bid pencil.

    I think the key fallacy here is a massively subsidised bidder bids contracts prices unrelated to actual costs – and which subsidies will have to become direct taxpayer subsidies the more fossil-fuel generators are driven out of the NEM.

  32. BoyfromTottenham

    As far as I can see, there was no mention of the approx $85.00 / MWh subsidy provided by the Renewables generators being able to create and sell LRET certificates in the “Wind is Competitive’ story in The Conversation. If it had been factored in, there isn’t enough lipstick in the world to pretty up this pig. Also not mentioned was the other side of the LRET of course, the fact that electricity retailers have to buy those LRET certificates (at approx $85.00 / MWh) to cover their share of the 33,000 GWh of renewables capacity imposed by the Renewable Energy Target (RET) itself, at the same time raising the retail price of electricity, whilst depressing the wholesale price, because the retailers have to buy renewable energy before non-renewable (i.e. gas and coal). Yet more lipstick needed!

  33. rebel with cause

    Rafe – the fact checker overlooks the fact that the $60/MWh purchase price for wind includes all the subsidies in construction and operation. If these were taken out the purchase price per MWh would need to be much higher to be viable.

    It also ignores the fact that levalised cost ignores the unreliability of wind and the need for backup generation and grid enhancement, so true cost of wind should also capture the cost of this backup capacity and networking that would otherwise be unnecessary.

  34. manalive

    EROI is a fundamental thermodynamic metric on power generation. Net energy analysis affords high-level insights that may not be evident from looking at factors such as energy costs, technological development, efficiency and fuel reserves, and sets real bounds on future energy pathways. It is unfortunately largely absent from energy and climate policy development.

    Wind and solar are below the ‘economic threshold’ when the cost of storage and/or back-up is included.
    End of story.

  35. David Brewer

    Interesting, and scary, on a number of levels:

    – the minister’s original letter to Dr Crawford makes clear that the main aim of government policy is to reduce electricity use and especially to reduce carbon dioxide emissions – not to supply cheap, reliable power. As a result, the Minister is prepared to wear unreliable, expensive power, and is then setting himself a subsidiary task of minimising power outages at times of peak demand.
    – Dr Crawford makes excellent counter-points of interest to every consumer. Why is the ABC not beating a path to his door and interviewing him repeatedly, putting him up against ministers, green activists etc.?
    – the “Fact Check” at the Conversation is a joke. First they have not even got past making comparisons of the per-megawatt cost of electricity generation (“levelised cost of electricity”, or LCOE). That method is OK for comparing continuous, dispatchable modes of generation. But it is nonsense to apply it to intermittent unpredictable supply, which is a different and inferior product. The product consumers demand is reliable access to electricity whenever they want it and in whatever quantity they want it. That requires despatchable power. The less of it you have, the more likely you are to have blackouts in a heatwave or five times the power you need on a windy night.
    – The “Fact check” delicately observes that “upgrades to the energy grid (including energy storage) [would be needed] to balance the use of intermittent renewables, especially once renewable energy exceeds around 50% of all energy supply (this would increase the price of renewables)”. It describes this as an “additional factor” to be “taken into account”, whereas in fact it is the fundamental cost obstacle to increasing renewable supply, and makes the LCOE comparisons it has used meaningless.
    – The “Fact Check” then points to another “factor to be taken into account”, viz. “the introduction of a price on carbon emissions (this would increase the price of coal)”, as if taxes that a government might arbitrarily choose to impose on something should be considered part of that product’s inherent cost. Funnily enough, however, the Fact Check does not add the value of renewables certificates to the cost of wind generation. On this form of argument, wind can be made to cost zero by simply issuing certificates that cover cost plus profit on operating a wind farm. And the cost of coal can be made as high as you like – just jack up the “price on carbon emissions”!
    – Nowhere in the discussion is there any mention of the fact that renewables themselves drive up the cost of baseload power sources, by impeding their continuous operation, or of the cost of the disasters caused by over-reliance on renewables – blackouts that stop virtually all economic activity, cause deaths etc.
    – The last point means that even Dr Crawford’s telling graph of the rocketing electricity prices since the renewables boom – which captures the exorbitant cost of renewables far better than even a heavily-adjusted LCOE – still does not come near to expressing the full damage renewables are doing to our economy and society.
    – No one seems to have spotted that the only reason that a guaranteed price for wind power exists in the first place is that its value on the market approaches zero as it share of the market increases. The real value of wind, as of anything else, should be determined by its price on the market when it is available, not by its cost of production, as our old friend Carl Menger could have told us nearly 150 years ago…

  36. John

    The fact check for renewables vs coal is incorrect. Yes technically the cost for new coal may be up to $85/MWh however they are comparing it against the sale of wind energy contracts at $60/MWh sold at fixed prices for 20 year contracts. Thats not the cost of wind energy. The actual cost of wind energy to produce is about $90-$110, and this is before any requirement under the Finkel Report of future windfarms requiring battery storage systems included to smooth out the intermittent nature of supply.

    The seller of these wind contracts can do so at that level because on top of the revenue they are recieving in the physical market for supply of MWh into the grid, they recieve a further subsidy of up to $80/MWh under the LRET Scheme.

    Of course, there are alot more “costs” because the intermittent supply of renewables requires aditional upgrades to the transmisson networks, and the requirement of additional generation in the market to be on standby for when the wind doesnt blow.

  37. John Bennetts

    Agreed, subsidies have to come from somewhere and additional charges such as the price on carbon emissions comes from the same pocket, but there is a stronger force at work here.

    In 1950 the Electricity Commission of NSW was created to fix the private and local government mess that existed post-war. It did such a good job that it went on to construct much of the backbone of the NEM’s transmission system and a fleet of large, no longer loved, but then world-class coal fired power stations. This was paired with strong electricity distributors and retailers, such as Sydney Electricity.

    This followed the creating of Victoria’s SECV after WWI and was in parallel with similar developments in SA, Queensland, the Tasmanian Hydro and the Snowy Mountains Scheme.

    Australia had world class electricity and plenty of it at world class prices. Industry loved it and established smelters, heavy and lighter industry in response. Politicians loved it because these publicly owned enterprises not only did the job reliably and cheaply, but they also returned fat profits to the state treasuries despite funding their own capital and operating costs.

    Far more relevant than any effects of the NEM were the effects of privatisation, which started in Victoria with Stockdale and Kennett and spread across the land.

    Privatisation freed up billions of dollars, which all political parties came to believe was the true magic pudding – and the money raised has disappeared without trace. It has been pissed away on handouts and “stuff”, but not welfare, or schools, or transport, or parks, or affordable housing or great cities. It has disappeared. Tens of billions of dollars simply disappeared in a nation-wide orgy of private greed and cornucopian political dreaming that is continuing today, but not for much longer, because pretty much everything has gone.

    I blame the carpet-bagging suit-wearing econocrats and those who allowed themselves to be wooed by the promise of riches without end.

    It is also my firm opinion that, if each state’s former strong and professional management teams were still in place, a rational and far more secure suite of energy policies and outcomes would have resulted. The runs are there on the board, with the inflection point on the cost curve not at the carbon tax or the arrival of the twin ripoffs of rooftop solar and large wind farms, but back when the shambolic events that followed privatisation took hold.

    The management of ECNSW, SEQEB, the HEC, SECV and the others would have seen through the weaknesses of propping up unreliable, unscaleable, zero-inertia, unschedulable, unresponsive, greedy ripoffs. They would have stood their ground.

    But our rulers in Sydney, Brisbane, Canberra, Melbourne, Hobart and Adelaide, who knew nothing about the power industry then and still do not, determined its future.

    By so doing, they also determined our energy futures, our employment futures, our manufacturing futures and our financial futures. Their efforts reduced this nation’s prosperity more significantly than even the wars that Australia has been involved in. This was an economic war, it was fought behind closed doors and Australian citizens were the losers.

    They, greedy and ignorant politicians all, influenced by financial advisors, snake-oil salesmen and other bottom-dwellers, sold us out.

    The NEM wasn’t the cause – it is an inevitable response to the trashing of once-great systems.

    I do agree with one thread of this article, though. Subsidies, whether from the public purse or via retail customers, are regrettable follies. If possible, they should be stopped this afternoon. Full stop. No more. Listen to and follow the advice or the true experts – those who can, not those who say that they can but cannot.

  38. John Bennetts

    A note about the future.

    Those who are cheering the South Australian Premiers’ “One of everything” approach to electricity planning, should take note.

    Having the world’s best, biggest and newest diesel generators, standby gas turbines, batteries, wind farms, solar voltaic rooftops, pumped storage (Pt Augusta) and Solar thermal with storage installations (Port Augusta again) is great. It covers all the bases.

    Or is it? And will it? Time will tell.

    What it does guarantee is that the widest range of possible stuff-ups and mistakes will happen. Every single base is being covered.

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