David Brewer – The idle Conversation about wind power

Many people continue to use the wrong metrics to assess the economics of renewables, both because they have not got to grips with what sort of product electricity is, and because they misunderstand the reasoning of economic actors in the electricity market.  The result is a distorted debate based on meaningless comparisons.

A classic example is at The Conversation here, though the same site has posted numerous similarly misleading “FactChecks”.  They all focus on comparing the costs of electricity from wind or coal, but this only shows that they literally do not know what they are talking about.

The first thing to understand – which The Conversation does not – is that electricity is not like pairs of shoes that can be sold at the same price tomorrow as today.  The product consumers demand is not a quantity of megawatt hours but the continuous supply of electricity – its permanent availability to them in whatever quantity they require.  This necessity for continuous supply places a premium on “despatchable” power from fossil-fuel, nuclear or hydro plants.  This type of power is more valuable than power that cannot be controlled (wind, solar), and much more valuable than power that cannot even be predicted (especially wind).  Moreover, power that is rapidly despatchable (hydro, some gas turbines) in response to sudden surges in demand or unexpected failures at other plants is more valuable still for its ability to plug gaps at short notice.

These differences in the value of different types of electricity already render The Conversation’s comparison of coal and wind power per megawatt hour useless.  And rectifying its analysis is not, as pretended, just a matter of adding in “balancing costs” such as additional rapidly despatchable sources, extra storage capacity, or upgraded transmission equipment.  For the insertion of a low-quality, unreliable source into the grid also reduces the efficiency and increases the cost of baseload power from coal or other sources which need to operate continuously to be efficient.

This leads to a second major unappreciated fact, which is that suppliers do not make economic decisions based on costs.  Instead they make decisions based on the estimated difference between costs and revenue.  If wind power can underbid baseload coal whenever the wind is blowing, existing coal stations won’t start up, and new ones won’t be built, because they cannot operate efficiently being turned on and off all the time, and therefore cannot generate enough revenue to justify operation or construction as the case may be.  This in turn leads to a higher and higher percentage of unreliable power in the mix, with eventual blackouts.

The only way of assessing the true cost of wind and solar is to look at the overall electricity price before and after renewables are added to the mix.  Once you do that you find overwhelming evidence from all over the world that markets with even modest shares of power from intermittent renewables have considerably higher prices than those without.  That this is not a coincidence is confirmed by both the tightness of the correlation, and the equally impressive correlations over time within the same market – as the share of renewables increases, the price of electricity goes up, and it goes up very sharply with even 20-30% of nameplate capacity, or 5-10% of energy output, sourced from wind.

All this means that the analysis at The Conversation that:

in March 2016…the Australian Capital Territory government conducted its second “wind auction”. The government uses wind auctions to buy contracts for future energy supplies. The lowest price in the 2016 auction yielded around $60/MWh in current prices. This figure is based on a flat rate of $77/MWh for 20 years and assuming around 3% inflation, which is the upper end of Australia’s inflation rate target of 2-3%…

 Based on recent prices for newly installed wind power of around $60-70/MWh, and recent price projections for new supercritical coal power at around $75/MWh, it is reasonable to say that – as things stand today – wind power would be cheaper than coal as a new-build source of electricity.

 …is just tripe.  It is tripe, first, because the coal price buys a continuous reliable supply whereas the wind price buys power whenever the wind is blowing – even when demand is low, so that taking the wind power means shutting down a coal plant that would operate more efficiently if it kept going.

It is tripe, secondly, because wind power should never be bought on a 20-year contract in the first place.  Since it is intermittent and unreliable, it should be traded only on a spot basis.  But if it were traded on a spot basis, its price would tend to zero as its availability increased.  That applies both to the share of wind in total capacity, and to how hard the wind happens to be blowing at any given time: the general rule would always be that wind power would be cheapest when there was most of it.  In this perspective, the $60/MWh figure is best seen not as a market price, reflecting supply and demand, but rather as the floor level of a price support scheme which must be paid regardless of the market value of wind power at the times when it is available.

Electricity is not unique in the time-dependence of its value.  Transport offers similar examples, e.g. Uber fares, or plane fares.  Imagine a company that conducts an auction to supply 100 return air trips for its staff from Sydney to Melbourne in 2018.  Bidder A asks when do you want them, and when told, undertakes to meet the demand to provide all the tickets at peak periods, on Sundays and Fridays between 3 pm and 7 pm, on 12 hours’ notice, so that employees can spend whole weeks in one city or the other at the drop of a hat.  Bidder B says we can supply 100 return trips all right, but we’ll give you two hours’ notice when each plane is leaving and if you haven’t got anyone who wants to go, tough.  Oh, and by the way, the flight can be at 2 am.  Does the company then give two hoots whether Bidder A’s tickets are $10 more than Bidder B’s?

The bottom line is that any comparison between prices per MWh of wind and coal is meaningless. The only valid comparison is between the system price of electricity with and without wind power.  Once you focus on that you immediately see that wind is totally uneconomic – and that is without considering the potential huge direct and indirect losses from the blackouts it will cause.

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45 Responses to David Brewer – The idle Conversation about wind power

  1. Charles

    I hope then that the denizens of the ACT only get electricity that has been sourced from a coal or gas fired generator. If they received any electricity from either of these sources then it would be the greatest of hypocrisy.

    This means that on the odd occasion when the wind doesn’t blow and sun isn’t shining then they’ll just to have to wait until it does again.

    Shouldn’t take more than 24 hours to throw that idea out if they applied it like that.

  2. BoyfromTottenham

    Well done, Guest Author!
    As the old TV ad used to say ‘Oils ain’t Oils’, and renewables power ain’t base load power! By the way, will someone PLEASE tell me if the formula to determine the eligibility for LRET certificates (see here: http://www.cleanenergyregulator.gov.au/RET/Scheme-participants-and-industry/Power-stations/Large-scale-generation-certificates/Large-scale-generation-certificate-eligibility-formula)
    used by the Renewable Energy Target legislation is erroneous, as the worked example using this formula says that a 100 MWh generator that only delivers 50 MWh to the grid is eligible for 90 x 1 MWh certificates (an 80% error in favour of renewables generators = $700 million overpayment last year alone), rather than the 50 certificates implied by the legislation? Sorry to be a bore, but I’m still waiting for someone to tell me I’m wrong (including the Clean Energy Regulator!).

  3. Roger

    Once you focus on that you immediately see that wind is totally uneconomic – and that is without considering the potential huge direct and indirect losses from the blackouts it will cause.

    Why then do the likes of Weatherdill persist with it?

    Blinded by ideology.

  4. Most of those that visit the Cat, Jo Nova and similar sites are well aware that the likes of The Conversation, or the entire MSM, do not lack understanding or knowledge, they blatantly lie in order to promote the renewable energy meme.

  5. Myrddin Seren

    From the comments at Their Conversation ( Academic rigour, journalistic flair ):

    Chris Sanderson

    One fact has been left out of this equation and that is the cost to the community of coal industry subsidy by government.

    Renewables are not subsidised by government

    Until subsidy is included – which is substantial – apples are being compared to oranges.

    We are plainly too stupid to survive as a nation.

  6. Gorky

    Renewables are not subsidised by government

    Until subsidy is included – which is substantial – apples are being compared to oranges.
    I used laugh at those who claimed this was a giant intelligence test.

  7. H B Bear

    That is some A grade stupidity right there. I assume Chris Sanderson must be an academic.

  8. Boambee John

    Tbe ACT shoild be honest about its reliance on wind power.

    In each 24 hour period, the quantity of electricity allowed to be consumed in the ACT should not exceed the total megawatt hours generated in the previous 24 hours by the wind generators with which the ACT has supply contracts.

  9. cohenite

    The conversation, they’re laughing because they’re subsidised.

    Wind and solar, as well as being unreliable and unpredictable, solar at least as much as wind because factors like clouds and angle play a part as well as the Sun setting, also deliver their ‘power’ in surges. Modern grids as well as requiring reliable power need synchronous power sources. To even out the power from wind and solar is a great additional expense on the grid.

    The msm, pollies and academics, as well as the opportunistic spivs running wind and solar start-up companies, which includes the unions need to be put in stocks.

  10. Rafe Champion

    Thanks zyco, how come NSW is not generating as much as we use?

  11. cohenite

    Rafe Champion

    #2472918, posted on August 18, 2017 at 5:53 pm

    Thanks zyco, how come NSW is not generating as much as we use?

    Good question; even with the number of decommissioned coal power plants those left in NSW have an IC of 10240MW and with the current demand of 10190MW we should have a surplus without even drawing on the gas and hydro and the, giggle, wind output but currently all we are producing is 8665MW:

    http://www.aemo.com.au/Electricity/National-Electricity-Market-NEM/Data-dashboard#nem-dispatch-overview

  12. RobK

    BfT,
    I did respond to your previous question regarding the formula for the large scale certificates. It is correct. I’ll have another go:
    A consumer normally uses 45MWh in a year. He decides to install solar panels.
    After one year the inverters have registered a production of 100MWh. The amount of “self consumption”(that otherwise would have been supplied by the grid) is counted to be paid. The amount exported to the grid is paid but has deducted a transmission loss of 5MWh. Also deducted is energy consumed in producing the electricity (such as cooling of inverters), another 5MWh in the example. So of the 100MWh produced 90MWh or 90 certificates are paid. I think you fail to recognize that the self consumed MWh are still displacing fossil fuel. One LSCertifate for 1MWh.

    All that aside, the post is a good one. Dispatchable energy is far more valuable than non-dispatchable and importantly, when non-dispatchables exceeds 10-15% of the total power of the grid, the fluctuations are as problematic as wildly fluctuating loads. That is a bad thing.

  13. cohenite

    That is a bad thing.

    No shit Sherlock.

  14. RobK

    BfT,
    It is important you realize the LS Cerificates are paid annually on measurement (metering). The small scale certificates (domestic, less than 100kw of panels) are paid up front by a different formula as if they will produce for 15 years. Then on top of that many domestic producers are paid a feed in tariff by the state. This is different again and varies by state.

  15. jupes

    Very good post David. Thank you.

    Imagine where we would be as a nation if the government governed in the national interest?

  16. RobK

    Renewables are not subsidised by government.
    Ha.
    Not only are they subsidized by government, they are also subsidized by coal as dictated by government.

  17. Muddy

    Being somewhat scientifically-impaired, I found this post very informative. Thanks.

  18. Roger

    That is some A grade stupidity right there. I assume Chris Sanderson must be an academic.

    In the making.

  19. cohenite

    Roger

    #2472991, posted on August 18, 2017 at 7:04 pm

    That is some A grade stupidity right there. I assume Chris Sanderson must be an academic.

    In the making.

    Another mini-god who thinks he is nature’s protector, literally. This is what a civilised society with reliable energy and freedoms has produced: smart idiots with god complexes whose cognitive dissonance is so pronounced they can’t realise they are destroying their society.

  20. RobK

    when non-dispatchables exceeds 10-15% of the total power of the grid“……
    I should have continued:
    The fluctuations stress the grid to the extent that significant redesign is required in instrumentation and control of harmonics, losses, rate of change of frequency, voltage and reactive power. The on-costs as described by Finkel include extra equipment such as synchronous capacitors, extra transmission lines, short,medium and long term storage, extra layer of committees and boards to oversee the whole shooting match. All added costs of renewballs.

  21. RobK

    On top of that Finkel says the bidding system is outdated and often rorted.

  22. Ƶĩppʯ (ȊꞪꞨV)

    Everything the left touches turns to shit!

  23. cui bono

    Unions in on this rort are but a subset of the super annuation industry.
    Fat lot of pen pushers to prise out.

  24. Tel

    Moreover, power that is rapidly despatchable (hydro, some gas turbines) in response to sudden surges in demand or unexpected failures at other plants is more valuable still for its ability to plug gaps at short notice.

    That’s basically the only reason why the pumpy, pumpy up the hill scheme can make money. It turns non-predictable and non-despatchable wind power into convenient hydro at a later time (minus some loss of course). In a world where spinning reserve is not sufficient, this is a valuable conversion.

    It does tell you something about the difficulty of a market with high uncertainty… should coal or nuclear become more popular all of a sudden the conversion into a dispatchable energy resource becomes less valuable.

  25. Kim Howard

    #2472927, posted on August 18, 2017 at 6:00 pm

    Rafe Champion

    #2472918, posted on August 18, 2017 at 5:53 pm

    Thanks zyco, how come NSW is not generating as much as we use?

    Good question; even with the number of decommissioned coal power plants those left in NSW have an IC of 10240MW and with the current demand of 10190MW we should have a surplus without even drawing on the gas and hydro and the, giggle, wind output but currently all we are producing is 8665MW:

    Just a theory , AGL has half or so of NSW coal power supply , if I were the CEO I would order continual maintenance on the coal power plants limiting their output to produce inflated prices so the windy mills
    get as much of the RET scam as the Government allows , just what a 6 or 7 figure CEO does .

    The problem is there is no share Register showing who owns AGL not just the average superannuates more so foreign investment , legal private entity`s such as some portfolio situated in the Kayman`s .

    Just like eligibility to Parliament the system is purposely unaccountable , these problems with windy mills , solar panels and Jays molten salts solar array have been around for nigh on 20 years and we pleb`s are supposed to expect average everyday politicians have no idea .

    Australian Government I have replacement re manufactured windy mill gearboxes for sale $3 million each for the four speed $5 million for the 5 speed and just $10 mill for the 6 speed , call 1800gstjay

  26. Rob MW

    It is tripe, secondly, because wind power should never be bought on a 20-year contract in the first place.

    You missed the most important factor; the wind turbines won’t last the 20 years which means that the 20 year contract needs to reflect compounding replacement costs or alternatively, refunds for decommissioning.

  27. BoyfromTottenham

    RobK, thanks for your post …936, but I was talking about LRET certificates, not household solar certs. If you looked at the link, you would see my point. Unfortunately the explanation of the formula given introduces an unnamed term for electricity generated but ‘used in production’ or some such, which is given a value of 45 MWh. This is in addition to the 5MWh mentioned, but I still cannot get my head around the fact that the hypothetical 100 MWh generator that only sends 50 MWh to the grid is eligible for 90 certificates, not 50 as the legislation appears to intend. BTW, this legislation appears to based on the UK legislation, which appears to have no such formula, simply stating that one certificate is created for each MWh delivered to the grid. This in turn was based on a similar EU Directive, which by the way recognised that excessive renewable generation would destabilise the network, and that grid operators could take this into account when accepting renewable energy. But our RET has no such provision, as far as I can determine. Poor us.

  28. RobK

    BfT,
    Yes, I was talking large scale certificates. If the worked example put all the 100MWh into the grid, they would get paid 85 certificates because theyd loose 10 in transmission losses and 5 because it took a bit of cooling to produce the energy. Since they used 45MWh themselves, there are no transmission losses to speak of so they saved the grid releasing that amount of CO2 so they get certificates for what the factory used but was solar produced.

  29. Rayvic

    David Brewer can feel safe that the article will not be quoted/poached by the ABC, Fairfax press or any warmist.

  30. Yohan

    That return air ticket analogy is really good. Its very hard to explain why intermittent and unreliable renewable power, while cheap when its on, actually makes overall cost more expensive.

  31. Texas Jack

    The only way of assessing the true cost of wind and solar is to look at the overall electricity price before and after renewables are added to the mix. Once you do that you find overwhelming evidence from all over the world that markets with even modest shares of power from intermittent renewables have considerably higher prices than those without.

    A great post.

    The challenge of getting the truth out is the big complication. Punters haven’t a clue, don’t know who’s accountable, and don’t much read the Cat. Don’t expect the MSM to do its job. Educators have been programmed to resist. Politicians on one side are welded in ideological opposition and on our side are either too stupid or too meek to call out the realities for what they are.

    I went to a Liberal Party function at gun-point last night. I can confirm that a) I didn’t buy a ticket, and b) didn’t make a donation. Not a cent passed hands. The draw-card? John Howard was speaking. In all of Australia he’d be the only person capable of getting the truth on the RET and renewables out and being 55-60% believed. Whatever you think of him and the quality of his legacy nobody comes close in the political messaging stakes.

  32. Duderino

    you find overwhelming evidence from all over the world that markets with even modest shares of power from intermittent renewables have considerably higher prices than those without.

    Only if you ignore the substantial explicit and implicit subsidies given to non-renewable sources of power, estimated at between $550 billion and $5.3 trillion (annual global).

  33. Only if you ignore the substantial explicit and implicit subsidies given to non-renewable sources of power, estimated at between $550 billion and $5.3 trillion (annual global).

    Duderino, I have some shares in an opera house and a big bridge, if you’re interested.
    Selling cheap – a great long term investment.

  34. Snoopy

    Rich countries subsidise too—the IMF says America is the world’s second biggest culprit, spending $669 billion this year—but mostly by “post-tax” systems which fail to factor the costs of environmental damage into prices.

    The old ‘giving subsidies by not taxing enough’ saw. All your money are belong to us!

  35. Dianeh

    This may be a stupid question but ……….

    So if “post-tax” subsidises to fossil fuels means not taxing for environmental damage, does that mean that unreliable renewables are also getting “post-tax” subsidies due to not taxing for the economic damage such as increased power prices and insufficient overall power for heavy industry as well as the direct damage caused to industry when there is insufficient power?

  36. Eyrie

    Precisely. It is the overall system cost that counts and everywhere solar and wind are used, the average price of electricity goes up.
    The marginal cost to produce of an extra megawatt hour , when the wind is blowing, is irrelevant.

  37. Leo G

    From Duderino’s Economist article link:-

    Rich countries subsidise too—the IMF says America is the world’s second biggest culprit, spending $669 billion this year—but mostly by “post-tax” systems which fail to factor the costs of environmental damage into prices.

    In the lefist brain, the lack of complete carbon emission charging amounts to a subsidy. The rate of the subsidy, it appears, is the equivalent carbon tax rate that makes the fossil fuel based generator uneconomic.

  38. Eyrie

    That Chris Sanderson fellow looks like a prime candidate for being fired in a rationalisation of tertiary education.
    I figure we could lose 90% of academia and not miss it. They are far cheaper on the dole than in their highly paid welfare jobs.

  39. cohenite

    Duderino

    #2473339, posted on August 19, 2017 at 7:38 am

    You’re an idiot. I reckon the negative cost of the left should be factored into the economy. Based on drips like this speciman it’s got to be in the $trillions; just for Australia.

  40. ByfromTottenham

    RobK, my last try: The legislation says that renewables generators receive ONE certificate for EACH 1 MWh that they send to the grid (not the gross MWh rating of the turbine), but the worked example on the CER website gives a 50% efficient generator 1.8 certificates per MWh sent to the grid (per the CER’s own worked example). In fact if you use the formula and vary the generator efficiency from say 90% to 10% , the less efficient generators actually get more certificates than more efficient ones!)
    The UK and EU legislation, the basis for our RET scheme, have no such formula, they just issue one certificate per MWh actually sent to the grid. IMO the use of the dodgy formula by our RET scheme results in a windfall gain of 80% more certificates per MWh sent to the grid than intended by the legislation. How does this make sense? BTW, FF generators just get measured on power sent to the grid, so why are renewables generators treated differently?

  41. Nerblnob

    Claims about reliable fuel subsidies are arbitrary numbers designed to justify and draw attention from renewables subsidies. Completely fabricated.

  42. Andrew

    Claims about reliable fuel subsidies are arbitrary numbers designed to justify and draw attention from renewables subsidies. Completely fabricated.

    Yep. I looked at some Green figures for Australia. On their own numbers, “subsidies” were dwarfed 16:1 by fuel taxes. So it was completely FakeNews. No one who has looked at the claims in detail would ever repeat them, and anyone who has uncritically done so should do the decent thing with a necktie in the ladies toilet.

  43. Graeme Weber

    Great Article.
    Still have a few questions
    1. Does anyone take into account the lifetime generating capacity. (ie) LLCOE
    2. I keep hearing about massive subsidies to coal generators. Some scribes suggest this is the Wacko movement putting a theoretical price on CO2 emissions and then reverse calling these subsidies because they are not charged. Is this BS true?
    3. Does the Wacko movement ever bring to account:
    a. Substantial changes to the distribution system that our dear Julia called ‘gold plating’.
    b. the cost of backup generators and their CO2 outputs.
    c. the actual CO2 output of ‘natural’ gas fields vented at the first process point and not included in our CO2 emissions?
    GraemeW

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