Victorian Government contracts for renewable energy supplies

Victoria has announced fifteen-year contract for wind and solar capacity amounting to 650 megawatts (the giant Loy Yang is 2,200 MW but renewables only provide about one third as much electricity per MW of capacity).  The price is said to be under $60 per MWH, while the state government also garners the subsidies paid by consumers under the Commonwealth’s renewable scheme.  The Commonwealth subsidies forward prices are running at about $20 per MWh.

 

In negotiating auctions, the Victorian government agreed to a poison pill clause that would prevent a Coalition successor unwinding the contracts without severe penalty.  If the contracts were as good as the government and its gushing media supporters maintain this would not be necessary.

If some of the forecasts paid for by the different proponents of renewable energy subsidies were to be realised the contracts have some superficial attraction. Two sets of future scenarios (by Jacobs) saw prices in the $70-90 per MWh range over the next decade (last year’s Victorian prices averaged $90 per MWH).  Less beneficial as regards the contracts themselves would the fantasy land forecasts of ACiL (under $50 per MWh for most of the 2020s) or Frontier (which saw prices dipping below $50 per MWh before rising to $70 plus later in the decade).

But such misgivings represent the least of the detrimental features of the deal.

The Victorian scheme, like all renewable strategies, involves injecting subsidised electricity into the system that will run almost irrespective of the spot price.  This drives down prices in the first instance.  But two countervailing factors offset the initial forced reduction.

The first is that the wind/solar power is low quality – it is highly variable and hence a contract at $60 per MWh needs to be “firmed”so that the supply matches the demand profile.  Retailers’ risk departments will insist on their contract arms not exposing their firms to the possibility of supply shortages, which would require augmentations at spot prices that could mean bankruptcy.  Hence, “firming” contracts are necessary at a cost of $20-30 per MWh.  Already this means the power is $80 plus, which contrasts to a likely free market cost of around $50 per MWh under coal based supplies.

The coal generators cannot readily provide firming support (hydro, gas and maybe batteries do this) so gain no benefit from the requirement for matching stand-by contracts brought about by subsidies favouring intermittent wind and solar power.

Compounding this is a deleterious effect on the existing coal generators.  They need to back off to match the intermittency of wind and solar.  This increases their own costs and forces premature closure when they are hit by other costs like new taxes on coal or the need to incur high expenses on maintenance.

The Victorian scheme’s apparent cunningness in bringing in subsidised must-run power to compete against extant power sources with very high sunk costs therefore backfires.  The forecast lower price from this strategy have patently failed to come about but it adherents have not revised their thinking.  Energy modellers focus in marginal costs and assume capital-intensive coal generators will remain on-line.  Hence their resulting price predictions give comfort to governments predisposed to intervene in markets and ammunition to the renewable energy rent-seeker. Projecting lower prices from such interventions has provided the modellers with handsome livings.

It may be that the Victorian Government believes the convenient future price scenarios but its main goal is staying in power and the green energy strategies are powerful weapons to fight green incursions into its inner city seats.  The damage that this has done to the formerly low cost electricity supply is considerable and will prove difficult to unwind.

 

 

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23 Responses to Victorian Government contracts for renewable energy supplies

  1. None

    We need to find ways to Sue individual politicians for criminal destruction.

  2. GD

    When does this take place? Before or after the election?

  3. RobK

    I foresee some problems with this scheme.
    Firstly, curtailment is an issue that will increasingly manifest itself as penetration of RE increases. In short a glut of RE will mean capacity factor decreases. To lower the price for a random glut will not necessarily increase demand instantaneously. Yes, demand management and storage can help a bit, but the scale of the glut during a windy/sunny period will be more than even a moderately redesigned grid can bear. This implies that the cost of firming will be higher than expected. The cost of the grid, capable of handling this kind of traffic is higher than the traditional one too, so more cost to the consumer.
    How are the players going to budget for this firming and FCAS other than some risk management formula, which, by virtue of its unknowable nature will need to err on the side of caution and manifest itself as gouging to the observer.
    Secondly, how can the state guarentee a federal cross subsidy scheme? Another risk price will be factored in.
    Thirdly, a wind plant will not know precisely how windy it will be in the next 12 months, nor the type of windiness (e.g. how many gales which will cause over supply, or how many extended wind droughts. Even, how do the wind events match consumer demand). These unknowables are risks to be paid for somewhere.
    This is a silly and dangerous idea.

  4. RobK

    Ultimately, the price of electricity will be underwritten by open cycle gas and diesel but with the added capital cost of RE and storage and a diamond studded golden grid that is very complex and wobbly compared to what it is now.

  5. Herodotus

    The Sirius Cybernetics Company were labelled as “a mindless bunch of jerks who’ll be first up against the wall when the revolution comes.”
    The Victorian government are criminals.

  6. Fat Tony

    I don’t think they are planning on everyone having electricity all the time at a reasonable price.
    Electricity will be available, at a price, to those who can afford it. (High cost, smart meters etc)

  7. The silence from Matthew Guy suggests he is complicit in this statewide larceny…

  8. John Constantine

    Activist totalitarian Stalinist hellhole freedom fighters would have been proclaimed as peoples heroes if they had have managed to sneak in and destroy Rhodesia’s electricity plants, toppling the country into Zimbabwe faster and sooner.

    Their left see no difference between old Australia and Rhodesia, except a bit more effort is required to progress a Zimbabwe style outcome.

    Watch their left threaten united nations sanctions if Australia dares talk about exiting the population Ponzi scheme, or the economic genocide that is the deindustrialisation, de electrification property bubble.

    Barefoot, stacked in chicom dogboxes.

    But out political elites will have penthouses next to Central Park in New York City. Funded by ruinables.

    Comrades

  9. John Constantine

    Smart meters will offer the proles the ability to be paid to have their power cut off when electricity is crushing proceeded as demand rationing.

    We will have a hundred percent power supply, as soon as demand is destroyed down to ruinables level.

    Their left will cheer when all metal smelters close, as that business model is racist, sexist, homophobic and aluminium is not even Vegan.

    Comrades.

  10. Carpe Jugulum

    Enjoy your brownouts victoriastan

  11. Rohan

    Mathew Guy couldnt politically pull the skin off a rice pudding. And this is despite the fact that Jeff Kennett is allegedly coaching him. In Kennett’s defence, he doesn’t have much to work with.

    I rekon Guy is still behind the shelter shed getting pummeled by the school bully.

    Meanwhile the state turns to shit with the corruptocrats of the Liars party.

  12. bollux

    Until the Interlinks are cut, the voting habits of punters won’t be sheeted home to them. Make each state responsible for it’s own generation and no one elses. Aemo is a socialist organisation run by an American socialist. Ask her what she thinks of climate change but don’t expect sanity.

  13. DaveR

    There needs to belegal consequences for politicians who deliberately embed politically-motivated contracts that are not in the interests of voters and which generate large penalties if they are cancelled if they are cancelled after the party is voted out. East-West Link probably was in the interest of voters, but was cancelled for political reasons (non-unionised workforce). But this energy supply agreement, if true, is almost entirely based on the left poltical belief in renewables as a major future component of Australian power supply, a la the failing European model, where cost doesnt matter.

  14. Dr Fred Lenin

    Challenge this in the High Court it is incomprehensible that anyone can obligate another to commit money to something they never agreed to this must go to referendum to obtain the consent of the afflicted persons . As to suing individual politicians and public servants for dishonest acts and deceit , I agree, if it were a private person or business that would be possible if there is no law to make them responsible for their actions force them to pass one on pain of electoral oblivion . We are going to have to use strong force to stop the creeping communist dictatorship we face you cannot reason with these muppets so you have to force them ,the threat of removal of taxpayer funds strikes the fear of God into these Bastards use it to the maximum . The lawtrades persons who wrote up the poison pill section should be totally destroyed and jailed .this is an act of fascism and is surely not legal . If we win this one we reduce them to the quivering mess the US decromats and turnbull leftists are in . A win for democracy .

  15. BoyfromTottenham

    This contract represents yet another way of ensuring that the Victorian base load generators are driven out of business, not by renewables but by a cunning (or stupid) contract that ensures enormous quasi-monopoly, domestic consumer funded profits for renewables generators, and which simultaneously drives down the wholesale price of electricity and puts the onus for ‘gap-filling’ of the holes in the intermittent renewables supply on those generators least able to perform it – the base load generators. Not being parties to the contract, the base load generators cannot reject it. Likewise the poor bl**dy consumers who are being shafted by their own government. Maybe the only sensible response by the base load generators is to go on strike, sorry I meant suddenly find the need for urgent maintenance to a gigawatt or two of generation and see how well the renewables (and the Victorian interconnectors) deal with it. I am sooo glad that I don’t live in Victoria.

  16. .

    Dr Fred Lenin
    #2815656, posted on September 13, 2018 at 9:17 am

    Challenge this in the High Court it is incomprehensible that anyone can obligate another to commit money to something they never agreed to this must go to referendum to obtain the consent of the afflicted persons . As to suing individual politicians and public servants for dishonest acts and deceit , I agree, if it were a private person or business that would be possible if there is no law to make them responsible for their actions force them to pass one on pain of electoral oblivion . We are going to have to use strong force to stop the creeping communist dictatorship we face you cannot reason with these muppets so you have to force them ,the threat of removal of taxpayer funds strikes the fear of God into these Bastards use it to the maximum . The lawtrades persons who wrote up the poison pill section should be totally destroyed and jailed .this is an act of fascism and is surely not legal . If we win this one we reduce them to the quivering mess the US decromats and turnbull leftists are in . A win for democracy .

    You have waaay to much faith in the system Dr Fred Lenin.

    On what grounds is it unconstitutional?

    How would hand-picked judges of the uniparty go against their masters?

    If the state plenary powers are difficult to challenge what hope have we got?

    Constitutional amendment. Conservatives need to acknowledge our constitutional law is busted.

    Have a read here:

    https://blogs.unimelb.edu.au/opinionsonhigh/2015/04/15/cascade-duncan-nucoal-case-page/

    Particularly this comment.

    The arguments put forth by state interveners in the NuCoal v NSW case are simply absurd. Examples are; “NSW colonial governors had absolute power and that power has been inherited by the NSW parliament.”, “the English Parliament had the right to pass bills of attainder and the NSW parliament has inherited this.” The nonsense is extreme.

    The State AGs have actually argued short of the exclusive powers of the Commonwealth, s 109 and Chapter III of the Commonwealth Constitution, they actually have unlimited power.

  17. Bazinga

    You’ve heard of white flight. Victoria will invent shock flight.

  18. Dr Fred Lenin

    Thanks Dot . But I believe one day the people will be driven too far by these arrogant clowns as I always say ,you can destroy politicians easily by taking the taxpayers money from them ,there is no way those Bastards would survive without it. It looks to me like they are covering the unions super funds who are heavily invested in the scam ,surely this is conflict of interest,and totally corrupt . They must see the writing on the wall for their government ,like weather covks m]gang in SA ,which were beaten by a party that didn’t exist according to the Meeja ,just like the opposition doesn’t exist in Victoria . Incidentally they are probably helping turnbull and Goldman Sachs Cayman Islands investment companies who are up to their ears in the climate scam ,and the u.n.communist $100,000,000,000 a year giliard slush fund stolen from consumers of power in the civilised world by the pollietraitors .

  19. Norman Church

    No doubt a successor parliament retains plenary power to act without regard to the commitments given by an earlier government.

    However, the whole point of a poison pill in a government contract is to create a significant barrier and cost to a change in policy.

    I would like to see a judge have the courage to find such a clause ultra vires or against public policy. Not holding my breath.

  20. John Constantine

    Their victorian State will pay off voters with free stuff.

    Demand destruction will come from entire industries, like metal smelters, fleeing the country.

  21. H B Bear

    Democracy. Good and hard.

  22. Mr Black

    A politician with spine would publicly announce that retroactive legislation would be used to cancel any and all penalty payments, subsidies and anything else these parasites are counting on to run their businesses AND they’d be billed for any they’d received up to that point if they went along with these schemes. Of course we have no politicians with any spine, so we’ll pay 5x what we need to for electricity.

  23. LGS

    Laborites like Daniel Andrews believe that they are not bound to contracts or deals drawn up by LNP governments (like the East-West Link), but want future governments to be bound by contracts that the ALP make.
    Monumental hypocrisy on steroids by Andrews and his lackeys.

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