Black is white: wind generators drive down electricity prices

Wind industry lobbyists Pitt and Sherry, and their journal, RenewEconomy, jubilantly produced the following table as proof that wind energy lowers prices.  They pointed out that in May wind enjoyed its biggest ever month, with 8.5 per cent of the National Electricity Market supply and argued that this had led to prices falling.  They also claimed that the table, as it shows a lower price differential between South Australia and other states in May compared to March, demonstrates that wind drives down the price of electricity.

Here is the table for May and for March.  (April is not shown but was relatively windless).

NEM, March May 2016

Wind can, as the lobbyists maintain, in fact have a short term depressing effect on price – imagine what happens to the overall price of hamburgers if the government comes along with subsidised product that doubles the available quantities.  But eventually the price has to be reflected in the costs.  These are $120 per MWh for wind compared with $40 per MWh for coal.  And that does not include the premium costs wind must incur in transmission and in back-up required as a result of its inherent unreliability.

This subsidy is one key statistic that is not incorporated in the above table.  Through the Renewable Energy Target, the government forces the consumer to pay over $80 per MWh as a subsidy to wind farms.  So, if wind were to earn the average pool price it would still get more in subsidies than it earns from willing customers.

But that is only part of the story.  As the table demonstrates, wind generation only earns 66 per cent of the average pool price in South Australia.  That is because wind is unreliable and subject to natural supply not consumer demand so that it tends to be available at times when it is, relatively speaking, not needed.  In May, when wind was responsible for half of South Australian output it therefore earned only $50 per MWh (and the remaining plant earned $100 per MWh – wait for the calls for an end to this discrimination!)  South Australian wind generators in May of this year where therefore earning $50 per MWh from the market plus another $82 from an enforced subsidy.  That is the equivalent of an external tariff of 164 per cent!

Only in the palmy days of the pre-Keating tariff cuts did we see industries, like motor cars, with such a level of assistance.  In those days the rationale was that Australian motor car manufacturing was an infant industry which pretty soon would stand on its own feet if it could get a temporary leg-up.

Wind cannot even make the spurious claims of being an infant industry  Though there have been attempts by governments to double down on the wind subsidies by also subsidising windmill manufacturing plants these have been just another waste of money.  And, although tariff subsidies of old were a clear drag on the economy, those subsidies and their price-lifting effects tended overwhelmingly to be on consumer goods.  Electricity is also a production input and the bedrock of all economic activities and Australia is sacrificing what should be the world’s cheapest supply on the altar of vacuous green idealism massaged by cold eyed rent-seekers.

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40 Responses to Black is white: wind generators drive down electricity prices

  1. Pyrmonter says:

    All of which explains why the RET is more evil than a carbon tax. Abbott went after the wrong target, and got rolled on the big one.

    Regardless of your stance on climate science/AGW, a carbon tax would have been far better – transparent, efficient, market oriented – than the combination of the RET and the climate funding boondoggles.

  2. Fat Tony says:

    There seems to be no stopping them – the rent-seekers, the “migrants”, the school kid groomers and all the assorted hangers-on and parasites.

    I have just about given up caring – let them fuck the place then they can go try working for a living.

  3. Fred Lenin says:

    So we consumers give the multi millionaire socialists who own the wind fraud bird killers $80 for this fraud ? Talk about Ponzi ? Suppose goldman sachs is in this scam up to its neck and lots of Aussies who shall remain nameless ,Scum with a Scam .

  4. Turtle of WA says:

    Thoroughly enjoy your posts, Alan. Keep up the good work mate.

  5. mem says:

    Regardless of your stance on climate science/AGW, a carbon tax would have been far better – transparent, efficient, market oriented – than the combination of the RET and the climate funding boondoggles.
    Why not judge both by the “original purpose”? I presume this was to lower the rate of global temperature increase by reducing CO2 production as compared to contemporary energy sources such as coal and gas. So where are the measurements that tell us whether this experiment has worked?

  6. Fat Tony says:

    mem: ” So where are the measurements that tell us whether this experiment has worked?”

    In the same place as for all the other government initiatives – alcopop taxes, speeding fines with a 2 km/hr tolerance, 100 hours on a Learner’s Licence (Qld), tobacco plain packaging, carbon taxes…..fat taxes, sugar taxes, plain packaging for grog….

    There is no proof, there is no review nor analyses of the effects of all our government initiatives – if it means more control over people, then there is all the justification needed.

  7. Robbo says:

    Gross deceit comes with the territory of all wind power advocates. These bludgers on the public purse will resort to all kinds of lies and trickery to keep the huge subsidies flowing. The reality is that wind power is expensive and can only exist if idiot governments continue to be criminally profligate with the taxpayers money. A few governments have woken up to the confidence trick of wind power but so far none of them are governments in Australia. Our politicians are either hopelessly stupid or just hopelessly slow learners.

  8. Fang says:

    Im watching my old farming neighbours get suckered in RES signing contracts on some of the most productive farming land (When it rains!) I dont begrudge these farmers getting 8 to 10 thousand dollars a year/turbine! But WHEN! These turbines and towers are buggered in 10-15 years and Goverments have a mandate to cut subsidy out totally! What wiil their next generation have to do to remove the 140-200m3/turbind of concrete that the bankrupt wind farm companys don’t want or dont exist anymore?

  9. Bruce of Newcastle says:

    Pure mendacity.

    The operators must take all wind energy. The other sources, including coal, gas and hydro, are required to make up the difference at whatever the cost. Which because of spinning reserve requirements is considerable.

    The playing field is stacked and unfair. Then there’re the poor birds and bats, who’re not so much stacked as smashed, mashed and massacred.

  10. nerblnob says:

    A small percentage price drop on a 100%+ cost increase?

    If the media publishes this as a saving then they are guilty of propaganda, not news.

    Australia has a huge potential advantage with its cheap power sources and has ditched it in favour of a “why even try?” attitude.

  11. H B Bear says:

    To use the wholesale price as the cost of wind energy without adding on the REC cost is so dishonest to be laughable. It’s like saying petrol is cheap because you only pay 35c a litre for it and ignoring all the tax on top.

  12. Richard Bender says:

    Now that the RET has forced the shutdown of the Port Augusta coal fired power stations (by allowing wind to undercut them in the wholesale market while forcing consumers to pay more in the retail marker, as H B Bear points out), it’s nice to see that, without any sense of shame, renewable advocate AGL is dusting off its old gas fired plants in SA to bring stability to the grid.

  13. mem says:

    In order to transport the big turbines here to Oz mostly from China they need to construct larger than normal containers for the ships, Their manufacture is all supported by coal or gas energy, plus the ship transport is provided by diesel, across the world. Then it.s by larger than normal semis to their outback location where they need to be installed in pre-cleared land (using bull dozers) with sunken cement footings that will anchor their weight and vibrations. Of course then there is the connection to the grid requiring infrastructure, man hours and more coal fueled energy. Turbines have a maximum life of 15 years , but in real life most don’t reach this age due to wind damage, fire etc.. The companies that promote and take orders are known to inflate orders to build up company profile and value using subsidies to prop up the business, they then might sell out or start to flounder. Of course they have paid out very high amounts to initial investors and executives before this happens. Many of the same people keep popping up in these businesses regardless of country. The manufacturers, often in China may be left with large back orders but considering the profits they are making, they too walk away and leave acres of steel turbines just sitting out in the open . My son works for a bank in Europe and specialises in “cleaning up” the accounts of wind farm businesses. I am not able to provide more detail for obvious reasons so treat this as anecdotal if you wish.. Do investigate further before investing though. This is one area where due diligence is paramount.

  14. Alan Moran says:

    Richard Bender,

    AGL announced today that they are not, after all, closing their SA Torrens Island gas plant. May be due to the higher price created by wind but other issues include the likelihood that AGL was, in their original closure announcement, just trying to spook the market to drive up contract prices. Gas availability in SA is also a problem and is leading to the non generation at Engie’s Pelican Point plant, which seems unable to get gas supplies cheaply enough to turn a profit even at existing electricity prices

  15. jupes says:

    Alan can you please get yourself on a the panel of a leadership debate and put the points raised in the post to the two blokes who want to lead this country please?

  16. incoherent rambler says:

    Latrobe Valley production cost is (I believe) still around the 4c/5c per kwh.

    As in an order of magnitude less than the numbers in the table above.

  17. Rayvic says:

    “Latrobe Valley production cost is (I believe) still around the 4c/5c per kwh.”

    But does not Greg Hunt want to close that down?

  18. duncanm says:

    Australia is sacrificing what should be the world’s cheapest supply on the altar of vacuous green idealism massaged by cold eyed rent-seekers.

    I try to hammer this home to wind-spruikers whenever I can. We are ideally placed to dig bauxite and iron ore out of the ground and sell it to the world as Aluminium and Iron – we should be world leaders in the field; but we persist in shipping it off in its low-margin form and saddling ourselves with inferior and expensive electricity supplies.

  19. Nighthawk the Elder says:

    Incoherent rambler, the Latrobe Valley production cost is closer to 3c/4c per kWh (or $30/$40 per MWh if you like). The trouble is that for longer periods of time now, the market spot price is also around $30/$40 per MWh and it’s not uncommon to see these prices in the low as $20’s in the middle of the week during what should be high demand periods. In other words they are barely covering their costs and more and more they are making losses.

    Whenever they can, the generators will be looking for hedge contracts to firm up their selling price, but in the longer term, the low spot prices are driving the contract price range the buyers are willing to pay. These days the retailers are less likely to take up a contract and would rather gamble on the low spot price.

    When the cheap coal stations are forced out of business, will this subsidies rort for renewables continue, or will the swampies finally be forced to pay the real cost of their gaia worshiping power?

  20. Art Vandelay says:

    And SA is about to up the ante when it comes to renewables stupidity:

    Solar thermal plant proposed for Port Augusta in SA

    Greg Hunt from our supposedly libertarian government was talking about chipping in hundreds of millions of dollars from taxpayers last week too.

  21. incoherent rambler says:

    When the cheap coal stations are forced out of business …

    There will be no chilled Pol Roger in th refrigerator and the coffee beans will mould. The end of the days for the latte set.

    Nowhere to charge the iphone or tesla, no video games after 9pm, …

  22. incoherent rambler says:

    BTW, I think I will buy a diesel generator. Get in early before the rush.

  23. handjive says:

    Wait. What?

    Settled Science!

    [Global Warming] May Mean Slower Winds
    The wind power industry requires stiff gusts. Global warming may not deliver.

    http://www.scientificamerican.com/article/climate-change-may-mean-slower-winds/

  24. handjive says:

    Big Wind’s Bogus Subsidies

    Giving tax credits to the wind energy industry is a waste of time and money.

    Buffet told an audience in Omaha, Nebraska recently, “For example, on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them.

    They don’t make sense without the tax credit.”

    But while the wind production tax credit may be great for Buffet’s bottom line, it’s harmful for American taxpayers and energy consumers.

    http://www.usnews.com/opinion/blogs/nancy-pfotenhauer/2014/05/12/even-warren-buffet-admits-wind-energy-is-a-bad-investment

  25. Tel says:

    All of which explains why the RET is more evil than a carbon tax. Abbott went after the wrong target, and got rolled on the big one.

    Regardless of your stance on climate science/AGW, a carbon tax would have been far better – transparent, efficient, market oriented – than the combination of the RET and the climate funding boondoggles.

    If it was a straight out carbon tax, then yes I agree. Unfortunately no one offered that. Various carbon trading schemes offered a guaranteed price on carbon which is a completely different thing.

    The point is that a simple carbon tax can be adjusted at any future time in terms of rate, etc (just like all other taxes) but a guaranteed price on carbon (with tradeable certificates and the rest) becomes a property right which then gets Constitutional protection and becomes expensive and pretty much impossible to get rid of.

    So Abbott’s plan is still better than the Gillard plan, because RET can be abolished.

  26. Hydra says:

    Latrobe Valley production cost is (I believe) still around the 4c/5c per kwh.

    As in an order of magnitude less than the numbers in the table above.

    Hazelwood needs about $35/MW to be profitable, Yallourn slightly more, Loy Yang slightly less. Hazelwood is bleeding cash and has not made a profit for years.

    Alan is right about gas supplies in SA, but it is probably even more dire in NSW. But since we are apparently going to see some gas repatriation laws all will be fine, right?

  27. Hydra says:

    Further, with the tripling of the brown coal royalty in Victoria, Hazelwood and Yallourn are again discussing closure options. Engie has stated it wants to get out of coal worldwide (presumably to get into wind, who can blame them?).

    It will be sad, although not surprising, but two Latrobe Valley stations could quite easily close within 2 years.

    It will devastate the Valley. Although that is not a reason to keep an unprofitable business running, it is a side effect and is going to be disastrous.

  28. Botswana O'Hooligan says:

    Its as simple as this, if wind was an efficient way of generating energy of any sort, the sky would be darkened with hot air balloons and the sea smothered in wind jammers. Fancy catching the QF to Sydney ex Brisbane in a hot air balloon when the SE trades are blowing, ditto for a sailing ship.

  29. nerblnob says:

    Interesting article about aluminium in Iceland

    Two things to note:
    1. Australia has 21% of the world’s bauxite. Just three countries, Australia, Brazil & Guinea have over 50% between them.

    2. Even with 100% “renewable” energy, the greenies are still trying to shut down the Iceland smelters. The truth is, they hate industry, even though pretty much every bit of “green” technology you can think of includes aluminium.

  30. AP says:

    Hydra they are only unprofitable because of government intervention.

  31. nerblnob says:

    Government intervention designed solely to drive up the price of coal-fired electricity to try to make wind look good. Mafia tactics. The employees in the La Trobe valley won’t be the only ones suffering if Loy Yang goes down.

  32. wazsah says:

    AEMO prices jumped in late May across SA-Vic-NSW-Qld and have not returned to “normal” yet –
    Check for yourself.
    Surge in wholesale electricity prices last week
    http://www.warwickhughes.com/blog/?p=4526

  33. George Gell says:

    Wind power will never be able to compete because of the need to have back up when the wind is not blowing.

    Twice to capital expenditure to produce the necessary capacity when it is needed.
    Someone may invent a battery when may make a reassessment necessary, but it is not on the horizon at present.

    It may be worthwhile ( but I doubt it) to invest in wind power to lift storm water and sewage from eastern cities up to high dams in the Great Dividing Range, then produce electricity — on demand- as it runs down into Macquarie marshes or specially made marshes to purify it before it feeds into the Murray Darling system. The water could be sold along with the electricity. But should not undertake any large scale infrastructure without a business plan.

    We have been lumbered with a national cable system without a business plan study when we could have supplied the cable needs of schools City Business Districts, town centres, Business Parks, Universities and Hospitals by cables running mainly along railway rights of way without cost to the taxpayer.

    It is worthwhile to lay out the cost of a study to assess the viability, however.

  34. Snoopy says:

    Cory Bernardi believes the proposed Port Augusta solar thermal plant is a Good Thing. Anyone half sane would conclude that any project led by John Hewson is a squanderboondoggle.

  35. Robbo says:

    ““Latrobe Valley production cost is (I believe) still around the 4c/5c per kwh.”

    But does not Greg Hunt want to close that down?”

    Greg Hunt is the Lord of the Dickheads.

  36. LetsGetReal says:

    “But eventually the price has to be reflected in the costs. These are $120 per MWh for wind compared with $40 per MWh for coal.”

    More accurate to say the cost has to be reflected in the price but I know what you are getting at. If the cost of coal was truly $40/MWh then why doesn’t someone comission a new coal plant in South Australia and make out like a bandit? Or are you comparing the short run cost of coal to the long run cost of wind? A bit unfair really. Will existing coal plants last forever?

  37. Hydra says:

    Hydra they are only unprofitable because of government intervention.

    I am well aware.

    When this stealthy carbon tax kicks in at July 1st will be interesting to see what happens over the next 12 months. I have a feeling that 1, maybe 2, of the 8 Hazelwood chimneys will never again proudly billow out steam as they close down the units most in need of repair.

  38. Rohan says:

    Hows this for boondoggles?

    And this boondoggle?

  39. Rohan says:

    And as I used up all my linking credit in the last post, this little gem of crony capitalism?

    All this is from the Electricity Industry magazine. They’re cutting their own throats.

  40. Tator says:

    Mem,
    have to disagree on the larger containers, firstly, I have been involved with moving these things around SA for 6 years, none of it comes in containers. The blades, are in open framed packs of two with the frames rigid enough to be moved with a steerable jinker at one end and attached directly to the semi at the other. The nacelles with the generator are covered in plastic tarps and shrink wrap. The tower segments were manufactured in SA either at RPG Kilburn or A&E engineering at Whyalla. They are supposed to be weather proof which is why they don’t use containers, the nacelles however, still need to be covered in certain places which are normally covered up by nosecones and tower segments.
    Both Vestas and Suzlon do it this way, and they are the two biggest manufacturers used in SA.

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