The Diabolic Policy Dilemmas Created by Previous Energy Policies

Regulatory measures – subsidies for wind/solar – have wrecked the Australian market, driving up prices and increasing supply costs.  And the policies have created wind and solar capacities that have on-going effects, which cannot be unwound by simply allowing the subsidies to run their course, since this will exact an increasing toll on energy costs.  Countervailing subsidies to coal generation cannot solve the problem since, with existing policies in place, a subsidy to one or more coal generators would impact on the economics of other coal generators rather than the subsidised wind/solar which create the problem.  

The main energy subsidies are the RET for wind and large scale solar with a subsidy this year at around $80 per MWh and the SRES for roof top facilities where the subsidy is paid up-front for the presumed life of the facility at a rate of $40 per MWh.  The RET this year costs electricity consumers $2.2 billion and the SRES over $1 billion.

Some people, especially those harvesting the subsidies, maintain the fiction that renewables are now cheaper than coal.  Most politicians bow to the voter impact of the ideology of human induced climate catastrophe and the myth of cheap renewable power that the subsidy seekers have spun.

The fact is that 20 years ago, Australia, with coal providing over 86 per cent of supply, had the cheapest electricity on earth and was still low cost only three years ago.  Subsidised renewables (including roof top solar) have increased their market share from zero to 13 per cent, causing Australian electricity prices to become among the world’s highest.  Record levels of new renewable capacity is scheduled to come on stream in the coming year.  Yet in spite of energy modellers “proving” that the subsidies would bring increased supply and lead to lower prices, prices are now double the historical price of under $40 per MWh.

The dramatic rise in costs has had the effect of choking off demand, especially demand from internationally competing industries like aluminium smelting.  Demand curtailment has played a major role in the ability of the nation to meet its much vaunted Paris Agreement goals of a 26 per cent reduction in greenhouse gases from electricity “at a canter”.

The reducing demand is bound to continue with the pending departure of all aluminium smelters, accounting for 15 per cent of the load, businesses that were originally attracted to Australia by the low cost electricity that was available.  Aluminium smelting was for decades the jewel in the nation’s industrial crown, an export-oriented growth industry with very high value added.

The lower emissions have, of course, also been facilitated by increased displacement of fossil fuel generation by wind and solar.

But wind is unreliable as well as high cost.  Thus, in the latest quarter, as a result of the growth of wind, South Australia saw the market operator, AEMO, intervening 40 per cent of the time by requiring gas plants to run when prices were too low in order to compensate for asynchronous wind generators’ inadequacy in providing “system strength”.  These interventions require compensation to the gas generators and bring costs in South Australia, currently running at $30 million a year, which are charged to customers.  In addition, AEMO forced the curtailment of 10 per cent of the potential supply from wind generators to ensure the system stayed secure.

The doubling of prices over the past three years is largely due to the closure of capacity especially Hazelwood and the Northern Power Station in SA.  Coal generation has been displaced by subsidised wind and solar and by renewable generation forcing uneconomic stop-start operations, imposing costs on coal generators that they must try to recoup at other times.  The increase in roof top generation has reversed the level of minimum grid-supplied demand from the early hours in the morning to middle of the day.

In addition, the inhospitable political climate for coal generation has meant the other power stations have stinted on maintenance bringing about more outages.

Unwinding the subsidies that are causing the distortions is the key to allowing the market to mend itself.  The RET at $80 means wind generators can bid into the market at any price under minus $80 and still break even.  Moreover wind and solar generators benefit from other subsidies:

  • cheap loans from the Clean Energy Finance Corporation.
  • market support as a result of wind/solar lacking system strength, with the cost running at $30 million a year in wind-saturated South Australia. That support is expected to be met in future by the transmission businesses installing condensers (and charging this to customers)
  • the wind variability causing increased use of frequency control purchases, again charged to consumers.

The subsidy for most rooftop PVs is paid up front (only the now less-generous feed in tariffs offer on-going support) and so cannot be recouped but new subsidies can readily be discontinued.  These rooftop subsidy costs, like the RET recouped by charges on other customers, have soared to well over $1 billion a year.  The RET itself entails a subsidy of $2.2 billion this year and payments will continue until at least 2030 and, especially in the event of a Labor Government, much longer.

The Commonwealth and the Victorian Opposition are both examining plans to support new firm capacity, which really means coal (and the Commonwealth is pressing AGL not to close its Liddell power station in NSW).

The problem with such schemes is that, while current policies remain, the supported power stations’ success is likely to come at the expense of non-assisted coal or gas stations.  Wind and solar subsidies will make them “must run” market participants.  Even the curtailments (10 per cent of potential output) to prevent system collapse presently observed in South Australia will be eliminated by investments in the grid.  And Victoria, Queensland and NSW have aspirations to mimic the South Australian “success”.

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35 Responses to The Diabolic Policy Dilemmas Created by Previous Energy Policies

  1. billie

    how can this be simultaneously well understood and rational but ignored by the media, the community at large, many scientists and the politicians?

    are they wrong, are we wrong, is something else completely going on that is just escaping us?

    it’s like trying to put out a forest fire with a garden hose the problem seems overwhelming

    is any traction being made, at all against the machine?

    I

    despair

  2. duncanm

    “Unwinding” – ha! They’re just getting started:

    Power from the people: homes paid to supply electricity to the grid

    50 million NSW government plan to create a “virtual battery” to shore up the power grid.

    Under the plan, participants would agree to feed excess electricity into the grid at certain peak demand times, such as during heatwaves, getting paid as much as $1000 over a three-year period for the service.

  3. Tezza

    Only a couple of black system failures and associated dumping of freezer contents in homes, corner stores and supermarkets will convince ordinary punters they have been lied to for a quarter-century.

    All the good work by Alan, Jo Nova and others may then pay dividends.

  4. RobK

    Great work Alan. A couple of comments:
    SRES for roof top facilities where the subsidy is paid up-front for the presumed life of the facility at a rate of $40 per MWh
    The upfront payment is made on the assumption of 15 output. Many homes have upgrades when the FiTs expire at the ten year period. Junked panels find their way on to caravans etc. On hot days panels lose upto 20% output due to heat buildup as the panels are close fitted to the roof.
    Seperately, synchronous condensors address transmission efficiency by correcting power factor. They will not address frequency control, you need to put energy in for that. Generators, hydro, and to a lesser extent, batteries can do that for FCAS fee.

  5. wal1957

    I’m with Tezza @ 9:37pm

    Until the punter experiences the natural outcome of depending on unreliables nothing will happen.

    I sincerely hope that we have the mother of all blackouts and power generation problems this summer.

    Only then will the politicians be forced to get off their complacent backsides by the equally complacent voting ‘joe public’.

  6. RobK

    The $40/MWh for the calculated 15 year output on domestic PV is supposed to allow for poor orientation and installation but it cannot make allowance for curtailment due to grid overvoltage.

  7. Rafe Champion

    Bandaids on top of bandaids. Hilarious if not so expensive and ultimately disastrous.

  8. Tim Neilson

    Moreover wind and solar generators benefit from other subsidies:

    cheap loans from the Clean Energy Finance Corporation.
    market support as a result of wind/solar lacking system strength, with the cost running at $30 million a year in wind-saturated South Australia. That support is expected to be met in future by the transmission businesses installing condensers (and charging this to customers)
    the wind variability causing increased use of frequency control purchases, again charged to consumers.

    Are they still also getting up front taxpayer funded outright grants of 40 to 50% of project construction costs?

  9. manalive

    Sorry folks, doubling the cost of electricity has caused much weeping and gnashing of teeth but it has had absolutely no effect on the inexorable increase in the concentration of lethal gas in the atmosphere, you will simply have to try harder.

  10. hzhousewife

    from the open thread

    Meanwhile, the state and the state appendages are going all out trying to turn the place cashless with threats.

    and from above

    I sincerely hope that we have the mother of all blackouts and power generation problems this summer.

    I am prepared, and can’t wait.

  11. cohenite

    I guess all that can be done is to keep doing what Alan and others are doing (great article Alan); but in punterland, specifically talk back radio, there is still no understanding and acceptance; the malaise of man mad global warming is the default position and if there are problems with renewables it’s the price we have to pay so the alarmists can virtue signal about saving the world.

  12. John Constantine

    Decolonialisation posing as environmentalism.

    The true pollutant of the world, as the left is paid and inculcated to feel, is the pollutant that is the Nazi Anglosphere settlements.

    When the left campaign against carbon emissions of Anglosphere settlements, but not chicom carbon, that shows us what and who they really hate.

    Comrade Maaaaates.

  13. Ironing Mike

    Stock up on water (it runs on electricity, you know), canned food (and a can opener) and cash (the black market still uses it).

  14. manalive

    All this denialism is very disappointing, the big pollooders China India and US have dropped the ball, Euro countries have gone weak at the knees, it’s up to us now “C’mon Aussie C’mon”.

  15. Lucy

    Alan,

    You failed to mention two key points:

    a) Australia’s coal plants were all built by government- ie they were heavily subsidised.

    b) LGC prices may trade at $80/MWh in spot, but the forward curve has them as useless. That is, the subsidy is nearing worthless, and yet the renewable roll out continues apace due to its cost advantage.

    Cheers

  16. min

    It seems no one reads or reads and ignores Germany’s experience with transitioning to renewables. The recent audit of Energiewende is all there in black and white . Do they think Oz will do it better.? Sounds a bit like the excuse for Socialism that has failed again and again but the reason is always not done properly.
    After the drama of theTelstra failure , I am waiting for the consequences as happened in SA but it seems they have not learned as they are still charging ahead with renewables.
    Somehow the voters who are suffering from cost of living ,including energy prices, do not seem to be able to make the connection with current set up.
    I was amazed to see how many shops were closed in two well known shopping strips in Melbbourne . We hear a few businesses such as restaurants complaining about increase in energy prices perhaps a survey needs to be done . It just cannot be one or two examples with energy prices more than doubling and reducing profits to the stage the business will not be viable.
    I have had Solar panels for approx 10 years excess was not fed into grid but into public areas of building that has to operate 24 hours for OHS. However new owners for retirement apartments are putting panels on which will save approximately 20% of $149000 annual fee. There is ,however, nowhere to dispose of old panels that last maybe 15 years.

  17. DaveR

    Australia heading into economic oblivion. Car industry already gone. Aluminium industry about to go. Steel industry to follow. No petrol refining capacity. $20bn wasted on unused green desalination plants. Australia will have no fuel or heavy industry to be able to defend itself in the case of war. Conservative party worried about meeting its “European climate obligations”. All because of false green ideology coming out of Europe/UK. All politicians refuse to tell the public the truth about power costs and subsidies. Generational madness.

  18. flyingduk

    Just bite the bullet and buy a home generator, preferrably LPG powered (the fuel lasts forever and is hard to pilfer). Then install it in a soundproof shed, to avoid any future ‘licensing’ of home electricity generation.

  19. Dr Fred Lenin

    What amuses e is that the carpetbaggers who get the taxpayer subsidy for this “mickey mouse power system “ are probaly using the taxpayer money to buy shares in coal ,,big profits to be made .we supply cheap coal to overseas countries to generate cheap power for their people ,while we have amongst the most expensive power in the world ,sounds liike socialist business practice there . Politicians and gangrenes should get the hell out of powerindustry and let the market sort it out .
    Just a thought what would be happening now if state ovenments still owned ppower generation and distribution ? Messing anout with power could cost ypu your political career in state politics?
    Then you woukd have to find a real job with no perks and much lower pay.

  20. Destroyer D 69

    Dont wait for the system to collapse ….Make it collapse.

  21. Leo G

    Stock up on water (it runs on electricity, you know)

    Stock up on sewage (it also “runs on electricity”, you know)?

  22. Renewables can never supply a significant proportion of world’s electricity demand, let alone its energy demand.
    • Renewables supplied 100% of world energy before the Industrial Revolution.
    • >100 years of solar thermal development
    • >60 years of solar PV development
    • But, after all this time renewables proportion of world supply is only 15% – about 10% biofuels and 5% other renewables (hydro, wind, solar, geothermal)
    • Huge cost
    • Huge environmental resource requirements
    • Huge cost for storage
    • Huge transmission system costs
    o Longer transmission lines
    o Huge capacity for small average power transmitted
    • Intermittent renewables are making dispatchable power more expensive
    o RET makes renewables ‘must take’, so legislation requires they substitute for power from dispatchable plants
    o Therefore, dispatchable plants generate less electricity
    o So, they have to increase price per MWh to recover their fixed costs
    o They can’t generate as much power during peak power price time as they could if renewables are not ‘must take’, so they earn less revenue, are less profitable and forced to increase baseload prices or go out of business.
    • Energy consumption increased from 8 MJ/person/day in hunter gatherer times to 1000 MJ/person/day in modern technological society
    • Per capita energy consumption has been increasing as a power function for 200,000 years. It will continue to increase as a power function indefinitely
    • Renewables can never supply much of world energy demand

  23. Tezza:

    Only a couple of black system failures and associated dumping of freezer contents in homes, corner stores and supermarkets will convince ordinary punters they have been lied to for a quarter-century.

    Leave the spoiled meat etc, on the doorstep of the local MP.
    …but leave it in the sun for a couple of days beforehand, and unwrap it so it leaves a bloody mess to clean up.

  24. Fat Tony

    Peter Lang
    #2864787, posted on November 15, 2018 at 10:52 am

    Yeah yeah yeah Peter – but don’t forget, someone somewhere is making a killing out of all this, so our money is not really being wasted…..

  25. Peter Campion

    What’s the best way to describe “asynchronous” to the layman?

    Also, “system strength”?

  26. Bob in Castlemaine

    RobK
    #2864373, posted on November 14, 2018 at 9:41 pm

    By way of clarification, while synchronous condensers primary function certainly is reactive voltage (VAr) control they can assist with FCAS (Frequency Control Ancillary Services) in a limited sense by adding inertia to the power grid during the initial transient period of frequency fall after a major grid disturbance such as the loss of major generation or line capacity. Thus they help slow the rate of fall in grid frequency by giving up some of their significant stored rotational inertia during the period when grid frequency is falling/slowing immediately following the incident.
    A synchronous condenser can make no contribution to grid frequency recovery (acceleration) once the “nadir” point is reached, see diagram, from this point increased power input from base load, hydro and gas peaker generators is required to achieve grid frequency recovery.

  27. Nighthawk the Elder

    Good assessment as usual Alan.

    Another factor to also bear in mind is regulatory approvals for new generation, where the process can be the punishment. Renewables get a relatively easy pass through. Even when some local farmers object to a particular wind farm, the objections either eventually get dismissed, or another wind farm is built elsewhere. No-one has ceased building wind farms completely. Roof top solar? Yeah I can install those next week.

    Coal on the other hand will be subject to thermo nuclear lawfare by the greenfilth to lock up the approvals for years in the courts, in an attempt to frustrate the proponents in the hope they eventually walk away. Hydro similar and I now suspect gas will go the same way. Politicians can promise new base load power all they like, but without some serious legislative backing, it’s all just a pipe dream.

    And for Lucy #2864671, posted on November 15, 2018 at 9:06 am, coal fired powers stations previously built by governments were not subsidised. They were funded by debt. The SECV, ECNSW, etc. were state owned enterprises and expected to pay their own way, including paying off the said debt. Government’s were the shareholder of these stations, they were paid disbursements from these enterprises and they were also the beneficiary when those assets were sold (less any outstanding liabilities).

  28. Tim Neilson

    Lucy
    #2864671, posted on November 15, 2018 at 9:06 am

    Private enterprise purchase prices for those stations were way above the State’s book value (reflecting accounting cost less depreciation).
    So much so that the Feds amended the tax laws to stop the purchasers from getting depreciation deductions based on the real purchase price.
    If you really believe that coal fired power stations are uneconomic, presumably you’d support abolition of all subsidies and regulatory preferences for renewables because they’re completely unnecessary?

  29. BoyfromTottenham

    Peter C, synchronous – that’s a tough one even for me who often has to explain arcane AC concepts like power factor to laymen, usually with a whiteboard and pens. The closest that I can think of is ‘frequency and wave matched’. But nobody uses this term. A visual representation might help, but 99% of folk have no idea of how AC electricity works anyway, it’s just ‘power’. Similarly the terms ‘dispatchable’ and even ‘base load’. Damn the RET and it’s progenitors. Maybe a graphic video on youtube showing what happens when an asynchronous source is connected to a (much larger) synchronous source would help. Lots of sparks, exploding fuses, asynchronour source blown to smithereens, etc.? And of course the synchronous source sails as if nothing had happened. One might ask, how does a 100% renewables powered grid ever get started, without first a synchronous source to sync to, but if nobody understands the technology, they just don’t get the implications. Fools.

  30. Boyfrom Tottenham:
    One way to describe synchronous would be ‘meshing together”.
    Here is a video of two helicopters rotors not meshing together.

  31. candy

    Bob Brown, Julia Gillard, Malcolm Turnbull and Bill Shorten have a lot to answer for.

    But they are extremely wealthy individuals and probably never even look at a power bill, let alone have qualms about how to pay it when other bills come in and financial resources are stretched.

    You see, they have no idea, absolutely none, of how a lot of folk live.

  32. Eyrie

    “You see, they have no idea, absolutely none, of how a lot of folk live.” Candy,
    THEY ALSO DO NOT CARE.

  33. RobK

    Bob in Castlemaine,
    You are right regarding the instantaneous FCAS of synchronous condensors , and as you say, they cannot inject energy other than their inertia. They do not normally carry extra inertia as that of a prime mover,which a generator has. So whilst they have some inertia by default, intrinsic to the design, it is not its primary function.

  34. RobK

    BoyfromTottenham,
    To explain synchronous vs asynchronous motors, I usually point out that in the case of larger motors, the synchronous motors have their rotor current controlled via slip-rings and a seperate control, so that the speed is locked to frequency and there is no slippage. In asynchronous motors slippage is required to cause rotor current to be inducted (hence they are called induction motors, no slip rings) and they turn at less than line frequency. How much less depends on the load applied.

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