Chaotically Intermittent and Heavily Subsidised Wind and Solar in Australia

Chaotically intermittent and heavily subsidised wind and solar are at the heart of Australia’s power pricing and supply calamity.

Like a runaway train, the disaster is unfolding before the passengers’ very eyes, with state and federal politicians apparently incapable of bringing the disaster to a halt and ever-present rent seekers throwing the throttle wide open.

Power prices are rocketing out of control, especially in those states chasing substantial Renewable Energy Targets.

Australia’s wind and solar capital, South Australia (with a 50% RET) suffers the world’s highest power prices – in the financial year just ended, its wholesale power prices jumped another 12%, with further hikes in retail prices expected to match that.

Neighbouring Victoria – presently embarked on the same suicidal path with a mass rollout of wind and solar power and chasing its own 50% RET – saw its wholesale power prices jump a whopping 19% in 12 months. Here’s the news: for Victorians the worst is yet to come.

Collapses in wind and solar output (think sunset on a dead-calm 42°C day) this coming summer during heatwave demand peaks will result in mass load shedding (aka “demand management” – a term usually synonymous with the Third World); at least when the grid manager has control of the situation. When the grid manager loses control, it’s called a “mass blackout”, a phenomenon for which wind and solar ‘powered’ South Australia is now world-renowned.

STT has been banging on about this since December 2012, in the hope of perhaps encouraging a few in a position to halt the insanity to do just that. So too has The Australian’s Economics Editor, Judith Sloan. Although, like STT, Judith appears to have reached the anxious appreciation that it’s all far too late.

I was channel surfing the other night and briefly turned on the ABC nightly news (which, by the way, contains a lot of non-news). I caught a story about a newly installed large-scale solar development in western Victoria that has the capacity to power 46,000 homes.

Actually, 46,000 homes is a relatively insignificant number but, importantly, the reporter failed to ask the project spruiker what would be powering the homes when the sun was not shining.

That’s the trouble with intermittent sources of energy — they are intermittent and their peak capacity doesn’t align with peak demand. There have to be backup forms of generation.

This story occurred during a week when periods of zero (or even negative) wholesale electricity prices were recorded in some states because of the abundance of solar and wind power at certain times.

Mind you, you shouldn’t think solar and wind farms aren’t receiving any revenue for generating electricity when the price is zero or negative.

Renewable energy certificates are still providing a source of cash — the price is about $40 to $50 per megawatt hour — and the operators of many of these installations have signed agreements with state governments (and some private companies) that guarantee their cashflows.

But here’s the most important part of the story: how can it be that we have periods of the day in which we have zero, negative or low wholesale electricity prices yet overall wholesale prices are still high and rising?

Before I answer this question, let me remind you of the perennial assurances given by the renewable energy industry that electricity prices will fall as the proportion of electricity generated by renewable energy increases.

Consider the modelling done for the Warburton review of the renewable energy target undertaken in 2014. The prediction given to the review panel was that even the high RET that existed at the time — the target was 41,000 gigawatt hours by 2020 — would have no significant impact on electricity prices or would lead to lower prices.

This was predicated on the assumption that baseload generators essentially would be unaffected by the high rates of subsidisation of renewable energy associated with the RET. The turbines would just keep spinning.

As events panned out, and notwithstanding the revision of the RET to 33,000GWh, the business models of baseload generation have been significantly affected, with the exit of some major installations including the Northern power station in South Australia and Hazelwood in Victoria.

And here’s some more recent information: the RET has already been met, given the rollout of renewable energy installations, yet wholesale electricity prices have never been higher. According to reneweconomy.com.au, “the last financial year ending June 2019 saw wholesale electricity prices rise in every state in the NEM (national electricity market). Victoria had the highest increase on the previous financial year at 19 per cent, followed by South Australia (12 per cent), Queensland (8 per cent) and Tasmania (3 per cent).”

It is also noted that wholesale electricity prices have tripled across the past decade in Victoria and Tasmania, and have doubled in Queensland, NSW and South Australia.

And this was a decade during which the RET was operative.

In recent years it has been the constant refrain of the renewable energy industry that renewable energy, even with firming to ensure 24/7 reliability, is now cheaper than fossil fuel generated energy. But if that is the case, why is it that the renewable energy industry continues to ask governments for interventions — the term policy certainty is a favourite — to promote renewable energy over other fuel sources?

The truth is that the RET has delivered what was expected — large swaths of intermittent renewable energy.

The fundamental problem now is that there is too much renewable energy in the system, given the existing transmission arrangements, the lack of storage and the declining proportion of reliable baseload generation.

So what are the possible solutions to this damaging dilemma and what are the likely costs of these solutions? Are there any overseas examples that could guide our politicians?

On this last question, a new report by McKinsey on Germany’s energy transition policy named Energiewende has called into question the wisdom of the reform. The adjective “disastrous” is used in the report. Note that Germany’s policy has much in common with our approach.

“Problems are manifesting in all three dimensions of the energy industry triangle: climate protection, the security of supply and economic efficiency,” says the McKinsey report.

Not only has Germany failed to meet its own targets for emissions reduction, its reliance on importing electricity from neighbouring countries also has risen.

“The ongoing phase-out of nuclear power by the end 2022 and the planned coal withdrawal will successively shut down further secured capacity,” the report says. “In particular, the industrial regions of western and southern Germany (will be) affected.”

Returning to the east coast electricity market in Australia, the first and most obvious solution is to extend the lives of the existing baseload plants as well as sharpen the incentives for owners to spend appropriately on maintenance and upgrades.

It looks as though the life of the Liddell coal-fired power station in NSW’s Hunter Valley will be lengthened by at least six months; guaranteed arrangements with large customers could extend this further. Increasing the supply of reliable dispatchable generators more generally should be part of the mix.

The next possibility is to create separate markets within the NEM — for capacity and frequency services, for instance. In the past, the coal-fired plants offered these services incidentally, but this can no longer be assumed. But setting up a capacity market — paying operators just to be available — doesn’t come cheap.

Then there is the nonsensical idea of demand-management in which large users are paid to reduce their demand for electricity at certain times. This is real Third World stuff and comes at a cost.

There is the option of new transmission lines being built, including some interstate ones. This is expensive and takes some time to execute. The possibility of a transmission line between South Australia and Victoria has been discussed since Mike Rann was premier of SA in the early 2000s.

There are also some complications about getting interconnectors approved as regulated infrastructure, thereby guaranteeing a given rate of return and spreading the cost to all consumers. The companies associated with this part of the supply chain are always keen to secure favours from governments.

There is a certain irony that this option should be discussed, given the role that the gold-plating of poles and wires, mandated by new government regulations, played in driving up electricity prices in the early 2010s.

And at some stage Snowy 2.0 should become operational — at a considerable cost — which will create substantial storage capacity for parts of the NEM.

The short-term outlook is grim. Blackouts are on the cards this summer and prices remain extremely high. Parts of manufacturing are teetering in the context of high and variable electricity prices. Many plants won’t be able to hang on unless prices and their volatility can be reduced.

It’s hard to see how the implementation of a combination of the possible solutions, most of them costly, can alter the outcome now.

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