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Energy costs: Business-as-usual no cheaper than 100% renewables?

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The Australian government quietly released the final version of the 100% renewables scenario prepared by the Australian Energy Market Operator on Friday – a report commissioned by The Greens but which has been shrouded in controversy over the way it was managed.

The Greens wanted two questions to be addressed by the AEMO report: firstly, is it possible to achieve a 100% renewables scenario by 2030 or 2050. And secondly, how much will it cost, and how much that compares to business as usual.

The answer to the first question was – yes, it can be achieved. And that is a crucial development. Even through the report is, as it admits, very hypothetical, it is an important first step . The difficulties with transforming  to a low carbon future are mostly economic, rather than technical.

The answer to the first part of the second question is between $219 billion and $332 billion over 20 or 40 years, according to the AEMO figures. But it is an unsatisfactory answer because it does not include elements that could make it more expensive (grid upgrades, land acquisition, closure of incumbents), some whacky technology cost estimates (the predicted 2050 cost of solar exceeds what most other countries are already achieving in 2013), and because it includes no comparison with business as usual. Just to add a little context, network upgrades in the last five years have totalled around $45 billion)

The comparison with business as usual is the crucial element, because between 2030 and 2050, all current generation will need to be replaced. If the likes of Bloomberg New Energy Finance are right, then solar and wind are already cheaper than new coal and gas, and could account for 46 per cent of generation by 2030.  As the ANU’s Andrew Blakers pointed, a simple cost substitution could see fossil fuels replaced by renewables by 2040. The fact that the AEMO was instructed not to consider cost comparisons with fossil fuels suggests the government was uncomfortable with such conclusions.

But we know the answer anyway. AEMO tells us that the wholesale price of electricity will range from $111 to $133/MWh depending on the scenario – getting to the target by 2030 or 2050, and depending on the rate of economic growth and energy consumption. That figure is twice the current wholesale price of electricity, which sounds scary.

But what is not considered is the price of new fossil fuels, and the impact of a carbon price – which between 2030 and 2050 could be significant if the world is serious about tackling climate change. AEMO says new transmission network infrastructure would add another $6-$10/MWh. The Greens note that the wholesale price of electricity by 2030 is expected to be around $110/MWh anyway, according to Treasury estimates, on a largely business-as-usual government policy scenario.

The impact on consumer electricity prices would be an increase of between 6.6c/kWh and 8.5c/kWh, AEMO says. That’s about a 25 per cent increase, less than the increase experienced by most Australian consumers as a result mainly of grid upgrades in recent years.

Missing from the AEMO equation is the extent to which network business models may change with the proliferation of rooftop solar and storage, and the migration to a predominantly distributed rather than a centralised model. That’s not surprising as no-one knows how that will pan out, although various studies point out that distributed generation will save billions in avoided transmission costs.

As for what mix is envisaged in the AEMO document, it suggests that no single technology will dominate the fuel mix, and it suspects that it will rely on a significant amount of biomass that could drive open cycle turbines to fill in the “weather gaps”. It notes that biomass will not compete with food crops, but could compete with other industries such as timber.

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And here is a rough guide as where some of these technologies might be sited. AEMO says between 2,400 to 5,000 square kilometres of land will be needed, although some of that will be dual-use, as wind farms operate happily with existing farming activities. In practice, RenewEconomy would assume there would be more “distributed” generation closer to demand than is indicated here.

 

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Finally, here are the cost estimates. Again, solar seems to get a raw deal from AEMO estimates, as the solar thermal estimates seem way ahead of expectations, and the solar PV estimates for 2050 – for rooftop PV and utility scale PV – is what is already being achieved in many European countries, according to a recent report by Deutsche Bank.  The cost of utility scale solar in Australia is likely to fall dramatically once the plants actually get built, and the costs of maintenance, construction and finance fall.

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  • Professor Ray Wills

    A problem with the analysis is it doesn’t account for the arrival of cheap storage which will deliver greater changes than the arrival of solar.

    Storage is understandably seen as the keystone to renewable energy. But while large scale energy storage would on first pass seem to be the the logical best solution for the electricity market to service renewables, will it be the main game? Storage has already been critical in the arrival of portable devices, and driven by demands of laptop computing and mobile (smart)phones. While stationary storage is certainly considered important, the electric vehicle market has probably already been responsible for the arrival of in excess of 20 GW of storage over the past 10 years. Meanwhile markets in Germany, New Zealand and now Australia are considering distributed domestic storage as likely drivers of storage requirements for the next few years. (In developing nations too, modest power requirements mean that storage may in fact be readily and economically achievable.)

    Solar was the earthquake, storage will be the tsunami. The energy market is changing forever.

    • Leo

      You, Giles are a joke. All you think about is rooftop pv and batteries are the future. If the government makes the FIT par on par with electricity prices, those who invested in storage will be pulling their hair out at the disasterous decision theyve made. Will people take the risk? The future lies in high density living, appartment blocks etc. Most of a cities power demand comes from large buildings, sky scrapers, towers etc and solar simply cannot remotely supply that load. Read this report, at the max, only 46% of Australias’s demand can be supplied via solar pv, thats not good enough and thats if every building was covered which will never happen. You boys have a unhealthy obsession with pv. Get real…..

      http://www.energyinachangingclimate.info/IEA%20-%20Solar%20PV%20potential%20on%20buildings%202002.pdf

      • Giles

        I don’t think we’ve ever once suggested that solar PV could provide the entire electricity needs, or even remotely suggested that. What we have been saying for a while is that solar PV is the biggest game changer in this industry for a century and battery storage will be the next biggest. Most independent analysts, most major utilities and generation companies internationally recognise this. The only people who don’t want to hear this message are the baseload boys – be they coal or nuclear – because it stuffs up their business models. As Flannery says, solar is coming ready or not, so short of banning it, the incumbents have to learn how to deal with it. The evidence is so far that they are not.

        • Leo

          It just seems like youre implying it as you always relate back to PV in most your articles as if it is the holy grail. But I may just have the wrong impression. I have to agree that PV is a massive game changer but not so sure about storage. If the FIT and power prices become close or even identical (could happen) and no insensitves are launched to help reduce peak demand, am I right in saying that there would be no need for people to buy residential storage? Wouldnt it be possible to use the grid as a battery? Please clarify this for me.
          It just seems risky to spend thousands on something that could be rendered useless with a simple policy change by the government (such as an equal to equal FIT)

          • Giles

            In theory you are right. The grid is the obvious choice of battery. But right now it is not cheap, cos of the locked in costs of the supersized networks. So unless they take a haircut (write down the value) or come up with some other magic solution, then battery storage will always be tempting while electricity retailers hit them with the same cost as diesel in the outback.

          • Leo

            Thanks Giles well I understand the situation a lot better now.. hmm. Reading this report, shows the network costs have declined in VIC (30% of bills) yet wholesale generation has risen in price in the last few years. Why has this wholesale cost risen? I thought PV and wind farms were reducing this wholesale cost?

            http://powercor.com.au/docs/pdf/latest_news/Oakley%20Greenwood%20-%20Causes%20of%20Residential%20Electricity%20Bill%20Increases%20in%20Victoria%20-%202001%20to%202012.pdf

          • Giles

            It would appear that they throwing in retail services into the $134 increase in “wholesale costt” which is a bit wierd. So it could be retail margins going up. Also, the spot price of wholesale market is not always reflected in your bill, cos the utilities got a bunch of ways they can skin that cat, arguing that it should be spot, spot plus hedges, or as they succeeded in doing in SA, making it long run cost of energy.

          • Leo

            So in Victoria’s case it’s the retailers fault for the increase in bills not gold plating as they claim in the media? What exactly are the utilities? As from that report it seems to be the fault of the generators and retailers not network companies. Or are they all considered utilities?

          • Giles

            utilities is generic term, which changes from country to country on the detail cos each country has different structure. anyhow, reason that transmission/distribution costs lower in Vic is that they were privatised, so not able to get away with as much as the state owned ones in NSW and Qld. but there has been some gold plating all the same.

          • Leo

            Oh ok fair enough. Yes I know there’s been some gold plating in VIC also but in terms of price rises, it hasn’t had an affect on network costs so its not an issue. Anyway it’s a complicated issue and hopefully these unnecessary costs will end

          • Professor Ray Wills

            Great dialogue Giles and Leo – if only our political debates could be resolved by strong and persistent engagement and well reasoned logic and discussion. :-)

            One of the other challenges is the date the game changed – which in my opinion was about 2008/9, and it really has taken us the past 5 years to change our thinking and to reach a new understanding of what is possible. Which also means that much of the conventional thinking that went into the debate prior to those dates was not steeped in the new normal, and did not consider the changes we are seeing – and the rate of change we are seeing – within the realms of possibility. Therefore I treat all reports prior not written in the past two years with a great deal of caution and as potentially limited, particularly where pricing is involved.

            Having said that, the 2002 IEA report Leo linked is a good read. Taking their figure 46% of roofs in Australia (from the report) is around 4 million homes so 4 times what we have now, giving 10 GW of install and 13 000+ GWh annual generation.

            But that excludes commercial roofs. And utility scale installation. And its only the solar bit.