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Renewables future no more costly than fossil fuels

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The Australian government appears to have made a remarkable concession following the release of the 100% renewables report by the country’s energy market operator – a renewables future will be no more costly than the largely fossil fuel alternative.

As we reported earlier this month, after the release of the Australian Energy Market Operator’s 100% renewables scenario, the estimated wholesale cost of electricity from a system based largely around wind, solar, geothermal and biomass would cost around $110/MWh and $130/MWh between 2030 and 2050 – depending on the speed of that transition.

A “community summary” posted on the Department of Climate Change website, highlights the fact that the various scenarios painted by Treasury, the CSIRO, the UNSW, and now the AEMO modeling suggests that wholesale prices – whatever the scenario – will fall in a generally narrow range of around $100/MWh to $130/MWh in 2030, and $110/MWh to $150/MWh in 2050.

Here is the relevant piece from the document:

A number of other studies have looked at generation and wholesale electricity prices in 2030 and 2050: the Treasury’s Strong Growth Low Pollution (SGLP) modelling from September 2011, the CSIRO’s eFuture modelling tool, and the University of New South Wales’ least cost 100 per cent renewable electricity scenarios in the Australian NEM study.

Importantly, each model has a specific purpose and each has significantly different assumptions, methodologies and cost inputs. Furthermore, each model emphasises different aspects of the electricity system and simplifies others according to purpose. For example, the study’s cost numbers are based on a total revenue requirement (average costs) while others (such as CSRIO) are marginal costs. Average costs are likely to be lower than marginal costs.

As a result, differences in the models, the exclusion of some costs and the framework which does not build the system incrementally means that is it not possible to accurately predict the quantum of additional costs that would result from any new policies to achieve 100 per cent renewable energy.

Nonetheless, despite the differences between the modelling exercises, indicative wholesale electricity prices generally fall within a reasonably narrow range of around 100 – 130 dollars per MWh in 2030 and around 110 – 150 dollars per MWh in 2050.

So it seems that Canberra bureaucrats, if not the politicians, are conceding that there is little difference in costs between the relatively modest climate and clean energy goals proposed by the current government, and the more ambitious targets proposed by The Greens, and environmental groups.

This should not be a surprise to anyone who has properly considered the costs of new generation – as ACT minister Simon Corbell has – and their likely progress in coming years. Wind, and then solar, clearly offer the cheapest options.

New coal and gas plants will be priced out of the market, an important consideration when taking into account that most current generation needs to be replaced in coming decades. (Some pro-nuclear web-sites and commentators like to say that nuclear energy will be within the same cost bracket, but that is only if the cost of capital is ignored.)

The consideration of future costs is a crucial point in the current federal political debate, where policies such as high emission reduction targets and high renewables scenarios – as proposed by The Greens – are seen as reckless, dangerous, marginal or fringe policies.

The frustration is that while such targets form part of the mainstream policy discussion in most other countries, each of the big parties in Australia are as keen as the other to put as much distance between themselves and the Greens. So while most other countries debate how quickly they should be moving to decarbonise the economy, the overall theme in Australia is how slowly it should be done.

The common reason for this is cited as cost to the consumer, but the reality is that the cost to consumer is no greater in these ambitious scenarios than it is under the more modest transitions modeled by Treasury. And if other environmental costs are included, such as the health impacts of fossil fuels, then the numbers change again.

As Corbell (he’s from the Labor Party) noted in his interview with RenewEconomy this week, a 90 per cent renewables target would cost no more to consumers if tied in with energy efficiency and other measures. It’s a shame that no other politician from a mainstream party is talking in those terms on a national scale.

As Corbell noted, the real push back comes from incumbent generators and vested interests, because it is they who face lower revenues and profits – which is why their industrial lobby groups are calling for a dilution of Australia’s relatively modest 20 per cent renewable energy target by 2020 (in the case of the generators), or for climate policy to be completely re-evaluated (in the case of the Business Council of Australia).

Both strategies are focused on creating further delay in the inevitable transition to a low-carbon economy. Unions and environmental groups operating under The Southern Cross Climate Coalition today released a policy platform that stressed that environmental policies can be directly linked to employment growth and economic expansion.

It says that low-carbon and energy productive technologies and practices are essential for maintaining and growing jobs, and this applies as much to traditional industries as it does to innovate industries of the future.

Despite efforts by some media to bring climate change to the forefront – as witnessed by the SMH editorial today – such pleas are likely to fall on deaf ears in the current campaign.

Neither Treasurer Chris Bowen nor Opposition spokesman Joe Hockey mentioned climate change or a clean energy transition in their hour-long debate on Monday, focusing instead on an absurd argument about revenue and budget forecasts in forward estimates – a complete irrelevance to everyday Australians and the major issues confronting the country.

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  • wideEyedPupil

    If only all our MPs would all read this article and digest the truth: 100% renewables is the future and the sooner we get there the better for the climate, the economy and the people. Congratulations on another well reasoned article, Giles.

    • Miles Harding

      “Expenditure similar to business as usual”, assuming that business as usual continues as it has previously.

      Currently,oil prices are stubbornly stuck at more than $100 per barrel, despite supposedly the dawn of a new energy bonanza. De-coupling the economy from the finite supply of fossil fuels would provide greater stability, particularly if the predictions for oil and gas prove to be somewhat optimistic.

      I am glad that the story mentions efficiency as part of the mix. We need a slogan like “smaller, smarter, better” to describe improvements.

      The FBT concessions on vehicles could be a starting point if it was made selective, say highly fuel efficient vehicles (Electric?) and Australian made, with the latter being timetabled into the fuel efficient after some time.

      This gets me to another point. We are in the grip of laissez-faire politics to such an extent that no national agenda exists. The country is entirely being pushed by market forces and vested interests, a hallmark of historically poor statesmanship on the part of our politicians.

      It makes it very difficult to cast a vote in favor of any of them!

  • wideEyedPupil

    Little surprise the #qanda debate failed to mention Climate Change and renewable energy. They rarely do and even when legendary Bill McKibben was a guest they barely touched on anything except a few well worn denialist memes other guests brought up. #qanda vets the questions so it’s what the abc thinks is worth talking about.

  • Claire

    If wholesale electricity prices get up to $130/MWh the biggest beneficiaries would be incumbent coal generators. You would need a carbon price of $100+ to price Vic brown coal generators out of the market. You’re dreaming if you think that generators that can recover their short run costs in the market would shut down – they would limp on for decades.

    The key assumptions in all of these studies seem to be that in due course all of the capacity in the NEM will need to be retired and replaced, and that the wholesale electricity price will reflect the long run cost of the new generation fleet required.

    Given the massive oversupply that the market has now, it will be well into the 2020s before demand will be at a level to support building new baseload generation. At such a time it is forseable that new solar or wind may be cheaper than new coal or gas (this may already be the case if the exchange rate conditions are right). But it will always be more expensive to shut existing plant down and replace it with renewables because of the capital intensive nature of all types of power stations.

    • Dylan Tusler

      Things change quickly, though, Claire. Only a few years ago, we were on track for steady increases in electricity demand. That will happen again if the price of oil stays high and the innovations in electric vehicles continue to pick up pace. I could already drive a Volt to and from the office every day (round trip about 60km) and that would increase my daily electricity demand by up to 50%.

      Electricity wholesalers should be looking to displace oil and thereby increase demand for their product. That kills two birds with one stone, vindicating the oversupply and gold-plating of infrastructure, while rescuing a struggling business model.

      • Claire

        I agree Dylan, the Volt is terrific and as soon as electric vehicles are remotely cost competitive I will be eagerly lining up to buy one – not only are they good for utilities but great for decarbonising transport and reducing Australia’s reliance on oil imports – so I hope this transition happens sooner rather than later!

        My point remains though that if the wholesale market recovers, incumbent generators will hang around to profit, so 100% renewables would be harder to achieve. If the wholesale market continues to decline, old generators might close down but investment in new renewables would be very difficult as they rely on both the LREC and wholesale prices to recover their capital investment.

        With a carbon price of $30 you would need to be able to deliver renewables at a long run cost of $50/MWh to shut down an existing coal fired power station and replace it with zero emissions generation – this is about half of where wind is now so both a carbon price and a technology breakthrough would be required.