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Even if coal were free, it couldn’t compete with solar

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Last week, for the first time in memory, the wholesale price of electricity in Queensland fell into negative territory – in the middle of the day.  For several days the price – normally around $40-$50 a megawatt hour – hovered in and around zero. Prices were deflated throughout the week.

There were several reasons for this. A restricted interconnector to NSW added to the volatile trading, as did uncertainty about the carbon price. But the overall softening of prices was primarily the result of the newest and one of the biggest power stations in the state – rooftop solar PV.

“Negative pricing” moves, as they are known, are not uncommon. But they are only supposed to happen at night, when most of the population is asleep, demand is down, and operators of coal fired generators are reluctant to switch off. So they are willing to pay others to pick up their output.

Negative pricing not supposed to happen in the middle of the day. Daytime prices are supposed to reflect higher demand, when people are awake, office building are in use, and factories are in production. It is supposed to be the time of day when fossil fuel generators used to make most of their money.

But that has now been turned on its head by the influx of rooftop solar. There is 1,100MW of it on more than 350,000 buildings in Queensland alone (3,400MW on 1.2 million building across the country), and  it is producing electricity just at the time that coal generators used to may hay (while the sun shines).

The impact has been so profound, and wholesale prices pushed down so low, that few coal generators in Australia made a profit last year.  Hardly any are making a profit this year. State owned generators such as Stanwell are specifically blaming rooftop solar.

Prime Minister Tony Abbott likes to say that Australia is a land of cheap energy. He’s half right. It doesn’t cost much to shovel a tonne of coal into a boiler and generate steam and put that into a turbine to generate electricity.

But the problem for Australian consumers (and voters) comes in the cost of delivery of those electrons –through the transmission and distribution networks, and from retail costs and taxes.

This is the cost which is driving households to take up rooftop solar, in such proportions that the level of rooftop solar is forecast by the government’s own modelers, and by private groups such as Bloomberg New Energy Finance, to rise six fold over the next decade – with households spending up to $30 billion on rooftop modueles.

Last week, the WA Independent market Operator forecast that 75 per cent of detached and semi detached dwelling, and 90 per cent of commercial businesses could have rooftop solar by 2023/24.

The impact on Queensland’s markets last week is one of the reasons why utilities, generators and electricity retailers in particular want to slow down the rollout of solar. They are

The gyrations of wholesale power prices are rarely reflected in consumer power bills. But let’s imagine that the wholesale price of electricity fell to zero and stayed there, and that the benefits were passed on to consumers. In effect, that coal-fired energy suddenly became free. Could it then compete with roofotp solar?

The answer is no. Just the network charges and the retailer charges alone add up to more than 19c/kWh, according to estimates by the Australian Energy market Commissioner. (The table below reflects National Electricity Market averages, the actual costs vary from state to state).

aemc electricity prices

Solar – according to industry estimates – ranges from 12c/kWh to 18c/kWh, depending on solar resources of the area, Those costs are forecast to com down even further, to around 10c/kWh and lower.

Coal, of course, will never be free.  And the rapid uptake of rooftop solar – dubbed the democratization of energy – is raising the biggest challenge to the centralized model of generation since electricity systems were established more than a century ago.

Network operators in Quensland, realizing the pent up demand for rooftop solar, are now allowing customers to install as much as they want – on condition that they don’t export surplus electricity back to the grid.

Households and businesses have little incentive to export excess power anyway because they are getting paid little or any payment for it. Ergon Energy admits that this will likely encourage households to install battery storage.

The next step, of course, is for those households and businesses to disconnect entirely  from the grid. In remote and regional areas, that might make sense, because the cost of delivery is expensive and in states such as Queensland and WA is massively cross-subsidised by city consumers.

The truly scary prospect for coal generators, however, is that this equation will become economically viable in the big cities. Investment bank UBS says this could happen as early as 2018.

The CSIRO, in its Future Grid report, says that more than half of electricity by 2040 may be generated, and stored, by “prosumers” at the point of consumption. But they warn that unless the incumbent utilities can adapt their business models to embrace this change, then 40 per cent of consumers will quit the grid.

But even if the network operators and retailers do learn to adapt in the face of competition from telecommunication companies, data and software specialists like Google and Apple, and energy management experts, it is not clear how centralised, fossil-fuel generation can adapt. In an energy democracy, even free coal has no value.

A version of this article was first published at The Guardian.

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  • howardpatr

    Besides spending millions on his small army of spin doctors to massage the public on global warming perhaps “Mad Monk Abbott” has given instructions that his spin doctors also make sure that he not be exposed to matters like this.

    His years of indoctrination in school and the seminary seem to have been successful in making him oblivious to matters concerning global warming and renewable energy technologies. Creationism forever as far as the monk is concerned.

    • wideEyedPupil

      That’s “quite enough” of that kind of talk, children.

  • Alen

    This reminds me of the car industry in Australia. The car manufacturers stubbornly ignored the changing demand of customers and persisted in producing their ‘old style models’, and relied on subsidies to survive. Well the utilities are stubbornly sticking to their old business model and relying on subsidies to stay afloat. The subsidies are indirect this time however, e.g. RET review and diluting of it to protect their profits, repeal of carbon tax and diesel subsidies to keep price of coal low and thus burn and generate low-cost power.

    Unlike car industry the utilities have more of a direct threat (in solar PV) and it is only going to get worse, no matter how hard the government is trying to stop it, the solar revolution is truly underway.

    For shareholders I’d say it’s time to quit while it still is worth something.

  • JohnRD

    If we are trying to make rational decisions re energy storage, going off grid and what to do with existing power distribution infrastructure we need to at least separate operating costs fixed costs (largely cost of capital). This is important because most power related costs are fixed. This is particularly true for regulated network costs and renewable power.
    On this basis it seems reasonable to say:
    1. We should be using as much of the available renewable power as possible.
    2. We should be using as much of the available network capacity as practical as long as it reduces costs.
    3. It doesn’t make sense to go off grid unless the cost of connection is high.

    It is also worth noting that back-up as well as storage is required to give a reliable power supply. Easy enoughto do on a farm in the form of a biodiesel generator. Lot harder in the city where most neighborhoods are not going to welcome noisy generators and fuel related fire risks.

    • Motorshack

      “noisy generators and fuel related fire risks.”

      I guess then that they’ll be prohibiting cars soon in most neighborhoods – especially considering that the explosive power in one tank of gas is more than enough to blow a whole house clean off the map.

      I live in a neighborhood full of small backup generators – mostly used in the aftermath of winter ice storms that knock down power lines – and the problem is neither noise nor fire safety. It’s the very high cost of the power, which can only be justified in a true emergency such as a blackout in the dead of winter.

      In short, you’re right, but for the wrong reasons.

    • wideEyedPupil

      Back up and peak demand response in the form of pumped hydro and solarCST with molten salts storage?

  • Les Johnston

    The next issue is for the owner of the poles and wires to start charging generators for access. This will have a major impact on the fossil based centralised plants whereas roof top distributed systems will have much lower access costs. Time for action to make sure the poles and wires do not fall into the hands of the fossil generators. If that happens, electricity costs will go up further just to support the fossil generators cost base.

  • Tony Pfitzner

    The grid is a valuable piece of infrastructure for distributing non solar power e.g. hydro, wind farms where and when it is needed. To allow it to degrade through a lack of adequate feed in tariffs forcing users off-grid, would be a huge loss to society.

    It seems both politics and the short term economics of the power companies are combining to make this happen.

    • wideEyedPupil

      Ethics and leadership are in short supply in Australian public life ATM. Please enquire again when Climate disasters have brought the message home (when it’s mostly too late to stop it).

    • JohnRD

      Quite right Tony. The problem at the moment is that the transition to renewable power is not being driven by a logical plan and logical thinking. For example, it doesn’t necessarily make sense to depend on the market to decide which fossil power plants to shut down first. Equally it did not make logical sense to respond to the surge in air conditioners with the same old brute force approach (increase grid capacity) instead of targetted installation of rooftop solar.

  • Peter D

    Fantastic program covered by four corners last night on renewables. In case people missed it, it’s worth a watch: http://www.abc.net.au/4corners/stories/2014/07/07/4038488.htm
    Look forward to your talk in Adelaide tomorrow Giles, hope I get a chance to say hello.

  • Gregory T

    Perhaps it’s time that electricity was re-nationalised and the true shareholders, those that built the systems, and, it now appears that they are also feeding those same systems on a growing basis. After all, why would you want to pay a third party, who’s only motive is profit and greed for what really constitutes a necessary public utility ?

    • wideEyedPupil

      One issue is that State Governments who still owe generation assets play the same tricks. As do private monopoly operators of distribution networks. Ethics is in short supply in the business world and in Government. Given current governments around Australia are in complete denial of the Climate Emergency and the fact that there is no carbon budget left if we want a safe climate I would save governments will do no better than private industry.

      Salvaging the networks from the “death spiral” would make macro-economic sense and reduce costs for all consumers if run in a sensible way but how is that going to happen when you have ministers for energy like Ferguson, Gray and Macfarlane?

      • Gregory T

        I agree, but if nationalisation were possible, you would have removed the profit at any cost motive from the political scene. Telstra, was returning three to four billion a year into government coffers, before being sold off to private enterprise. And I would prefer to take on a politician, who must at least show his head for election purposes, then some unaccountable CEO, who prospers, regardless of success or failure.

    • Chris Fraser

      Another reason you may wish to nationalise the grid, is that it should have value neutral to conveyance of energy – grid profits should be non-existent or strictly controlled. Grid costs are made up by existing capital cost and new cost to provide capacity or scope for electricity trade, all of which should be managed by small government authorities for the sake of planning. That grid cost should then be borne by successful energy bidders who use it to convey energy, in their appropriate share, in half hour increments.

  • Diego Matter

    Giles, can you please explain why the FIT Scheme component is still rising for 2015/2016?

    All FIT Schemas in the NEM are now abandoned and more and more PV systems loose their FIT when their owners sell the house to another party (there was an article about that on RenewEconomy). Theoretically the FIT Schema component should from now on be lower every year?

    • If you are talking about Qld it is because they undercharged in earlier years – maybe to keep prices down. so this year and next is a catch-up, then it falls dramatically after that. it will be nowhere near as high as thought because of the house sales, upgrades etc.