Gas or solar towers? Will South Australia blink in push to clean energy?

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As South Australia prepares to wave goodbye to its last local coal-fired generator, a key decision in the next few weeks may indicate how serious it is about engineering a shift to high-penetration renewable energy and becoming a leader in low-carbon generation.

The government is holding an auction to supply all its (the government’s) electricity needs from “clean energy”, and it has come under intense pressure from fossil fuel interests to reinforce the position of existing gas generators rather than look to next generation renewable and storage technologies.

gemasolar sunny

The auction of up to 481GWh of capacity was to be pitched to zero carbon renewable energy technologies such as wind or solar, and possibly in combination with storage.

But at the last minute, under pressure from the fossil fuel industry, the design of the auction was changed to allow gas-fired and hybrid generation, hence the use of the term “low carbon”.

That choice mystified many in the renewable energy industry and made some question how serious the government was about the transition to a renewables-based grid.

On the key parameters facing the South Australia government – prices, jobs, and a low carbon economy, gas does not appear to stack up to technologies such as solar tower and storage.

Later this year, the state will source more than 50 per cent of its electricity needs from locally sourced wind and solar, the highest penetration in developed economies of fluctuating but predictable renewable energy sources.

The government has flagged the possibility it could look to a long-term goal of 100 per cent renewable, or close to it. It will be essential if it is to meet its target of zero emissions by 2050.

That makes the next step a crucial one.

A proposal from Engie, the owner of the world’s dirtiest power station, Hazelwood in Victoria, and the 479MW Pelican Point gas plant in South Australia, has been getting a lot of air play in mainstream media. Pelican Point is looking for a contract to revitalise some of its mothballed capacity.

You have to ask, what is the point of giving the mandate to gas generation, which averages around 0.4t of CO2 equivalent for every megawatt hour produced, given that South Australia’s average emissions are barely more than gas on average anyway, at around 0.6t/MWh, and will fall further once Northern is returned? It will not significantly reduce emissions, if at all.

The other two key points of South Australia’s ambition is to keep a cap on electricity prices, and to provide jobs. And it wants to be at the centre of new technologies, to underpin a new industry for a state about to lose its car manufacturing capacity.

All of this – jobs, prices, new industries – appears to make solar towers with molten storage a no-brainer.

First, on the subject of jobs: Port Augusta will suffer from the loss of Leigh Creek and the closure of the Northern coal power plant. A solar tower and storage plant will offer some 1,000 jobs in construction, and possibly more than 50 once it is up and running.

Second, on the need for storage: As the Australian Energy Market Operator made clear in its report last week, the South Australian market is not facing any increased disruption from the departure of Northern. But over time it does need to source local, dispatchable generation that can meet changes in demand and provide ancillary services – and generate more competition in a market that will be dominated by two players, AGL and Engie.

Simply using the auction to reinforce the position of an existing player in a two-player market appears to defy logic.

Thirdly, on the matter of costs: On the face of it, solar tower and storage can appear expensive. But that is to ignore the value of storage and what it is competing against.

Mike Sandiford, an energy expert from the University of Melbourne, has done an interesting analysis that underlines the case and the opportunity for solar tower and storage, one of many technologies under the banner of concentrated solar power, or CSP.

To boil it all down to a few paragraphs, Sandiford points out that CSP will essentially be competing with gas, which has been used to balance variations in demand, and more recently supply. South Australia, because of its relatively small industrial base, has the highest variations in demand in the country.

This means the marginal price of generation has often been set by gas. On average, he notes, there are around six hours a day where the wholesale price is pushed up by gas to $100/MWh – and three hours, on average, where it goes to around $140/MWh.

That is within the ball-park of new solar tower and storage technologies which are being built in north and southern Africa, and in north and southern America. A large CSP plant recently bid less than $US100/MWh in an auction for overnight power in Chile.

On top of this, a solar tower and storage plant could tap into renewable energy certificates (currently at around $80/MWh) and also capacity contracts of around $10/MWh.

That would suggest that such a plant could actually source revenues of around $200/MWh, which is about what the cost estimate of the technology was from Alinta, the owner of the Northern coal generator, before it’s much criticised decision to walk away from the idea.

But the price of solar towers and storage is well below Alinta’s estimate – and, for the record, below the price of nuclear, as the royal commission conceded last week.

SolarReserve’s first-of-a-kind Crescent Dunes project is producing power at a cost of $US135/MWh, with a Department of Energy loan, and its second project at Redstone in South Africa is being built at a cost of $US122/MWh, without subsidies.

The Chile plant bid by Abengoa was looking at less than $US100/MWh, presumably in combination with solar PV.

Here are a few graphs that illustrate why CSP – or solar tower and storage – might be more attractive in South Australia than any other state.

Screen Shot 2016-02-22 at 12.29.00 pmThe first shows the average “best” (read, most expensive) six hours of wholesale pricing each day over a 10-year period. South Australia (in blue squares) is just ahead of Queensland.

Screen Shot 2016-02-22 at 12.29.39 pmThe second graph shows just how much more expensive – and more reliant on gas – South Australia was a decade ago when there was little wind or no solar.

Screen Shot 2016-02-22 at 12.29.52 pmThe next graph shows the last year, when the considerable amounts of wind and solar reduced volatility and average prices. South Australia is cheaper than Queensland, which relies heavily on gas and has just 12MW of wind generation.

Sandiford says, however, that with the withdrawal of Northern, then price volatility might return to decade-old levels. Others say this will particularly be the case because of the concentration of market power in just a few generators.

While Sandiford says that CSP (solar tower and storage) could not compete on LCOE (levellised cost of energy) with solar PV or wind at this stage, the government may favour this when valuing the storage capabilities, and its ability to provide ancillary services, including frequency and voltage (broadly known as FCAS), and provide competition.

This is important. The Australian Energy Regulator has already highlighted the problems – and related cost surges – of relying on too few sources of FCAS.

If a solar and storage developer does have a strong offer – and it seems that Solar Reserve, which expressed interest in Port Augusta with Alinta and through the ACT solar auction, does – it would seem extraordinary that the SA government did not seize the opportunity.

If it did, it could extend and broaden its renewable energy mix, add storage, increase jobs, lead in technology development, and provide price competition to the existing fossil fuel generators.

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