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$30 billion reasons why fossil fuel incumbents support EIS

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If you ever wondered why the sudden and renewed enthusiasm for an emissions intensity scheme from the fossil fuel lobby and their supporters, wonder no more. It will likely save coal and gas generators $30 billion over competing scenarios. But it won’t deliver any savings for consumers.

That, at least, is the conclusion of the modelling used by the Climate Change Authority – loaded with Coalition appointees – when it recommended an emissions trading scheme last November, and dumped its previous preference for high ambition, carbon pricing and renewable energy targets.

The modelling – prepared by energy consultancy Jacobs – is one of two cited by supporters of an EIS, and both are bad news for consumers and bad news for renewable energy. They result in more money for legacy coal and gas generators, less renewable energy, and no savings on electricity bills.

It makes you wonder why Labor and so many others are charging headlong into an EIS without stopping to think about the consequences. RenewEconomy has been criticised by many – both publicly and privately – for its stance on this issue.

Surely, we are told, we have to move forward. Yes, we reply, but we have to open our eyes and look where we are going.

The problem we have is that alternative policy scenarios, such as high renewable energy targets, are being junked on the basis of assumptions – on solar costs in particular – that are so out of whack with reality and present day experience that it beggars belief.

We took Jacobs to task last year in this piece, Garbage in, garbage out when we wondered what sort of hallucinatory modelling resulted in their predictions that a high RET policy would result in new coal-fired power stations being built in the 2040s!!!!!! Hadn’t they heard of storage?

The consequences of taking this sort of modelling seriously, could be, well, serious.

Blindly adopting an EIS will likely favour gas, place unrealistic hopes on other low emission technologies such as carbon capture and storage, geothermal and even nuclear, and put a potentially crippling brake on the solar industry and other renewables.

Both modelling reports – one by Frontier Economics, for the arch conservative rule-maker, the Australian Energy Markets Commission (see our story Australia’s energy rule maker hasn’t a clue about renewable energy), and the other by Jacobs – assume that gas generation will be the biggest beneficiary from an EIS.

Little wonder, then, that the gas lobby is right behind it – as are the owners of gas generators, the Energy Supply Council, AGL, Origin Energy, EnergyAustralia, BHP, and others.

On the basis of this modelling, investment in renewable energy will be pushed out beyond 2030 – under Frontier’s modelling basically nothing will be built between 2020 and 2030, and under Jacobs modelling renewables will account for just 48 per cent of total generation in 2050.

The most arresting assumption, however, is on the profits delivered to incumbent generators. The Jacobs modelling suggests that of all the scenarios to meet the 2°C climate targets, the emissions intensity scheme is the least damaging to the profits of incumbent fossil fuel generators.

jacobs profits

 

Their profit take would fall by only $20 billion, compared to a loss of up to $50 billion in the other scenarios.

Why is that? Quite simply, as Jacobs notes, because having a high renewable energy target and more renewables would deliver much lower wholesale electricity prices.

And they come to that conclusion even with their out-of-date technology cost assumptions, which as we pointed out in that Garbage in, garbage out story, had technology cost assumptions more conservative than the widely discredited AETA report from 2012, and nearly twice as expensive as the more credible 2015 APGT version.

“The loss in profits in the technology pull scenarios is due to lower wholesale prices and low generation levels (for fossil fuel generators,” it writes.

jacobs wholesale prices

And here is a graph (above) to illustrate it. The blue line is the wholesale price under high renewables targets, the dotted red line (look up the graph where the prices are really high) represent an EIS.

And, of course, there is no great benefit to consumers in this. Their bill will be little different under an EIS to a high renewable energy target, according to the Jacobs modelling, which, remember, grossly inflates the cost of solar in particular.

jacobs retail costs

Indeed, their modelling actually suggests that a high RET target will deliver bigger savings for consumers in the short term – to 2030 – and be about the same with an EIS over the long term. (Just remember, that Jacobs assumes solar and wind cost a lot more than they actually do).

The Frontier modelling agrees. It also finds on its “cheaper renewables” scenario, the high renewable energy target policy delivers as much savings to consumers over business as usual as an EIS. And even those cost estimates of wind and solar – set for 2030 – are well beaten by actual costs today.

So, presumably, if both Frontier and Jacobs managed to get a grip on reality with technology costs – or the CCA and the AEMC encouraged them to – then the costs of the high renewables scheme would be much lower and the savings to consumers even greater.

Jacobs, readers might remember, produced a report last year that predicted that only around 400MW of big solar would be built across Australia out to 2020 and none – that’s right, zero – from 2020 to 2030.

That prediction looks less than prescient now (actually, it looks really, really stupid) given that 1,000MW of large-scale solar is already under construction in Queensland alone this year, and another couple of gigawatts is expected to follow.

But in its report for the CCA, Jacobs uses similar out-of-whack solar cost assumptions, suggesting only minimal build between now and 2030 – before apparently being run over by geothermal and CCS after that. They might as well predict a comeback for the horse and cart.

jacobs wind solar

 

“Renewable generation is lower in the emissions pricing scenarios, where gas plays a more significant role in the early years, and low emission technologies (such as CCS and nuclear) play a role later,” it suggests.

So why is an EIS – which encourages less renewables, is no cheaper to consumers, and results in higher wholesale electricity prices (bad for manufacturing) – being prosecuted so enthusiastically by Labor and others?

From Labor’s perspective, it is all about politics. They once called such a scheme a “magic pudding” and a “mongrel” when it was first proposed by Malcolm Turnbull and Frontier Economics.

But they now think they can wedge Turnbull, just as they did in 2009 on the CPRS, because they know that the Far Right of the Coalition won’t countenance anything that looks like carbon trading.

That pursuit of Turnbull in 2009 was all about politics than policy. It resulted in Turnbull being turfed by Abbott and Co and then Labor presented a diluted and heavily compromised scheme to Greens and refused to negotiate. The result was no policy at all.

Now Turnbull has been cornered again. He has no mechanism to reach the Paris climate goals, given that he has taken such an aggressive dislike to wind and solar, and the Far Right won’t like the other option, government regulation. And he has no plan to reduce electricity bills.

The incumbents are happy following through with Labor because it means more money for them. Their over-riding strategy is to bleed their existing assets for as much cash as they can. And this lets them do it, by putting a big delay mechanism in the way of their principal competitors – wind, solar and storage.

This graph below illustrates how. It’s from Jacobs, and it shows the build out of renewables under the high renewables scenario (in blue) – which, remember, doesn’t cost consumers any more but brings down the cost of wholesale power – and under the EIS, in the dotted red line.

jacobs renewable production

Yes, it is important that Australia reaches bipartisan agreement on policy. But even if that commonality could be found with an EIS, it doesn’t mean ditching good options on the basis of bad modelling. That’s not progress at all.

The voices urging caution about an EIS are few. Bruce Mountain has raised concerns, calling it another tragic episode in the policy “comedy of errors”, and the CEFC has suggested a renewable energy auction scheme could be the most effective mechanism.

That’s because – as just about everyone knows – the dream of “cheap” gas is just that, a dream – a point made abundantly clear by the Australian Energy Market Operator in its report on Thursday.

And the Clean Energy Council came out on Wednesday with a carefully worded document that suggested an EIS “could be a viable foundation policy” but something more was needed to lead the transition from out-dated coal-fired power to renewable energy and storage technology.

Finkel, so far, has been verballed on the benefits of an EIS – he merely noted in his preliminary report that the AEMC and the CCA were in favour of one.

Hopefully, someone at the Finkel Review, with a more realistic grip on technology costs, and the possibilities of battery storage and other smart software barely countenanced by these other reports, can see through this.

Hopefully, they can come to their own conclusions – which may just be an EIS, as a foundation, but only in partnership with schemes that encourage new technologies, and don’t leave the grid hopelessly reliant on last century’s technologies and wet dreams about steam turbines.

Note: To hear Giles Parkinson and David Leitch dissect the week’s events, including the Tesla vs gas, and questions about who is in charge, please click on the Podcast link below.

  

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  • trackdaze

    Tesla have effectivley put everyone on notice in coming out to say storage can solve the intermittency and cost of gas in 100days.

    Im afraid the game is up. 2 weeks worth of teslas gigafactory production would solve SA reliance on unreliable and costly gas generation.

    • Ren Stimpy

      Agree.

    • Chris Baker

      Tesla didn’t actually say that in 100 days they could solve SA reliance on unreliable and costly gas generation. The promise is that given a contract to build 100 MW in 100 days, they will do it in the time or its free. It will still need the AUD$200m (or so) to be on the table. As to the question of whether it will solve SA reliance on gas — that’s not really gonna happen with just 100MW (or 100 MWh, there’s some confusion in the tweets about what it might actually be).
      We need to step back a bit and take stock of the magnitude of the problem. Say SA was running entirely on wind and solar, it would need enough storage that would allow it to run at night without wind. And even through a still rainy day. Lets say it needs 24 hrs worth of storage of some sort. (I’m sure it will be more than that, but lets go with that for now). How much power is that?
      According to AEMO the annual power consumption for SA is 13,000 gigawatt-hours for 2015-16. This is a daily average of 35.6 gigawatt-hours.
      The entire world’s annual production of lithium batteries a year or so back was 35 gigwatt-hours. The Tesla giga-factory will double that by producing 35 gigawatt-hours itself when it running at full production. But anyway, the point is that enough storage for just one day’s power in SA, a minnow even in Australia, will require most of the entire world’s production of lithium batteries.
      Its seems pretty clear to me that we need significant storage in addition to batteries to have a snowballs chance of getting this transition to work anytime soon. Pumped hydro and concentrated solar storage will also need to be in the picture to get this over the line, and some demand side management as well.
      Don’t get me wrong, I’m a great supporter of batteries in the system, and use them myself for transportation projects.
      And I think Elon Musk’s provocative tweet is just what we need to get such systems up and running. Even the coalition will recognise how stupid they will look if they push against someone with so much street cred as Elon Musk.
      But just this project won’t solve SA issues.

      • Rod

        No doubt about it, just a couple of tweets have certainly lit up the airwaves so to speak. This story is getting lots of traction.
        Don’t forget we have the ability to import 800 odd MW over the Interconnectors.
        The 100MW proposal would go a long way towards improved reliability and reducing price peaks rather than as overnight or day long storage.
        However, due to the lack of Federal action, things are getting desperate and this would be a good (quick) start while getting other options up and running.

        • trackdaze

          Now SA needs to build a solar farm or two to grow exports over the interconnector!

          • Rod

            Yes, that is the one RE area we have been a bit slow at.
            I understand there are a couple of projects in the works.
            Hopefully we will get some single axis tracking farms built out West, to produce later into the day.

          • Ren Stimpy

            Not sure why but there are no SA solar farms in the first round of 12 ARENA funded ones. Perhaps ARENA can stretch their first round funding to include one in SA, particularly if this grid battery goes ahead.

          • trackdaze

            More a case of “when” not “if”I Imagine.

            Tesla has come out with pricing on grid scale battery packs at $250kwhr.

          • Ren Stimpy

            Well if i imagine correctly, ARENA have foregone any SA solar farms so that the Port Augusta solar tower might have a chance in the market. But the fact is this giant PA white elephant (please, please prove me wrong) has just stalled other significant renewable and storage options.

            Port Augusta Solar Tower – please shit or get off the pot. For everybody’s sake. And FFS.

          • trackdaze

            There is 100Mw planned for construction in 2017 at tailem bend by snowy hydro i thought? + rooftop maybe 30Mw.

            Enough for double digit growth in solar for 2017.

          • Ren Stimpy

            Yeah but those are not included in the ARENA booster. The Port Augusta project needs to make a decision now – either pull the trigger or fuck off, so that ARENA can have a more clear choice in making its funding decisions. The Port Augusta Solar Tower project is simply not helping things by drawing out its decision on whether or not to go ahead, by years and freaking years. Shit or get off the pot. Go hard or go home.

      • neroden

        You will never need to store a full day’s power usage.
        (1) The sun literally shines every single day and solar panels produce some power even when it’s raining. We have more trouble up here in the *snowbelt* where the snow sits on the solar panels and blocks them, but you don’t really have that issue.
        (2) It is practically impossible to have 24 hours without wind over a large area.

        Distribute wind all over. Distribute solar all over. Distribute batteries all over. You’ll find that the “worst case” is a lot less than a day’s storage, and that a lot of the storage has already been built for other reasons. In the meantime, hang on to the Interconnector and to the more modern gas plants as backup for the highly unlikely “Mt St Helens Eruption” type events.

        The Tesla Gigafactory has been uprated — it’s targeting 150 GWh/year now though most will go to cars. Another company is building their own 35 GWh/year factory and another is planning one. Tesla is planning three more. The production capacity is going up fast.

      • trackdaze

        On the blackout from the tornados toppling the storm troopers.

        A 100Mwh+ battery would undoubtedy have helped steady the ship and allowed the gas generators enough time either to find the keys, read the troubleshooting manual or likely find a can of start ya bar$tard.

        Outside of the “happens a few hours a year” peak loads and the now biannual 1ina100 year event contingency. They can recover the cost by supplying pent up renewable energy at daytime peaks.

        Thanks

      • Calamity_Jean

        “Say SA was running entirely on wind and solar, it would need enough storage that would allow it to run at night without wind. And even through a still rainy day. Lets say it needs 24 hrs worth of storage of some sort.”

        Has South Australia ever had a night that was windless all over the whole state? Has South Australia ever had a day that was windless and rainy all over the whole state? I’m having trouble imagining that.

        Even if it eventually turns out that SA really needs a whole day’s worth of batteries, any amount of batteries would help in coping with problems that are less than the worst possible case.

  • DJR96

    Any and every option must agree with the NEO. If it doesn’t support the NEO, it shouldn’t even be on the table.

    So you know there is something catastrophically wrong with a plan when 20th century incumbents are embracing it because it does nothing to reduce wholesale prices.

  • Rob G

    There is an odd thing happening here, the “Energy Crisis” Turnbull harps on about. Has sent a wave of people thinking “help!” and going off to buy solar, batteries (and unfortunately – generators) **See last night’s Lateline as an example of this. He is unwittingly getting people to become more energy independent. So we see the whole dirty lot jumping up and down for an EIS – oddly Frydenberg was against it because in his words “it would encourage too many renewables…” Given this article, it looks like a game being played within a game. Could the coalition be helping renewables by accident?? And hurting fossil fuel interests by accident?? Seems unlikely, but they might just be.

    • DogzOwn

      Good things only happen despite ,COAL-ition govt

  • Chris Fraser

    Another problem is there are too few vertically integrated companies that are licensed to sell energy (independent of a retailer). Too few players charging whatever they like, to too many hapless victims. There is very little competition. The very words Energy Suppliers Association would be enough to tell you this could be a huge cartel designed to make us pay until we bleed. With PV becoming so widespread, the evolution of this market failure should provide more peer-to-peer connections, giving those grid priority, with some truly objective Authority advising a reasonable cost of that trading’s wear and tear on the grid asset.It would convey more clean energy through the system, and finally take some of the bad politics out of energy.

  • Damien

    Giles – to be fair to Labor, and inline with your closing comments, an EIS is one part of Labor’s policy suite. Others are below and would assist the further deployment of renewables (From http://www.laborsclimatechangeactionplan.org.au)

    – Ensure that at least 50% of the nation’s electricity is sourced from renewable energy by 2030;
    – Expand the investment mandate of the Clean Energy Finance Corporation;
    – Provide $206.6m to ARENA to support a specific Concentrated Solar Thermal funding round;
    – Establish a Community Power Network and Regional Hubs at a cost of $98.7m over four years; and
    – Ensure the Commonwealth Government leads by example as a direct purchaser of renewable energy.
    – Ensure the National Electricity Market meets the needs of 21st century consumers through an Electricity Modernisation Review;
    – Develop a plan to ensure the orderly transition of Australia’s energy generation from polluting coal-fired power stations to renewable and clean energy, with a core focus on supporting workers and communities; and
    – Implement an electricity emissions trading scheme

  • Ian Mclaughlin

    Don’t worry We, the people, will take the power (pun intended) away from the incumbents at an ever faster pace as prices for solar and storage keep dropping. That will leave business to pay more and more they will eventually squeal so loudly their paid Government will have to face reality. I have done this progressively over the last few years. As a result my electricity bill for the last 9 months, when I take OFF the 44c feed in tariff, would have been $26!!

  • Ken Fabian

    It is hard not to think that for many of these “prominent” organisations the more certain they are that it’s politically impossible the safer some of these “supporters” of carbon pricing feel about saying it’s their preferred option. Put an actual carbon pricing policy on the table – with real potential to get enacted – and see which way they jump. Cynical as I am (been following the climate and energy debates a long while you know) I would not be confident betting they’ll follow their words up with real support.

    If it’s a case of them wanting that or nothing – opposing every alternative that has real merit – then it becomes difficult to differentiate their actions (ignoring the airy statements) from those of the obstructionists that wear their opposition on their sleeves. A bit like an LNP that formally states it accepts climate science and the need for emissions reduction – but not at the expense of coal and gas jobs and incomes.

  • Nick Thiwerspoon

    I don’t understand.

    An emissions intensity scheme in the simplest terms would work by “taxing” those power stations with the highest emissions intensity (initially, brown coal) and “subsidising” those with the lowest intensity (presumably wind, solar PV and CSP), with the transfers netting out to zero. So brown coal would rise in cost, renewables would fall. There would be an incentive to close brown coal plants and replace them with renewables. As each brown coal power station closed down, the average emissions intensity of the grid would fall, so that the next most polluting power station would start to feel the pressure until it too closed down. And so on.

    Why would an EIS favour gas? I understand that the assumptions used in the modelling are hopelessly wrong, but surely all that means is that the conclusions are hopelessly wrong too. In other words, brown coal will not be replaced by gas, but by renewables, because renewables are already cheaper than gas at current prices, and are going to be even cheaper in future. The gas price is soaring, the cost of renewables is plunging. What an EIS will do is accelerate the process of transition. I understand it will favour gas over black coal and black coal over brown coal, but it will favour renewables over all of them.

    What am I missing?

    • Chris Drongers

      Nick, I agree.
      The problem seems to be that new coal generation is not going to be built because
      a) it is expensive relative to renewables
      b) no-one will lend it the money because it will be unable to sell its electricity before it pays back its construction because it emits too much carbon dioxide and reputational risk to the lenders
      c) it would be trying to force unvarying ‘baseload’ into a market increasingly well supplied with variable but cheap solar and wind backed by storage
      d) a plethora of marketing models involving block-chain/demand management/micro-generators will be prepared to undercut a big coal plant to retain market share.

      In fact the only market for a big coal plant right now would be a next door aluminium/zinc/copper smelter or LPG chiller that requires unvarying mega-dollops of power. And even then, Sun Metals has made the choice that for at least 15% of their power requirements an array of solar panels is cheaper than even the coal plant they own part of!

      Add the two pumped hydro storage plants likely to be operating by 2020 (Kidston and Port Augusta) and another two likely to be developed concurrently as government support firms (say at least one north of Adelaide and another in regional Queensland) possibly a third in south west WA) and new coal will be competing against baseload dispatchable renewables.

      So even locking in gas supply contracts for ‘peaking’ plants to cover the 2-4 years before renewables+storage undercut coal and gas will be difficult to justify without government support. Ditto building any gas plant other than can be taken away on a skid-mount over the same period.

      • Don McMillan

        Tell AGL – they are proposing importing shale gas from the USA – 20 year commitment. AGL has bailed out of upstream gas [exploration and production] so why do their engineers and economist think renewables cannot do it?

        • Chris Drongers

          Why the engineers think gas will remain? I dunno. Interesting about a 20 year supply from USA. Maybe it is a bet that Australia won’t unfreeze domestic production and that an EIS + relatively young CCG plant(s) will still be making money or overall losing less than shutting them before end of life? Even if all states go 50% renewables by 2030 there is still 50% of coal or gas to fight over

          • Don McMillan

            Due to the size of the investment and contracts they’ll be a take or pay contract. We will be committed.
            “Why engineers think gas will remain?” I encourage people to study engineering and contribute or show how it is done!
            Engineering is governed by the laws of thermodynamics, which take many years to fully understand, but once appreciated, you’ll understand the difficulty of managing peoples’ expectations as engineers can design anything with an unlimited budget.

          • Chris Drongers

            Don McMillan “Due to the size of the investment and contracts they’ll be a take or pay contract. We will be committed.”
            Or when/if gas power generation becomes uneconomic/politically unsupportable the gas could be on-sold to industrial processes or residential heating or transport that together make up the other 70% of Australia’s energy use.

            Thermodynamics suggests that having burnt the coal/gas (increase in entropy) to spin turbines, it makes more sense to generate electricity (local decrease in entropy) and store it (slight increase in entropy) rather than run to power that may be needed to a dissapation grid to maintain spinning reserve. Batteries can be switched in and out or reversed instantaneously.

            Solar generation is also driven by thermodynamics. So is Don’s point the cost of the thermodynamic converter? In which case PV and wind converters beat thermal converters (coal/gas).

          • Don McMillan

            You missed my point on thermodynamics – that is fine.
            Chris you need to convince the renewable energy engineers and economists that work for AGL and ORG, they are obviously do not hold the confidence as supporters of this website. Maybe you should get out there design, build a business case, raise money [there is a lot available for renewables] and build. Show them how to do it. Action that is what we need.

          • Chris Drongers

            Still missing the thermodynamics point unless it is just that engineering is complex and doesn’t bend to wishing? I would suggest that when hitting a law of physics some/many/most of the lawyers,accountants and politicians who lead us would follow Lysenko rather than Bacon. The exceptional few who lead in disruptive times like Musk, Gates, Edison, are rare and don’t live here

          • Don McMillan

            Sorry I did not mean to be condescending. But I do agree engineering is extremely complex, even with 30 years experience it is unrelenting. The one thing I miscalculated the importance of social interaction. We can design anything optimally but conveying this to the public usually ends in disaster as their expectations are beyond what money [budget we are given] can deliver. Plus we are not very good at explaining complex systems.

  • Robert Comerford

    Mention any policy that can be called carbon tax and see how long it takes for labor to be re-elected.
    Like it or not I fear we are going to see gas as the next messiah from the coal ition.

    Maybe if Labor made the rorting in the electricity supply market a criminal offense with mandatory custodial sentences that might help . :>)

    • Don McMillan

      AGL is investigating building LNG terminals in NSW, Vic and SA to import shale gas from the USA. They have a lot of support politically for this and with the silence from the greens, activities and websites like this one, encouragement. This is a 20 plus year commitment. Why?