Here we go again. The Australian public and the Coalition party room are being told that allowing coal-fired generators to continue beyond their 50 year life offers the cheapest path to a transition to a low carbon economy.
But they are being misled. This conclusion is only reached through modelling prepared by a private consultancy for the Finkel Review that deliberately ignores certain new technologies such as battery storage that can provide grid security and replace coal-fired generation at a much cheaper cost than gas.
The detailed modelling – prepared by consultancy Jacobs for the panel led by chief scientist Dr Alan Finkel – also ignores recent big falls in the costs of wind and solar, and over-estimates the cost to build new wind and solar plants.
The Australian public – and the Coalition party room – are being told that the cheapest and most effective way to address emissions is to allow coal-fired power stations to remain in the system beyond their 50-year asset life.
But this is only justified by excluding renewables and associated “firming” technologies – such as storage and synchronous condensers – that the review itself admits could provide a much cheaper option than gas-fired generation to replace coal fired generation.
It lends ammunition to the belief that the Finkel report has been deliberately constructed to achieve a “political” outcome that might just pave the way for some agreement within the Coalition party room.
Many in the industry are happy to go along with that, reasoning it best, or good enough, to get a mechanism in place now, and tweak it later.
But that plan is not working out well. Even with the promise of longer life for coal plants, and falling bills for consumers over “business as usual”, the Coalition party room is being torn apart by disagreements between the moderates and the mostly climate science-denying hard right rump.
The details of the modelling, which were only published on the environment ministry website on Wednesday, show that Australia can be a whole lot more ambitious than the targets laid out under the central Finkel Review’s conclusions, and could save even more money if some realistic cost assumptions were made and some technology answers dialled in.
The report’s recommended policy mechanism, the Clean Energy Target, has caused controversy because it allows for coal-fired generation to still support 25 per cent of total generation by 2050, albeit in a scenario where climate targets reflect the Coalition’s modest down-payment and not the “well below” 2°C scenario signed up to in Paris.
But there appears to be confusion in the modelling. Finkel himself acknowledges that the cost of wind and solar is cheaper than both coal and gas-fired generation, even with storage and “firming” capacity added, and carbon emissions and environmental impacts of the fossil fuel plant ignored. (See graph above)
Those estimates, Finkel noted, took into account some of the latest contracts, including the stunning $55/MWh deal for a wind farm in Victoria, and recent estimates by Origin Energy and AGL on the contracting costs of solar.
ARENA’s Ian Kay said on Wednesday that wind was being built in Australia at costs in the “low to mid” $50s/MWh, while solar was in the low to mid $70s/MWh, and falling.
The acknowledgement of these cost falls is critically important for considerations on how to address Australia’s energy future, but the detailed work conducted by Jacobs appears to roll back on those estimates and distorts the impacts of various policy paths.
More alarmingly, when considering scenarios where coal generators were managed out of the grid after 50 years, the Jacobs modelling deliberately ignores certain technologies such as synchronous condensers, and “synthetic inertia batteries”, that could be used instead of more expensive new gas generation.
Instead, it says that coal plant would have to be replaced only by thermal generators, meaning gas, and this would put the prices up sharply compared to the “unlimited” life coal scenario included in the preferred Clean Energy Target mechanism.
“Jacobs understands that new technology developments (i.e. synchronous condensers, synthetic inertia batteries with power conversion electronics etc.) will potentially allow renewable technologies to provide these ancillary services (or at least a portion of these services) but a more conservative approach was chosen for that sensitivity in order to examine the full impact of the constraint,” it says.
Frankly, this is outrageous. As one competing industry consultant noted:
“I’m afraid I find a lot of this so-called modelling is pretty low-grade stuff. Turning the handle and get what you want. The track record of this stuff is laughable and it’s boring and worthless to keep on talking of it as if it means something.”
It was not clear whether he was disputing the Finkel Review’s conclusions, or simply wasn’t aware of them.
The cost estimates for wind and solar used by the Jacobs modelling are also faulty. It has not reduced its capital cost estimates for wind energy below the much criticised capital costs used in its report for the Climate Change Authority last year.
Wind capital costs are still estimated at $2,400/kW, while solar PV and solar PV with single axis tracking are lowered but put between $2,200kW and $2,300/kW. (In the graph above, the left column represents life span of asset, the fourth column the capital costs per kW, and the next column the learning rate).
Solar farm and wind farm developers have told RenewEconomy that these estimates are out of the ball-park. “We think it is closer to $,1500/kw for single axis solar, and $1,800 for wind,” said the head of one firm currently constructing both wind farms and solar farms in Australia.
Also, he pointed out that solar farms have a life of at least 25 years. Only 20 years is factored in to the Jacobs modelling. The capacity factors adopted by Jacobs (Maximum of 29 per cent for tracking solar) also appear to short-change solar technology, in particular, by around 10 per cent.
This is not the first time we have taken issue with Jacobs over its modelling – most notably for a report it did for the CCA and various different policy scenarios, including the suggestion that an ambitious renewable energy target would result in a more coal-fired power stations built after 2040.
The upshot of this is that the cost estimates for consumers and emissions abatement for the scenarios that limit coal generation are painted as being significantly higher than allowing coal to continue.
This is important because, as the International Energy Agency has pointed out, and numerous others, if there is any chance of reaching the Paris climate goal, the electricity grid needs to reach zero net emissions well below 2050.
But the result is to completely distort the result, as occurred in the modelling that was used by AEMC and CCA to justify and emissions intensity scheme over alternatives such as a high renewable energy target.
