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Minerals Council’s fantasy world of coal and renewable costs

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The Minerals Council of Australia has entered the world of make-believe with its new “analysis” of energy costs in Australia – but at least it has found a novel way to make new coal generators look cheap.

First of all, you halve the estimated cost of coal generation, double the cost of wind and solar, and then add absurd levels of “back-up” that do not apply to the fossil fuel generators – whose output continually went missing at crucial times in last summer’s heatwaves.

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The MCA analysis, published prominently in the fossil fuel industry’s daily newsletter on Monday, is designed to underpin support for a new coal-fired generator to be built in Australia.

Many conservatives are pushing hard for it: One has been promised by the Queensland LNP within 100 days should it win next year’s state poll,; it has been pursued with vigour by former PM Tony Abbott, Resources minister Matt Canavan and others; and prime minister Malcolm Turnbull has been forced to say he “would like to see” one.

But the MCA analysis is based on pure fantasy – using figures for wind and solar that bear no semblance to reality.

For a start, it doubles the cost of wind and solar. Solar, it says, costs between $90-$171 per megawatt-hour, when the actual rate in Australia is around $70/MWh. Even the Finkel Review put it at less than $100/MWh, and a new solar plant is being built in Queensland at less than half the capital cost estimated by Finkel.

Wind, says the MCA, costs between $64-$115 per MWh. Clearly, they haven’t been reading much of late. The Stockyard Hill wind farm – the biggest in Australia – is being built at a cost of less than $55/MWh.

The MCA also gets its capacity factors wrong, estimating 20 per cent for solar when most plants being built in Queensland – with single axis tracking – are looking at more than 30 per cent. Most new wind farms are well above 40 per cent, compared to the 37 per cent used by MCA.

Then the MCA loads absurd amounts of “back-up” and storage on to the cost of wind and solar, suggesting that new wind and solar farms need to be able to run 24 hours a day for two to three days at a time.

Under this scenario, it says, the cost jumps to between $211 and $693/MWh – or more than eight times what the MCA says is the cost of black coal, itself about 50 per cent cheaper than modelled in the Finkel Review.

It even suggests that a 650MW wind or solar plant with three days “dispatchable” power would cost $27 billion.

It is nonsense and fantasy of the highest order. No such reliability measures are imposed on coal and gas plants which, as NSW energy minister Don Harwin pointed out last week, failed at critical moments in last summer’s heat-wave. “Clean energy performed as forecast. Thermal generation did not,” Harwin said.

It also flies in the face of any sensible appraisal of how an energy market works. The CSIRO has estimated that anything below 40 per cent penetration of wind and solar should be considered “trivial” because of the sheer scale of back-up capacity built for the coal-based grid.

These estimates have been repeated in numerous other studies. At no point will a wind and solar farm need to have “back up for three days” – the CSIRO study suggests only five hours of storage might be needed for up to 80 per cent renewables.

“While variable renewable generation creates a need for additional battery storage it may not necessarily be installed via a formula relating to installed capacity. Rather the total battery requirement more strongly relates to being able to meet average state load for an increasing number of hours.”

This and other analysis also makes the point that long-term storage will not be provided by battery storage – which is cheapest for short-term periods and can react quickly to grid problems – but by other longer-term storage solutions, like pumped hydro or solar thermal.

Harwin, for instance, suggests that Snowy 2.0 will provide back-up capacity for 5GW of new wind and solar. Even if the current estimates of Snowy 2.0 were doubled or even trebled from the current $2 billion, it would still come in at a fraction of the $22 billion estimated by the MCA.

Andrew Blakers, from the ANU, and the author of a study focusing on pumped hydro, says the add-on cost to convert variable wind and PV to have the same reliability as current fossil fuel system is around $25/MWh.

“Thus the all-in cost of a reliable 100% renewables grid is around $90/MWh. This is likely to be $75 by early 2020s as PV and wind head towards $50/MWh,” Blakers said. “(The MCA) numbers are fanciful.”

Let’s just remind ourselves of what the Finkel Review said. Wind and solar were well cheaper than coal, and even with firming capacity, were still way cheaper than gas, and about the same price as coal plants, if the cost of environmental impacts were completely ignored.

Even AGL admitted that the combined costs of wind and solar and battery storage meant that only renewable would be the source of any new “baseload” – we think it meant dispatchable power – and the market would switch from existing coal to renewables, without going through gas or new coal plants.

A subsequent analysis by Bloomberg New Energy Finance, using more contemporary costings, showed an even starker difference, with the price of wind and solar competing with even refurbished existing coal generators within a few years.

“Coal’s competitive advantage is fast evaporating. It cannot compete with renewables on cost, and storage and smart management of the grid have made the need for new baseload redundant,” senior analyst Kobad Bhavnagri said. “Coal is yesterday’s technology.”  

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  • Peter F

    As you say it is BS. Vastly underestimating cost of coal plants. Here is one worked analysis

    1. In Vietnam they cost $US2.7b fo1.2GW =US$2.25 bn/GW = A$3b here
    assuming that construction costs are the same as Vietnam, bold
    assumption.The last one built in the US cost $1.8bn for 600MW
    =$4b per GW. That was in Arkansas which needs much less cooling etc.right to work
    state, i.e poor safety with no union wage rates etc
    The last ones built in Holland again with higher ratings and cold water cooling
    cost A$2.9bn per GW and they started building them in 2010. Probably add
    just a bit of inflation since then.

    Because most northern hemisphere power plants are rated for peak winter demand and all power plants even including wind and solar produce less power at high
    temperatures, a plant which will deliver 1GW on a 40C day will need to
    be at least 1.1GW rating i.e. add another 5-10% to the cost

    Net result, construction cost at least 50% more than the number quoted above.even if it is all built by Vietnamese workers on 457 visas. Adding construction finance (about 12% of the cost) it is close to $4b per GW delivered.

    At world record utilisation rates of 67% and a weighted average cost of
    capital of about 8%. That works out at $62/MWhr before it is even turned
    on. Add average $20/MWhr for operation and maintenance $82/MWhr. At
    current German utilisation rates it is $96 + fuel

    2., According to Platt’s medium quality Newcastle coal NAR 5500 is around US$61 i.e. A$81 for 23GJ of thermal energy. The best coal plants achieve 46% efficiency at full load with cold water. At average load and high ambient temperatures it is
    around 35-37% over the year. Thus fuel cost alone is around $34. Then there
    is water and waste disposal which has been undercharged in the past

    Thus if we are to use clean coal and work it very hard the power will cost
    at least $115/MWhr but more likely around A$135-160/MWhr

    Fixed tilt solar plants are being completed today at $1.05/peak watt which
    translates around A$85/MWhr. Wind farms around $1.90 per watt which also
    works out at around A$80 without REC’s. Adding storage increases the
    cost by $20/MWhr.

    Why would anyone take a punt on a coal plant that might, if you are really really lucky be operating in 4-5 years from today (more likely 7-10 which is the average time in Germany and Korea). This at a time when renewables face no fuel risk, no regulatory
    risk and can be producing revenue in 12 months to 3 years and in 10
    years will be 15-20% cheaper again

    • DJR96

      Good set of numbers that paint a clear picture. Coal is so 20th century. Sadly too many politicians are too………….

    • juxx0r

      You only forgot one thing. When everyone builds renewables, because of your last sentence, they will also need to build the coal capable of turning off every morning as the sun comes up.

    • Mike Westerman

      When even Cory Bernardi is installing solar panels, even zealots are forced to concede we are headed towards every house having solar, and 20GWh is clearly soon to be surpassed. That simple fact will kill off inflexible generation. The MCA needs to start spruiking minerals for the 21st century: copper, cobalt, lithium, silicon, aluminium, and drop coal.

      • Greg Hudson

        Not only Cori Bernardi, but Malcolm Turnbull has them as well. Next we’ll be hearing that Buffoon Abbott has installed them (quietly of course), just like my father-in-law, but that is another story…

    • Coley

      Excellent summation, any chance you could reproduce it without the big words and with lots of simple pictures for the likes of Abbott and Co.
      Even then, they would try denying reality.

  • Joe

    I had to laugh when I saw the MCA story. Their bogeyman argument about costs comparisons has been killed off well and truly. When the February heatwave was on in NSW and the ‘Intermittent Baseload Coalers’ fell over who was it that came to the rescue….a bit of load shedding via smelter shutdowns and our magnificent SOLAR PV. Strange how The MCA completely ignores all of that.

  • solarguy

    Makes you wonder why the coal investors don’t start putting money into renewables, instead of perpetuating this crap?