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The net cost of using renewables to hit Australia’s climate target? Nothing

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The Conversation

Australia can meet its 2030 greenhouse emissions target at zero net cost, according to our analysis of a range of options for the National Electricity Market.

Our modelling shows that renewable energy can help hit Australia’s emissions reduction target of 26-28% below 2005 levels by 2030 effectively for free. This is because the cost of electricity from new-build wind and solar will be cheaper than replacing old fossil fuel generators with new ones.

Currently, Australia is installing about 3 gigawatts (GW) per year of wind and solar photovoltaics (PV). This is fast enough to exceed 50% renewables in the electricity grid by 2030. It’s also fast enough to meet Australia’s entire carbon reduction target, as agreed at the 2015 Paris climate summit.

Encouragingly, the rapidly declining cost of wind and solar PV electricity means that the net cost of meeting the Paris target is roughly zero.

This is because electricity from new-build wind and PV will be cheaper than from new-build coal generators; cheaper than existing gas generators; and indeed cheaper than the average wholesale price in the entire National Electricity Market, which is currently A$70-100 per megawatt-hour.

Cheapest option

Electricity from new-build wind in Australia currently costs around A$60 per MWh, while PV power costs about A$70 per MWh.

During the 2020s these prices are likely to fall still further – to below A$50 per MWh, judging by the lower-priced contracts being signed around the world, such as in Abu Dhabi, Mexico, India and Chile.

In our research, published today, we modelled the all-in cost of electricity under three different scenarios:

  • Renewables: replacement of enough old coal generators by renewables to meet Australia’s Paris climate target
  • Gas: premature retirement of most existing coal plant and replacement by new gas generators to meet the Paris target. Note that gas is uncompetitive at current prices, and this scenario would require a large increase in gas use, pushing up prices still further.
  • Status quo: replacement of retiring coal generators with supercritical coal. Note that this scenario fails to meet the Paris target by a wide margin, despite having a similar cost to the renewables scenario described above, even though our modelling uses a low coal power station price.

The chart below shows the all-in cost of electricity in the 2020s under each of the three scenarios, and for three different gas prices: lower, higher, or the same as the current A$8 per gigajoule. As you can see, electricity would cost roughly the same under the renewables scenario as it would under the status quo, regardless of what happens to gas prices.

Levelised cost of electricity (A$ per MWh) for three scenarios and a range of gas prices.

Levelised cost of electricity (A$ per MWh) for three scenarios and a range of gas prices

Balancing a renewable energy grid

The cost of renewables includes both the cost of energy and the cost of balancing the grid to maintain reliability. This balancing act involves using energy storage, stronger interstate high-voltage power lines, and the cost of renewable energy “spillage” on windy, sunny days when the energy stores are full.

The current cost of hourly balancing of the National Electricity Market (NEM) is low because the renewable energy fraction is small. It remains low (less than A$7 per MWh) until the renewable energy fraction rises above three-quarters.

The renewable energy fraction in 2020 will be about one-quarter, which leaves plenty of room for growth before balancing costs become significant.

ost of hourly balancing of the NEM (A$ per MWh) as a function of renewable energy fraction

Cost of hourly balancing of the NEM (A$ per MWh) as a function of renewable energy fraction

The proposed Snowy 2.0 pumped hydro project would have a power generation capacity of 2GW and energy storage of 350GWh. This could provide half of the new storage capacity required to balance the NEM up to a renewable energy fraction of two-thirds.

The new storage needed over and above Snowy 2.0 is 2GW of power with 12GWh of storage (enough to provide six hours of demand). This could come from a mix of pumped hydro, batteries and demand management.

Stability and reliability

Most of Australia’s fossil fuel generators will reach the end of their technical lifetimes within 20 years. In our “renewables” scenario detailed above, five coal-fired power stations would be retired early, by an average of five years. In contrast, meeting the Paris targets by substituting gas for coal requires 10 coal stations to close early, by an average of 11 years.

Under the renewables scenario, the grid will still be highly reliable. That’s because it will have a diverse mix of generators: PV (26GW), wind (24GW), coal (9GW), gas (5GW), pumped hydro storage (5GW) and existing hydro and bioenergy (8GW). Many of these assets can be used in ways that help to deliver other services that are vital for grid stability, such as spinning reserve and voltage management.

Because a renewable electricity system comprises thousands of small generators spread over a million square kilometres, sudden shocks to the electricity system from generator failure, such as occur regularly with ageing large coal generators, are unlikely.

Neither does cloudy or calm weather cause shocks, because weather is predictable and a given weather system can take several days to move over the Australian continent. Strengthened interstate interconnections (part of the cost of balancing) reduce the impact of transmission failure, which was the prime cause of the 2016 South Australian blackout.

Since 2015, Australia has tripled the annual deployment rate of new wind and PV generation capacity. Continuing at this rate until 2030 will let us meet our entire Paris carbon target in the electricity sector, all while replacing retiring coal generators, maintaining high grid stability, and stabilising electricity prices.

Source: The Conversation. Reproduced with permission.  

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  • RobertO

    Hi All, Our only problem is so called capacity/ reliability to coal power. Our COALition fiends in power will want this as a final part of leaving power. The NEG will slow RE down but as to the details we have no real information as I assume the worst from them. The NEG will have coal with out guarantees (It “BASELOAD” , won’t need them is next step by COALition.

    • Joe

      Hi Rob, I saw on my ABC, Channel 24, TV today Two Tonguer Turnbull holding a presser at the Bluescope Steel in Wollongong. And there he was spruiking his NEG, that’s the NEG that nobody knows anything about besides the 8 pager talking notes that he waved around a few weeks ago. At the Wollongong presser Two Tonguer Turnbull told us ( like the Abbott did a while ago ) that you can’t make steel from wind or solar power. Only problem of course is Sanjeev Gupta and his LIberty Steel in South Australia…..they are going to make the steel from wind and solar power! We also heard that Snowy 2.0 is going to be the world’s biggest battery. This was very big news to me. Afterall the feasibility study into a potential Snowy 2.0 is still doing its…feasibility study…no recommendations, proposals or dare I say it….Governmental approval to build Snowy 2.0. The man / Turnbull is a lousy PM who always speaks with two tongues….he is disgrace.

      • RobertO

        Hi Joe, about a couple of months ago they were sprouting that they did not care where the electrons came from, so now it’s important where they come from.
        I just want to see whom opens Sanjeev Gupta RE supplies for his steel mill in SA. You would have to invite both the”mad monk”, “two tongues” as well his offsider “Frier Tuck”!

        • Joe

          I’m loving the ‘pet names’. Yes please, get the three of them over to SA as the Sanjeev cuts the ribbon / flicks the switch for his Steelworks…. powered by WIND & SOLAR no less. And can we have Premier Jay on the same stage with the three for a repeat of sorts of the ‘discussion’ from earlier this year between Jay and Joshie at that infamous AGL VPP launch.

          • rob

            jay is to polite……..you need TOM KOUTS………. OUR ENERGY MINISTER THERE…… He will give them the spray they deserve!

  • Peter F

    If you look at the target generation from Scotland, Germany, Spain, Texas and California it appears that across a large area, even allowing for no go zones like national parks, cities, lakes etc with the current technology it is practical to generate 1.5-3 GWhr per square kilometre. Within 50 km of the NEM transmission and distribution lines there is about 1.3 million square km. Thus we can easily generate 10-12 times our current demand without any further technological progress. That in turn means that we can put all the renewable generation we actually need close to the load centres, backed up by small pumped hydro plants, power to heat and ice and behind the meter batteries.
    There are about 10 million hot water services in Australia. if 60% of them were grid controlled that is 20 GW of controllable load. Refrigeration and ice making, heat storage for domestic and process heating, pool and water pumps etc mean that with modern demand response technology some people claim that peak demand on poor renewables days can be reduced by 30%. While power to heat (or ice) is not as flexible as batteries or pumped hydro it is about 1/4 to 1/8th the price.

    In turn that means other than some relatively small upgrades to the NSW, Qld and NSW-Victoria links we probably don’t need to invest in the HVDC backbone or large scale projects like Snowy II that require significant transmission upgrades.

    In summary the transition could be $10-15bn less expensive than your model shows. without doing the sums it suggests probably $10/MWhr less cost

    • Malcolm M

      Some of our interstate connections are operated well below their thermal rating. Before undertaking major capital works on new inter-connectors, the current limits need to be reviewed to determine if there are cheaper ways of closing the gap between AEMO’s operating limit and the conductor thermal rating. For example, NSW to Vic is limited to about 430 MW, when the line capacity is about 700 + 700 + 700 + 200 MW = 2300 MW (these being for Murray-Upper Tumut, Murray-Lower Tumut, Jindera-Wodonga and Buronga-Red Cliffs). The interstate limit is because of limitations within Victoria in a “worst-case” scenario that the Murray hydro station (which is part of the Victorian network) is dispatched at its full capacity and saturates the high voltage line into South Morang. There are also transformer limits at South Morang. Surely a higher limit could apply if the Murray station is not dispatched.

      Likewise the SA to Vic limit is 500 MW, whereas the line capacity is about 1150 MW. This is for stability concerns within SA, and transformer limits at South Morang. Surely the new big battery should help with the stability concerns within SA, while also reducing the need to run expensive gas plant. Perhaps AEMO doesn’t have enough electrical engineers with experience in reviewing these rules. For example, the upgrade of the SA to Vic from 500 MW to 650 MW was meant to be completed by March 2017, but is still listed as an “ongoing” project.

    • RobertO

      Hi Peter F, sometimes it better to provide alternatives to a system, take tassie as an example when Bass Link failed, if they had Bass Link 2 going it would have been “No Problems”. Just to do things on price only is not alway the right answer. An interconnect from SA (somewhere near Port Augusta) going to Liddell NSW used as a CRE zone (via Broken Hill) would support Sydney and provide power in both direction and stop gaiming of the wholesale markets when the Vistorian SA interconnects are up for maintainance. It would make it easier for wind and solar in SA to be used in Sydney. I am not sure there is a correct answer only on price. RE is going to continue to drop in price, and it seems our population is going to continue to rise

      • rob

        S.A. after the shit we have got from the LNP and NSW LNP can get stuffed. We are going for gold 100% renewable …..Do you honestly think we are interested in giving you all our hard work meeting our 50% renewable target of 50% by 2025 …..8 years early are going to “GIVE” you our power? We are going for for gold….you vote in the LNP state wide and by population federally can go stuff yourselves. We will keep it all here and attract all your business away! We have done the hard yards……you want to suck us dry…….well F**K you all

  • Ian

    Good work. Time to move on to the transformation of transport to zero carbon.

    • Wilma

      Google is paying 97$ per hour,with weekly payouts.You can also avail this.
      On tuesday I got a great new Land Rover Range Rover from having earned $11752 this last four weeks..with-out any doubt it’s the most-comfortable job I have ever done .. It sounds unbelievable but you wont forgive yourself if you don’t check itGoogleNetJobsTopWorkFromHome…

  • lin

    “Australia can meet its 2030 greenhouse emissions target at zero net cost”.
    There is no way the LNP will support this. How could their fossil mates extort massive profits from us if this was allowed to proceed!

  • nakedChimp

    That’s the problem right there. The ones profiteering from a centralized grid with monopoly pricing control will earn less in that scenario.
    It’s never about ‘peasants’ saving bucks.
    It’s always about the high-rollers wanting to make a killing, while telling everyone they’ll do the opposite.

    What do kids learn in school these days btw?

    • rob

      ask @solarguy he seems to know everything……… lol

      • nakedChimp

        way to go to defuse a situation. Maybe just ignore or block him if you got a problem with his posts?

        ..just sayin’

        • rob

          will do, thank you

  • solarguy

    Hello Andrew and all, Snowy 2.0 does have a lot storage capacity, but is it going to cost to much seeing that, their going to need to tunnel 27km through hard rock. I would appreciate you’re opinion on this and if you think we could do it cheaper and quicker with several PHES systems around the country?

    • Malcolm M

      That 27 km of tunnel also means energy losses through turbulence and friction, which would reduce its round trip efficiency. Blakers quotes round trip efficiencies of pumped hydro of up to 80%, but this would be lower, requiring a larger price difference between the buy and sell price for the arbitrage income stream.

      To be a useful capacity addition into the NSW and Vic markets, there would need to be about another billion dollars to extend the NSW 500 kV network to Tumut 4, and a further billion to extend the Vic 500 kV network to Tumut 4. So with $2 billion for the power station it is all-up a $4 billion investment. For comparison the Blakers study found some excellent pumped storage hydro sites in the Araulan area close to the NSW 500 kV network, and near Seymour in Vic which is ~70 km from the Vic 500 kV network. These pumped-storage sites are closer to load centres and transmission capacity, without the reliability concerns of long transmission lines, and would be much cheaper peaking capacity than Tumut 4.

      If I were putting the case for the additional transmission capacity between Victoria and Tumut 4, I would propose it doesn’t go the shortest possible route, but north from South Morang to about Cobram, then east to Tumut 4. The Cobram-Finley area has much better solar resources than almost any part of NSW and Vic with a strong transmission grid, and would provide a good connection point for new solar serving both States.

      • solarguy

        Sounds like a good analysis Malcolm and confirms what I was thinking. Although I’m no expert in these big matters, I like to keep my finger on the pulse so to speak, as it is very interesting to me as a solar PV designer. It occurred to me that even though Snowy 2.0 is a great resource, it should not be considered in the short term due to the expense, but perhaps later or not at all. Thank you for you’re prompt response on the matter.

        But, I would like Andrew to answer this question too. Not implying that you are in any way are not across this subject at all. I appreciate you’re input very much.

        Cheers.

        • rob

          lol you like to keep your fingers where?

        • rob

          LOL, No expert in ‘BIG MATTERS”…….surely you jest!

          • solarguy

            Keep going, I’m sure everyone will see what twisted prick you really are. And now you’re attacking RobertO…….. sick bastard.

    • rob

      surely you are used to drilling through” HARD *OCK”…….smile you tough “LITTLE BOY”

    • RobertO

      Hi Solarguy. Snowy 2.0 is more than just one tunnel, we need to see the feasibility and its costing before we condemned to the rubbish bin. There may be parts of it which make sense (and they may not always be just financial). It need to be part of a long term plan as to what is best for Australia (including providing employment). Yes PHES consumes energy but it’s a price we may have to pay as part of the progress to 100% RE. We may not need it tomorrow but it will take 5 years to do even the smallest part.
      My biggest complaint is, ” We as a country have no plan, on where we think we should be going, when we think should go and why we should go to that position!”

      • solarguy

        G’day RobertO, My concern of Snowy 2.0 is that it may be to costly, even though it would have great storage capacity. Blakers has been hard at work with his multi PHES study and it makes a lot of sense to me, not putting all our eggs into one PHES basket and the fact that similar, if not more capacity could be built quicker than Snowy. I’m not binning the idea on the face of it, but yes it does need a feasibility study. But I have a feeling it may turn out to be a waste of time and money. 27km of tunnel balks me, let alone the friction losses Malcolm M was talking about.

        A change of government should see a plan emerge finally.

  • neroden

    It’s really not fair to say it will cost nothing. In fact, converting to renewables will *save* money. If you want to call it a “cost” it will cost a negative amount.