Australia gets energy wake-up call – but is anybody listening?

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The new report on energy costs by the government’s key forecasting body marks a line in the sand in the energy debate in this country. We can no longer pretend that fossil fuels are the cheapest option. It’s time to talk seriously about alternatives and to design a new energy system.

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The new technology cost forecasts produced by the Bureau of Energy Economics this week provide a marvelllous opportunity for Australia to redefine its debate about its future energy needs. But don’t hold your breath waiting.

The conclusions – most notably that wind and solar provide the lower cost energy options over the medium to long term – should put an end to the nonsense espoused by Conservative politicians across this country about coal remaining the cheapest long-term option. Australia has now joined the world’s largest economies – the US, India and China – in recognising that renewables, particularly wind and solar, will be cheaper than new-build coal and gas within a decade. This should encourage Labor to be more embracing of the Clean Energy Future on which it has staked its future. Sometimes it’s OK to be seen to agree with The Greens. Private polling tells us green energy is a vote winner.

The landscape of inputs into the country’s policy debate has changed markedly since the appalling Draft Energy White Paper (The Old Testament) was unveiled by the government just before Christmas. Martin Ferguson has sat through enough briefings about solar PV, in particular, in the interim to understand that this is a game-changing technology. The BREE report acknowledges this, and the fact that it, along with the recent analyses of expansion in the solar industry and declining demand by the Australian Energy Market Operator, reflects that technology costs and consumption patterns are changing so rapidly that they need to be constantly monitored.

The tendency in the past has been to grossly underestimate the cost of fossil fuels and grossly over estimate the cost of renewables. This has now been at least partly redressed. By recognising that wind and solar present the lowest-cost options over the medium to long term, Australia should now be discussing how to get there more quickly, rather than retarding their growth. It should be talking about a more ambitious renewable energy target, possibly enhanced by the projects that could be brought on by institutions such as ARENA and the CEFC. These hold the key to bringing down the other technologies to the costs that are predicted by the industry and most other international literature.

More importantly, it is an opportunity to talk about how the energy system is redesigned. It is now clear to BREE, and presumably to Ferguson’s Department of Energy, that the nation’s energy systems needs to be rethought – the nature of electricity grids are set for their biggest transformation since Edison himself punted on a series of smaller, distributed generators and others settled on a centralised hub and spoke system.

Other countries have recognised this. The government should be moving quickly to study how quickly the country can move to 100 per cent renewables – as The Greens recommend – or even get half way there. That change will be dramatic enough, because if wind and solar are going to be cheaper than new-build coal and gas within a decade, as this report suggests, and if, as AGL points out, the generation we have in 2050 will be almost entirely new build, then we need to make smart decisions now.

And how to manage that transition needs to be thought out carefully. The proliferation of cheap wind and solar has major implications for gas and coal and incumbent assets. The incursion of rooftop solar, which is already delivering cheaper options at the socket to much of the population, will accelerate that need for a change in design.

The state governments also need to be pulled into line. They have rorted the lax regime governing energy infrastructure and imposed billions of dollars of unnecessary spending on poles and wires on their consumers, all the while blaming rising costs on carbon and green energy schemes. But some of the mainstream media are now onto them.

Other politicians just look foolish: the NSW government this week said it might hold back the sale of its remaining generation assets until after an Abbott election win, apparently thinking that a shelving of the carbon price will deliver a windfall. Where exactly do they expect to find a buyer who will accept their assertion that there will never be restrictions on carbon emissions? Perhaps they could throw Lane 5 of the Sydney Harbour Bridge into the package. This nonsense needs to stop.

Not that the BREE report is perfect by any means. Indeed, in many ways it is deeply flawed, and its conclusions contestable. There were many a technology lobby group that were quietly fuming this week that BREE had not taken more regard of their forecasts, or even international experience, on board. The cost estimates around solar thermal were particularly pessimistic and confounding. Perhaps it was the gas generators trying to convince themselves that they have a secure future, but if the solar thermal guys are right about their cost curve and their ability to use storage to deliver dispatchable power, then the gas generators will be out of business. In Germany, they fear the game is already over.

The nuclear lobby has already jumped on to the report’s assessment that nuclear could be built in Australia in 2012 (hello?) for between $60/MWh and $100/MWh. It’s not clear what BREE and their advisors at Worley Parsons know that the global nuclear industry doesn’t. As we remarked yesterday, these cost estimates are less than half what is being quoted to the UK government by the French government-owned EDF – and that includes the UK government accepting construction risk, insurance risk as well as power pricing risk. The nuclear reactor being built in Georgia by Southern Power Co is being supported by an $8 billion loan guarantee from the US government, and the remaining $6 billion by a levy on consumers.

It’s an academic argument anyway. As the report notes, Australia has plenty of alternatives, and as AGL pointed out last week, there is no Australian company that has the balance sheet to cope with the capital cost of a nuclear plant. The UK is now reportedly entertaining overtures from Chinese government nuclear builders. It’s hard to see that being sold as an attractive idea to the Australian public.

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10 Comments
  1. keith williams 7 years ago

    As you say Giles, dragged to the altar re solar & wind, even if they can’t bring themselves to properly address solar thermal.

    The nuclear numbers continue the White Paper tradition of espousing complete nonsense, which even before publication are clearly indefensible.

    Why would anyone tarnish his/her reputation on such silly posturing?

    • Martin Nicholson 7 years ago

      I continue to be concerned about remarks being made about the BREE nuclear cost estimates, implying they are ‘nonsense’. An analysis of recent estimates from both the IEA and the (US DOE) EIA show similar numbers to the ones shown in the BREE study.

      BREE estimates for nuclear LWR in 2020 ranged from $60/MWh to $130/MWh.

      Estimates for 2016 made by the EIA last year for advanced LWR nuclear in the US was $113/MWh.

      Estimates for 2015 made by the IEA in 2010 (the latest estimate) based on 20 new plant constructions across OECD and non-OECD countries, ranged from 42 $/MWh (Korea) and 137 $/MWh (Switzerland) with a median of $99/MWh at a 10% discount rate.

      Both these studies from the EIA and IEA included nuclear waste storage and decommissioning at the end of the plants life.

      Given that the medians from both the EIA and IEA are within the range suggested by BREE for 2020, I see no grounds for attacking the BREE nuclear cost estimates. The idea that all three organisations could be reckless in their estimates of costs is fanciful at best.

      • Giles Parkinson 7 years ago

        Yes, Martin. But the IEA and the UK government and its advisors can give as many optimistic cost predictions as they like – if the world’s biggest builder of nuclear energy EdF refuses to build a new reactor in the UK for less than $220/MWh, as is suggested by financial analysts, then the predictions don’t amount to a hill of beans. That’s the real world experience. And the real world experience of solar is that much of it is already built below the 2020 cost predictions.

      • keith williams 7 years ago

        Martin,

        Estimates for nuclear made in 2010 are surely of little relevance post-Fukushima. Certainly there are additional refitting costs for many existing nuclear plants and cost for new plant will increase (yet further). The delays and cost blowouts for the Finnish plant are extreme. France has a multi-billion dollar program to make its facilities safer.

        Rather than use selective figures for potential low cost construction, can you outline your views on the current cost structure and conditions (e.g. Govt guarantees) for the proposed new UK plant? Surely this is a relevant cost to consider and it seems to be 2-4 times what BREE is estimating.

        See a report from MIT for a measured discussion about the impact of Fukushima : http://web.mit.edu/ceepr/www/publications/workingpapers/2012-001.pdf

        • Martin Nicholson 7 years ago

          Alas MIT is renowned for being less than enthusiastic about nuclear power. I guess we will have to wait and see until the IEA and EIA reappraise their electricity costing models to properly judge the veracity of the BREE modelling.

          • keith williams 7 years ago

            Martin,

            Why are you not prepared to address the costings that the UK confronts? You have a current costing as opposed to optimistic hopes (or might one say …propaganda).

          • Martin Nicholson 7 years ago

            Keith, I am happy to let the IEA experts do that analysis when they do their next version of Projected Costs of Generating Electricity. They will look at a broad range of issues to do with current costs of all electricity sources including nuclear in both the UK and the rest of the OECD and beyond.

  2. Chris Fraser 7 years ago

    The article touches again on networks. Apparently it is the predilection of State governments to gold plate grids and flog them, and this is against the interests of consumers. I wonder if the Feds would have an interest to ensure the future scope and investment work on the grid could be ascertained by an independent technical authority, to match the brave new world of distributed energy. I’m sure getting the antagonistic States to implement that plan would be the next difficult question.

  3. steve the sparky 7 years ago

    Thanks Giles, I spend some time reading and digesting the EAT Assessment.

    And, I agree with your headline, …..if only the Australian people on mass could grasp the concept of the Levelised cost of energy (LCOE)………maybe, just maybe, investors and enterprises (our super funds even?) could look forward ….towards developing a high speed, automated, photovoltaic, manufacturing industry on our shores. Yes, an industry! (not just one poor bloke banging away in a back shed in Adelaide)

    …”build it and they will ….use that energy” …stevethesparky

    Sunny days!

  4. keith williams 7 years ago

    Martin,

    You have to acknowledge that MIT is a credible institution, so unless you don’t want to confront careful and factual analysis it provides useful information.

    The article is pretty dispassionate, but it does provide a non-hyped version of where nuclear stands pre- and post-Fukushima

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