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Finkel: Investors prefer wind, solar because they cheaper than coal

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Australia's Chief Scientist Alan Finkel. Photo: Mark Graham

Chief scientist Alan Finkel says it is clear that investors in the energy market prefer wind and solar because they are cheaper to build than traditional generation such as hydro and coal.

Speaking to the National Press Club 12 days after the release of his Finkel Review into energy security, and a day after the Coalition flagged their interest in a new “state-of-the-art” coal plant, Finkel said wind and solar are clearly the preference of investors, even without subsidies.

“Investors also like wind and solar because they can be rolled out in small steps, say 100 megawatts at a time, then scaled up to meet demand,” Finkel said in his prepared speech. “This minimises the risk that by the time a much larger project is finished the increased demand might not have materialised.”

Finkel’s comments came as the biggest owner of coal fired generation in Australia, AGL Energy, ridiculed the Coalition push for new coal generation, with CEO Andy Vesey saying that the only “baseload” he could see in the future would come from renewables.

Finkel also took note of the huge amount of rooftop solar generation in Australia, and its impact on the grid, and the “stunning improvements” in battery storage capacity and cost.

 

“This is a grassroots revolution. It’s driven by billions of people wanting their smart phones and laptop computers to last longer between charges,” he said.

“To meet that market pull, global manufacturers have invested massively to improve the performance and lower the price of rechargeable batteries.

“Re-purposing these batteries has enabled manufacturers to configure grid scale batteries. These are now being installed internationally at a level and cost that were unimaginable five years ago.”

he also spoke of pumped hydro, smart software, “sharing” models such as Uber, and the onset of electric vehicles.

“For the past eight months, I have observed our electricity supply struggling to cope with these disruptive changes.

“But I don’t want to exaggerate. The system is not broken. It is, however, at a critical turning point. We must improve on what we have, to prepare for the growing wave of disruptive changes sweeping electricity markets here and around the world.”

Finkel also addressed one of the more controversial aspects of his energy blueprint, the generator security obligation, which could require individual wind and solar farms to provide a certain amount of “dispatchable” energy.

Although many wind and solar farms are considering adding storage to their power plants, the need for every new plant to do so is seen as over-reach by many, inefficient, and could add un-necessarily to costs. Energy minister Josh Frydenberg has described it as an attempt to “level the playing field” with coal.

Finkel said the measure was designed to obligate “new generators” to be able to dispatch electricity to meet the extreme demand that occurs during Australia’s hot summer afternoons (although he doesn’t mention coal and gas plants that have failed to deliver at exactly those moments on repeated occasions last summer).

“The specifics of the requirement will be calculated for each state, looking at present and future needs, while avoiding heavy capital expenditures that would drive up end-user prices,” he said.

“As an example, in a state like Queensland, the initial obligation on a 100 MW wind farm might be a requirement to provide power, even when the wind is not blowing, at the 10 MW level for 4 hours.

“The additional capital expenditure would be 10% or less, meaning that the new wind farm would still be cheaper than a wind farm of the same capacity built just a year ago.

“There are many means by which this capability to produce power when needed could be provided. It could come from on-site batteries or liquid fuel generators, or it could come from a contract with new sources such as a pumped hydro facility or an off-site gas generator.

Finkel said that he did not believe the federal government had ruled out his proposed clean energy target, despite its support for a new coal plant, and the fact that it was the one exclusion among the 50 recommendations he made that the Coalition says it will take to COAG energy ministers.

   

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  • Pete Jerez

    Just to check his numbers on the hybrids, using some round number estimates… I think it just about adds up for wind, but not solar PV?

    Onshore wind all-in capex ~AUD$1500/kW

    Battery cell capex ~$500/kWh
    Battery BOP capex ~$600/kW
    Battery capex all-in (1 hr) ~$1100/kWh

    Then for a 10% capacity obligation on the wind farm, for 4 hrs:

    Battery cell capex = 500*0.1*4 = $200/kW
    Battery BOP capex = 600*0.1 = $60/kW
    Battery capex all-in (4 hrs) = $260/kW

    So that would equate to an additional 17% capex. That is pretty material, but probably ok with further cost reductions.

    Solar PV though, repeat the same exercise with a capex estimate of $750/kW all-in (punchy but already happening), and the $260/kW battery capex represents a 35% increase… that could certainly hold up investment.

    • Peter F

      1. Battery seems a little high and if the battery is on the DC side of the inverter I would imagine that the BOP would be significantly reduced vs a standalone system.
      2. Lyon etc are adding batteries etc so they can move some of their sales from $55 noon to $150 at 6PM so there is a serious revenue boost. If you can convert 20% of your output to triple the price and participate in FCAS markets as well, you can get 40-50% more revenue from the same plot of land, the same substation/grid connection etc. There is a strong argument that adding storage at prices just a bit below the current costs will make operation of renewable plants on a merchant basis very profitable.
      If a wind plant with storage was operating in merchant mode over the last six months it could have earned about an average of $120-150 per MWhr. On current costs that is an ROI of 20%

      • Just_Chris

        The other thing that makes storage attractive for solar is that you can reduce your connection costs. I am not sure how significant a saving that is but if you could take 10-15% off the peak and shift it to latter in the day that might help reduce costs.

    • Alastair Leith

      Also the battery ‘firming’ as Giles has been referring to it could as he points out be contracted by one provider to numerous ‘local’ wind and solar generators. It’s highly unlikely that they’d all be not contributing at the same time. They could also overbuild and down spec the output to ensure greater C.F. and add batteries in 5 years time at much lower cost. How many major resilience events are we going to see in next 5 years except for SA, who are adding batteries and fast ramp gas under state orders anyhow?

  • DogzOwn

    Maybe trivial but wasn’t it refreshing to hear Finkel flip from reverse auction to open tender. Is there any difference when there’s no live bidding? If so why bother with RA term? Even cuter was when Finkel happened to say reverse tender. Direct Action, claimed to be the envy of the world, in context of Reverse Auction, would it be meaningless without RA?

  • Alastair Leith

    Really, that’s why investors prefer wind and solar, because in 18 months demand might not have materialised?! PPA’s for 10-25 years get signed for almost all existing RE projects getting LGCs in Australia, they’d really sign PPAs and not expect demand to be there in 18 months time?! Might it also have anything to do with the intrinsic risk of fossil projects as stranded assets liabilities? Glad the Chief Scientist cleared that one up. Also some wind projects are larger than some gas generators.

  • Alastair Leith

    “Finkel said the measure was designed to obligate “new generators” to be able to dispatch electricity to meet the extreme demand that occurs during Australia’s hot summer afternoons (although he doesn’t mention coal and gas plants that have failed to deliver at exactly those moments on repeated occasions last summer).”

    So if that’s what Finkel is on about with the new obligations (and who really knows I’ve heard him walk both sides of the street now within days) the answer is simple, skip the bullshit and put in enough PHES to cover the for the extra generation required on top of existing for the top ten peak demand maximum events in any state for the last ten years. Done.

  • Alastair Leith

    “As an example, in a state like Queensland, the initial obligation on a 100 MW wind farm might be a requirement to provide power, even when the wind is not blowing, at the 10 MW level for 4 hours.
    …or it could come from a contract with new sources such as a pumped hydro facility or an off-site gas generator.”

    What like Wivenhoe PH facility that rarely gets used for this purpose and is designed to do exactly that? Great thinking Chief Scientist, maybe your beloved free market economics on the NEM is at issue — not the variability of wind and solar (especially at trivial penetrations that exist on the NEM and SWIS outside SA). It’s just a double standard you want to impose on wind and solar projects that they be a s firm as theoretical fossil generation, even when said fossil generation demonstrably is not that firm and, worse than that, involved in market distortions and gaming. But hey, whatever it takes to shut the coal industry up if it’s another 10% so what, they still will lose one way or the other be it squeezed out or duck-curved out. Frankly astonished that Finkel Review didn’t devote an entire section to the duck-curve issue, not that I’ve seen yet anyhow. White Coal Can’t Ramp should have been a chapter heading.

  • Ray Miller

    Referencing energy storage; the preferred, most efficient, lowest cost location for storage would be as close to the load as possible, or at least the likes of substations.
    All our large generating plans are currently located close to the resource (or pipelines) be it coal, gas or renewables. For large plants it is not the ideal location for storage. At the same time energy efficiency measures and managing loads which can be delayed should be seen as also part of the security of supply equation.
    The definition of energy storage for our electricity system is poorly defined and very narrow. Energy currently is stored at the load in many forms from refrigeration storing “coolth”, to hot water tanks, to storing “coolth” in buildings in materials with high specific heat.
    So let us expand our thinking and dump the burning coal mentality as it is not and can never be part of the future.

  • Malcolm M

    The only reason for COALition talk of new coal plants would be the strong lobbying of the Minerals Council of Australia. Without their lobbying on behalf of the coal industry members, Finkell’s report would probably have been accepted inits entirety.

  • DogzOwn

    But how can COALition take exception to CET? Surely it’s open market ideal, with Retailers deciding their own mix between fossil and renewable Generators. How about levelised playing a field with Federal nominated royalty cost to states for depleting finite fossil resources?