Queensland has a great renewable future – but not with big pumped hydro

Queensland is where the new renewable action is right now. It is doing far more than the rest of the national electricity market put together, or so it seems.

The new large scale wind and solar projects in Queensland, together with the questionable return of the Callide C coal generator will surely bring electricity prices in Queensland down, but maybe not before the next election. The next government will get the benefit.

However, the benefits of building the new wind and solar will be lost if Queensland persists with its overly expensive and unnecessary long duration pumped hydro.

The epiphany for me in the past year is that it’s much better to manage storage with power rather than duration. You can configure two widgets of 100MW/4 hour as a widget of 50MW/16 hours if you choose, but you can’t configure a 50MW/16 hour widget as 200 MW/4 hours.

The thing about long duration storage is it takes a long time to recharge. Therefore the brief intervals of, say,  wind or sun during a wind and solar drought can’t be used as effectively in low power sites as in more flexible high power sites.

It’s better to have lots of power maybe with less duration spread all over the grid than big centralised long duration systems.

Or at least that’s how it looks to me – and it’s what the Australian Energy Market Operator (AEMO) modelled as the low-cost outcome. The backstop can be gas, but good teams don’t need a backstop and not much gas will be needed if it’s done properly.

In any event, the total amount of storage needed and the duration can be greatly reduced by building more wind rather than more solar.

Queensland and New South Wales should be partners in their efforts to decarbonise. Rather than thinking about the NSW/Victorian relationship, strengthening the links between NSW and Queensland “should” greatly advantage the citizens of both states.

Queensland is cracking on with the job

Queensland government owned entities have committed power purchase agreement (PPA) support over 3.5GW of Queensland wind in the past 12-18 months.

Notwithstanding the problems at Clarke Creek, where the new owners are still a bit wet behind the ears, construction is cracking on. In particular, Acciona is demonstrating how to develop large-scale wind at the MacIntyre site. Dulacca wind farm was built without too many issues.

In general over my career Queensland has always been the place to go if you want to get something done.

If you want to spend most of your life managing social license, planning, and dealing with labour issues then by all means do development in Victoria. You might end up famous and will certainly get lots of media attention. These days, NSW is nearly as tough as Victoria.

Queensland is the future of the NEM

It’s obvious that Queensland has fantastic solar resources but, no matter how often I say it, it bears repeating that the state also has excellent wind resources.

By that I don’t just mean that Queensland wind has good capacity factors – it does; or often has transmission access – it does, in the CSG areas where the transmission network was rebuilt without any drama whatsoever, about 10 years ago.

No, the real value of Queensland wind is its ability to be paired with NSW wind to reduce the need for firming.

Unfortunately, this is one of the areas where I’m not sure the Queensland government, always parochial, actually gets it. Not invented here, or in this case, not built here, can be damaging just as no development can be damaging.

And the great advantage of coupling Queensland and NSW wind (and the solar resources of both) is it reduces the need for firming.

Why should Queenslanders care about that?

Queensland can’t afford giant pumped hydro projects

For the renewable energy transition to be successful it has to achieve two goals, as well as decarbonisation. They are to keep the lights on and to keep the prices reasonable. And of course it would be helpful to turn it into a winning political strategy

From what I can see of the Queensland opposition at the moment, energy is not the focus but the question is can ”Jobs and Energy” be a positive.

Unfortunately, to stand any chance of being a winner no changes, of course, can be permitted. So in essence, even in the unlikely case that every word I write in this note is completely accurate, it doesn’t matter. The die is cast.

In the early romantic, frontier years of the transition we all focused on the levelised cost of energy, or LCOE (price that would accept) of wind and solar. That price was (1) coming down every year and (2) clearly lower than the cost of new thermal supply.

Now however as we move from 30% wind and solar across the national electricity market (NEM) to 60% and then 90% it’s become even more obvious that we also have to focus in the cost of transmission and the cost of firming.

I don’t want to speak about transmission here other than to say, really it’s been demonised.

In what world do you find Barnaby Joyce and Bob Brown of one mind? It’s the world where above ground transmission is demonised as an environmental disaster.

Bob Brown may do it out of genuine belief and lifelong commitment and Barnaby Joyce does it out of near term, cynical, I’ll do anything for a vote, but the result is the same. A transmission line does not mean the end of the Australian way of life. Anyhow, rant over.

No, what needs to be discussed is the cost of long duration pumped hydro.

Jobs and Energy plan – resulting electricity price

One way to think about electricity prices is to do an net present value calculation on the system. That is, add up the capital cost of the assets, estimate the operating cost, forecast the volume and then find a price that makes the whole thing acceptable to a capital provider.

In the case of the Queensland Energy and Jobs plan, and wrongly putting to one side, the contribution of behind-the-meter, what we have is, 25GW of wind and solar, 7GW/24 hour pumped hydro and some transmission to string it together.

Looking at those assets:

Even if that transmission is a significant underestimate it doesn’t change the overall picture, but the pumped hydro does.

The Australian Energy Market Operator (AEMO) has vastly increased its estimate of pumped hydro costs over the past few years and even so estimates just $4m/MW or just 57% of the pre-starting estimated Borumba cost. The biggest items in a list of big items are the Pioneer/Burdekin projects.

I have just read the cost through from Borumba. In all honesty it’s a complete unknown as to whether Pioneer will be built or what it would actually cost; it’s a decade away from being built, even in the “plan.” Nevertheless, it is in the plan and therefore it’s modelled here.

The historic model for “firming” plant is the gas open cycle “peaker.” It has a capital cost of around $1m/MW plus an operating cost of maybe $100/MWh, more or less.

The idea was that the high operating cost could be tolerated due to low capacity factors.

The peaker would cover its cost of capital by selling “caps” to retailers and would earn roughly $15/MW x hours in year = $131,000 in revenue, less the cost of actually operating when the cap price ($300/MWh) was exceeded. In addition, the peaker could operate between its operating cost and the cap price for its own benefit.

Clearly that is not the main model of a 24 hour pumped hydro project. Were it to sell $15 caps on 2000MW revenue is $262 million per year, or a yield of less than 2%

Adding up the capex on an “overnight” basis:

This total does not include anything for the existing gas assets, which will also need to earn a return and contribute a small amount of output.

Also the approach of big long-duration pumped hydro is at odds with how the ISP modelled outcomes across the NEM and in Queensland.

Nevertheless putting the numbers into a very simple NPV spread sheet and assuming that reinvestment  = depreciation I get around $120/MWh for a 7% IRR.

I don’t show the IRR (Internal rate of return) working but 69TWh at $120/MWh is $8.3 billion and knock off say $1 billion of opex, so $7 billion of ebitda compared $94 billion of capital cost = Ebitda multiple of, say, 13 which is in my professional opinion a typical back of the envelope outcome.

You could argue that you don’t need 69TWh once you include rooftop output, but on AEMO’s demand growth forecasts you will in fact need more energy post-2035 than the system will provide.

It’s only the firming part where savings can be made. You need roughly 25GW of wind and solar and nothing the Queensland government does will change that cost or the associated transmission by much.

Queensland modelling – with and without NSW. TL;DR

As stated above, NSW and Queensland wind are poorly, and in some cases negatively, correlated.

This means that when wind is not blowing in a Queensland zone it is more likely to be blowing in a NSW zone and vice versa. In short, by combining NSW and Queensland wind you get a higher average output for any given number of MW. You can see this in the following correlation heat map.

The brown areas show the correlation of NSW and Queensland wind zones, the green are Queensland compared to other Queensland, or NSW compared to other NSW.

However, some Queensland and NSW zones have other issues, like being in sensitive areas, or far away from demand so the correlation can’t be considered as anything more than a starting point.

In any case, taking the Queensland Jobs and Energy program with 13GW of wind, 12GW of utility solar, plus AEMO’s forecast of behind the meter solar, AEMO’s forecast of demand, and using the 2030-2035 window (when forecast output is just a bit higher than forecast demand (including 1GW of hydrogen demand)) I get the following average time of day graph.

You can see the need for storage because there isn’t enough wind to run the show over night. In reality, there would be gas as well as storage, not to mention the possibility of imports.

In short, to me this portfolio looks far from optimised, even without considering the variation. And yet building 13GW of wind is not without its own challenges, even in a sate as big as Queensland.

In what I consider to be a more optimised version, 5GW of utility solar in Queensland are replaced with 5GW of NSW wind; this confers both a higher capacity factor and a diversity benefit.

The advantage is obvious, at least on an average day basis.

The average daily firming, which doesn’t account for wind and or solar droughts, of the two strategies are shown below: