Solar vs gas: Why South Australia needs to seize the future

The proponents of a world-leading solar storage technology have challenged South Australian and federal authorities to embrace new technologies to solve their “energy crisis”, rather than doubling down on gas-fired generation.

The US company SolarReserve is trying to win a contract to provide power for the South Australian government, but is locked in competition with gas plant alternatives, including one plant that has been operating for 17 years but was mothballed because it could make more money selling gas to the export market.

The decisions to be taken by state and federal agencies over the next few months are seen as a pivot point for the make-up Australia’s energy system, and there is a lot at stake.

If renewable energy technologies with storage can get a foothold in the system, then the case for existing fossil fuel technologies is dramatically reduced. If the new technologies fail get a significant foothold, then the pace of transition could slow dramatically.

SolarReserve has built the world’s biggest solar tower and molten storage plant in Nevada, the 110MW Crescent Dunes facility with 10 hours of storage (pictured above) that has a 20 year contract to provide electricity at night time to Las Vegas, and is about to begin construction of a similar plant in South Africa.

The plant uses giant mirrors (called heliostats) that track the sun and reflect the heat on a collection point in a tower where molten salt is heated to temperatures as high as 565°C.

When electricity is needed, the hot salt is used to boil water and produce steam to drive a turbine, while molten salt can be stored for use later. The plant can be turned on and off as required or it can provide 24/7 power, or in big blocks as is the case in Las Vegas.

“We think it’s a huge game changer,” CEO Kevin Smith told RenewEconomy in an interview this week during a visit to Australia, where he met state and federal ministers and agencies. “The holy grail is energy storage … and we have cracked the code on energy storage.”

SolarReserve has been working for several years on a proposal to build a 110MW/8 hour storage facility in Port Augusta, effectively replacing some of the capacity vacated when the last coal-fired power station closed down for the last time.

Solar towers (and other solar thermal technologies) with storage are recognised by most analysts as a critical component of future grids with high renewable energy penetration. The International Energy Agency, for instance, says it could account for 15 per cent of the world’s electricity needs in a future low-carbon scenario.

The concept has also been supported by the Coalition and Labor, who both promised in the recent federal election campaign to set aside funds to introduce solar storage technologies in Australia, specifically solar thermal. So far, only some pilot plants have been built, although one solar thermal plant is providing heat for a massive tomato farm near Port Augusta.

Those funding resources, however, have been reduced, with both mainstream parties agreeing to strip $500 million from ARENA, and proposing to slash 4/5 of the proposed $1 billion budget of the CEIF.

Smith says Australia should be at the forefront of the technology, and says South Australia is an ideal market because of its excellent solar resources, its high penetration of variable wind and solar resources, its volatile electricity prices and its dependence on gas-fired generation.

He says solar thermal with storage would guarantee new competition in the market, create potentially thousands of jobs, and over the medium to long term, reduce prices.

“The more gas you burn, the more expensive it is. With solar it is the opposite – the more solar power you can generate, the lower the cost.”

The problem with South Australia at the moment is that the government is facing an election soon, and is under intense pressure from conservative media and politicians, and large energy users, on the issue of electricity prices.

These price spikes have been blamed on the government’s pro-renewables policy, which means the state now sources more than 45 per cent of its electricity demand from wind and solar, making it a world leader.

But high electricity prices are not new to South Australia and, if anything, the prominence of wind and solar has reduced prices, not pushed them.

The recent price spikes – once common when the state relied only on coal and gas – were the result of soaring gas prices, a closed link to Victoria and surging demand, which left the handful of gas-fired generators able to exploit their market control and charge what they wanted.

SolarReserve and some analysts fear that the South Australian government might go for a short-term fix to take off the political heat, and write a contract for the 17-year old Pelican Point generator, which they now regard as a “new competitor” even though it was mothballed in late April, just 10 days before the closure of the coal generator.

Smith says his company is not just competing against incumbent technologies. “We are competing against a philosophy. If they decide to go with Pelican Point that is a short-term decision, it won’t actually solve their problems.

“It would be a shame if they tied their wagon to gas, and doubled down on natural gas price volatility when they have the opportunity to diversify and lock in a fixed price.”

SolarReserve’s biggest challenge is the time frame and the initial cost of a first-of-its kind project in Australia. Like solar PV a few years ago, solar towers and storage is expensive, needing large up-front capital investments, but like solar PV, it expects its technology costs to fall quickly.

The hardware for Crescent Dunes cost $US760 million ($A1 billion), and SolarReserve estimates that Australia’s first project in Port Augusta will cost $A650 million, and will likely fall another 20 per cent in subsequent projects.

Operating costs are also falling, although that depends on the cost of finance (5.5 per cent in a proposed Chile project, but 11 per cent in South Africa) and the strength of the solar resource.

In Chile, where the solar resource is “spectacular”, the company recently bid a price of $US63-$US68/MWh for a 110MW solar plant, a record low price for the technology and beating bids from new coal and gas plants.

It is entering a new tender this December, and has mapped out sites for eight large solar plants in Chile, and another 10 in South Africa. It has also signed an agreement with China coal giant Shenhua and China State Grid to build 1,000MW of capacity, or 10 big plants.

“The big issue is getting costs down to compete in the market,” Smith says. Once the first plant is built in Australia, he says, obtaining commercial finance and investment should be a lot easier, and established supply chains should also bring down costs.

“All of that comes with scale. We want to be promoting a pipeline for South Australia and Australia in general to get supply chain excited, lenders comfortable, EPC firms comfortable with the technology and competing with each other to drive down costs.”

It sees potential for another five plants in South Australia, as well as opportunities in Western Australia, Queensland, and NSW.

But the technology will require help from ARENA or the CEIC or Clean Energy Finance Corporation for its first project. Without it, SolarReserve admits, it will not be able to price its output at a level that would satisfy the South Australian government.

With that assistance, it says it can match any other new-build facility, but will struggle to compete with a gas plant that has already been operating in the market for 17 years. The state government is also looking to lock in the new supply from the end of 2017. SolarReserve would not be able to build its plant in that time-frame, but says that the issue can be solved with short-term contracts.

“We see Australia as a key market,” Smith says. “It’s got a great solar resource. If they just want to put cheap PV on the market, that helps reduce spending on fossil fuels, but it is not the whole solution.”

And one of the points that the company was keen to make in its meeting with South Australia premier Jay Weatherill this week was that it is proven and reliable technology – and does not, as some detractors and competitors claim – need to be backed up by gas.

Crescent Dunes, which began operations late last year, is still going through its “ramp up” period but will start delivering on its Las Vegas contract in January next year. Smith says the technology is working as well as, or even better than, expected.

“This is low risk yet innovative technology. Australia should not have to reinvent the wheel, but it’s got to have storage.”