South Australia would face higher electricity bill without wind energy

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New report suggests that South Australia would be paying more for electricity if it did not have wind energy – $133m more a year if all the wind generation was substituted by gas.

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A major new report to be released this week will show that South Australia’s electricity bill would be higher – not lower – if it didn’t have wind energy.

In the wake of the controversy about the state’s so-called “energy crisis” – and the big leaps in wholesale prices earlier this month – a report by the Melbourne Energy Institute shows that South Australia is actually saving money by having large amounts of wind energy in its system, not paying more.

The report – sponsored by the Australian Conservation Foundation – and to be released in detail later this week, also looks at key issues in the South Australian energy market, including the role of incumbent fossil fuel generators, their bidding patterns, and the lack of competition.

The fossil fuel industry, with the enthusiastic support of many in the Coalition and the Murdoch media, has been seeking to blame South Australia’s high level of wind energy (around 37.5 per cent in the last financial year) for the recent high prices.

But as energy ministers at both state and federal levels have pointed out, South Australia’s price spikes have been caused by soaring gas prices, not renewable energy, and it is the price of gas-fired generation that has historically meant South Australia has had higher electricity prices than other states.

The MEI research reinforces that point. It estimates that if there was no wind generation in South Australia, the cost of wholesale electricity would have been higher, even if the Northern coal-fired power station – which was retired in May because wholesale prices were not consistently high enough – was still operating.

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MEI estimates that if Northern were still in operation, South Australians would be paying $32 million a year more for their electricity in the wholesale market. And it would be emitting 4.38 million tonnes more of greenhouse gas emissions.

If all the wind generation was substituted by gas, the cost would be $133 million more, and it would add a further 1.72 million tonnes of greenhouse gas emissions. (This estimate is based on Pelican Point – the most efficient gas plant in the state operating. At the moment it is mothballed because its owners have decided it is not economic to run).

The situation in South Australia is amplified by the fact that the there is a lack of competition in the state market, meaning that the few generators operating in the market have greater ability to influence the price.

This has also been a bug-bear of the South Australian energy minister Tom Koutsantonis, and is one of the main reasons he is keen to have a new interconnector built, preferably into the NSW market.

The MEI analysis also notes that apart from the savings on the bill for wholesale electricity, South Australia is also effectively receiving $120 million from other states, because it was smart enough to encourage nearly half of the large-scale renewable energy investment in Australia.

Consumers in other states such as Queensland and NSW, which trail badly in large-scale renewables, are effectively paying money to have large-scale renewables built in South Australia because of the failure of their own governments to encourage investment. That is the price of ideological opposition to renewables, or the desire to protect their coal generators.

The cost savings on wind energy identified by MEI are important not just to justify the past investment in renewable energy in South Australia, but also to guide future choices.

Should the state encourage more investment in gas, along with the volatility that the fuel price entails, or should it encourage more investment in wind and solar? In the latter, at least, it will be able to lock in prices for the future, and possibly add storage to smooth the output and cater for big changes in demand and supply.

The ACT has shown the advantage of locking in contracts for renewable energy. By 2020, it will have the equivalent of all its electricity needs supplied by renewable energy, with an effective price cap that means if wholesale prices in Australia rise, its own exposure will fall.

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29 Comments
  1. Brian Tehan 2 years ago

    Riddle me this. If the Pelican Point gas plant is the most efficient in the state, how can it not make money but less efficient plants can? Presumably, higher efficiency means lower fuel costs per mwh. This fact keeps coming up but I’m yet to see an explanation.

    • Andy Saunders 2 years ago

      Higher gas prices for Pelican Point outweighs its higher efficiency.

      • Mick 2 years ago

        …but surely all the other plants are subject to the same market forces and could have sold their gas??

        By way of comparison – Torrens Island would need burn about 50% more gas per unit of electricity than Pelican Point. Still doesn’t really make sense…

        • Brunel 2 years ago

          Can the transmission line to Vic satisfy peak power demand in SA?

          Electrons from coal power stations in Vic are probably cheaper than electrons from any gas power station in SA.

          Maybe the only gas power station that makes sense to turn on is the peaking gas power station – until the price of batteries crash enough to kill peaking power stations.

        • Andy Saunders 2 years ago

          It is likely that Pelican Point sold it’s relatively cheap gas supply contracts, so would have to purchase spot gas at high prices to turn on, whereas Torrens has (much) lower-priced gas on contract.

        • Andy Saunders 2 years ago

          Pelican Point would have to buy spot gas. Torrens has older, lower, contract prices.

    • Finn Peacock 2 years ago

      Pelican Point is making heaps of cash, selling its gas contracts to others, instead of using the gas to generate electricity.

  2. Paul McArdle 2 years ago

    A model’s just a model – it can’t ever be as complex as reality (though sometimes it can be useful):
    http://www.wattclarity.com.au/2016/07/a-models-just-a-model-its-not-reality-though-some-models-might-be-useful/

    It’s always fraught with difficulty prophesying on “what would have been” as, to do it precisely, would require understanding all the other behaviours that would have occurred.

    Hence a useful guide, but should not be thought of as “certain”

    • Tom 2 years ago

      The conclusion is certain; without wind power SA would be paying more. The accuracy of the exact value is questionable though.

  3. JohnG 2 years ago

    Obviously this is just rubbish. Any analysis should include sufficient coal powered steam turbine generators, and as coal is at record low prices, obviously SA electricity would be appropriately cheap and reliable. The impose of all kind of artificial costs and absurd “environmental” restrictions on electricity does not just lead to huge price increase and lack of reliability – it affects negatively all of us indirectly, and will destyroy our economy and quality of life more and more longer term. Expensive electricity means closure of “real” business (as opposed to “zombie” businesses which do not need electricity). Manufacturing and heavy industries provide real jobs, paid with lots of real monies, producing real goods needed everywhere in the world. All these disappear more and more in Australia (and especially in South Australia) due to the very high electricity prices , directly pushed up by the “renewable” imposed by idiotic, ignorant politicians and activists. The old economy does not disappear – it just move to smarter places with much smarter people and leaders like China, Malaysia South Korea and all other large importers of our coal. The “new” economy does not need much electricity, but also does not sustain full time, well paid jobs that people are proud to work on. Just look at Spain with its record high unemployment (20%+) – it is the best example of what renewable and business restrictions do to the economy. And I remember vividly when only few years ago Greens and Labor were giving Spain as the example that we should follow.

    • MikeH 2 years ago

      Rubbish is promoting coal in the era of climate change.

    • Douglas Hynd 2 years ago

      Shift of manufacturing jobs out of Australia started well before move to renewable energy. That is a whole other argument – in which the issue has always been one of either labour costs or economies of scale. Questions of transition to a low carbon economy are not being dealt with properly at the moment. Evidence is that renewable energy creates more local jobs than capital intensive centralised power generation.

    • Malcolm M 2 years ago

      Malaysia has a higher feed-in tariff than Australia. Solar panels there have a 4-year payback period, whereas in Victoria it is typically a 10-year payback period. It also has several large factories that produce solar panels, and a renewable electricity target of 11% by 2020. Malaysia’s coal imports have barely grown since 2010.

    • Roger Brown 2 years ago

      Coal at record lows , but still cannot compete with Solar and wind power on $$$ .
      Spain ? Ever heard of the GFC ? The rest is just tripe .

    • Tom 2 years ago

      SA only had one coal mine – 1000 km from the consumers, low energy content and expensive to extract. They also import all their gas.

    • Barri Mundee 2 years ago

      A lot of smoke being blown here with zero to back it up.

    • Barri Mundee 2 years ago

      We know the coal industry is worried about its business model when people astroturf on this site trying to convince us that renewables are a problem but coal is wonderful.

    • Farmer Dave 2 years ago

      Interesting hypothesis, John. How do you explain the presence of manufacturing in Tasmania, with no coal fired electricity at all?

    • Alastair Leith 2 years ago

      Spain: like all “club-med” (PJ Keating) nations suffered from getting a new currency (Euro, the strength of which was in German and French economies) and loads of free money invested in property, a resulting property speculation bubble, GFC, collapse. Nothing to do with clean, affordable energy. Climate change is some serious shit, stop ignoring it.

  4. Brunel 2 years ago

    They need an UHVDC link to WA.

    • Alastair Leith 2 years ago

      Hideously expensive at any kind of significant capacity…

      • Brunel 2 years ago

        How come China and India have UHVDC.

        Maybe Brazil and USSR too.

        • Alastair Leith 2 years ago

          FF centralised generation I expect. It’s good if the distance and capacity is suitable to the given problem. Sustainable Energy Now will at some point model an interlink from Perth to SA or elsewhere (one member has spent years examining potential of tidal power in the Kimberly for example, perhaps you could run one from Kalgoorlie to SA and NSW with some solarCST along the way) but transformer stations are much more expensive for HV AC or DC and even more so for UHVDC, so that tends to outweigh the benefits of offtake and generation along the line.

          Show me you numbers.

  5. Don McMillan 2 years ago

    Gas prices is a reflection of supply and demand balance. US gas prices dropped from $13 mbtu to 2 – 3 /Mbtu due to oversupply – shale gas. In Australia the supply side of the equation has been damaged by the effectiveness of activities groups – CSG banned in Vic, NSW, Gas exploration, Tas, Vic, NSW and NT.
    So it is by choice the Australian community has chosen high gas prices.

    • Alastair Leith 2 years ago

      Rubbish, it’s the export parity that is driving gas prices up. Beyond Zero Emissions predicted as much with the Buildings Plan, that as soon as the first export LNG facilities was completed domestic prices would rise threefold at a wholesale level to parity with export prices, leading to a doubling of gas tariffs on consumer bills.

      Actually it’s worse than parity, domestically in WA we were paying well above what Japan was paying for our gas because they didn’t have a twenty year contract and could take advantage of the international price slump in fossil gas.

      Nice try, Don. you get your mouthpiece points for the year with that one.

      • Don McMillan 2 years ago

        WA is not my expertise, East coast is. If you want cheap gas we the NG industry can delivery but we have to drill wells and fracture Stimulate near the customer. Banning NG exploration &/or Fracture Stimulation has wiped out the exploration in Tasmania, Victoria, NSW and NT. Now the libs in SA want to ban frac stim outside the cooper. This action has scared investors away especially after losing over $3B in NSW. What is left: ONLY Queensland and Cooper Basin. And people wonder why gas prices are increasing.
        I have worked 30 yrs in NG and never seen the gas price this high and never seen investment so low. Would you invest in drilling for Natural Gas?

        • Alastair Leith 2 years ago

          Gas will be needed for a short period (a few decades at most) for the transition to 100% RE. BZE modelled the first RE scenario in Australia including the electrification of space heating, land based transport and industrial processes and the time frame was ten years transition 2010-20 — the critical decade. At $36b a year private investment for ten years. If that sounds like a lot, consider Bloomberg has projected $24 Trillion being invested in Renewables and storage globally for the next couple of decades.

          This decade is significant because Potsdam Institute who advise the German govt on CC said in 2009 that to do it’s fair share based on historical emissions reduction the USA has a decade to get to net zero emissions. Australia has higher per capita historical emissions than USA.

          https://uploads.disquscdn.com/images/d437174d1b36264e1b6268d982aa03e5dc7357882c8c79c4c6f212c3d5c7c8c3.jpg

          We don’t need any more fossil gas distribution network if we’re on the road to closing this down. Some generation may need to be modernised for multi-fuel use to allow a transition to biofuels.

          If plantation tree feedstocks for bio-gas and or bio-dielsel turn out to be better than overbuild or renewables and storage then that’s fine, it pretty close to carbon neutral (given a few assumptions) and can double to perform ag sector services in reducing.

          If you want to talk about the return to Australia and investors you might want to start with the massive costs overruns on your industries LNG projects ($200 B. invested according to TAI) and the zero royalties return on subsidies and carte-bland on barrow island to the citizens of WA (and probably most states). You also might want to explain why AGL is hypothesising in public about a LNG import terminal when we have so much going off shore.

          South Australia has shown that ~50% RE is very useful in getting some of that expensive peaking gas (and gas generator market gaming on “bid settling”) out of the market. Keeping moving forward SA, you’re showing Australia how it’s done. The first solar CSP for Australia in SA would provide dispatch power that’s 100% renewable and has very minor loss of energy. Solar Reserve have said they could build another 8 or 9 of the plant they’re proposing for Port Augusta.

          • Don McMillan 2 years ago

            From deciding to invest in gas exploration to start of cashflow take 10 to 15 years. So if you want gas only for the next decade or 2 then investment is not worth it. We are now depleting current reserves. Transporting gas from WA to east coast has been studied to death [Remember Whitlam]. So pipeline tariff would make gas prohibitively expensive. Shipping is the only way which is why AGL is considering LNG terminal in NSW. To build a platform Offshore WA the banks would insist that the gas is contracted out before lending. Same with QLD CSG the NSW Domgas did not sign up in anticipation of local CSG [cheaper no pipeline tariff]. So Gas from WA to Sydney unlikely to happen. The biggest source of un-contracted gas is USA Shale Gas. This is why places like Germany & Scotland now import USA shale gas. What is natural gas used for other than electricity? Manufacturing [chemicals, anything to do with metals, mining explosives, fertilizes, plastics many more]. Over 50% of households use gas for cooking, heating, cooling etc. Over 90% restaurants cook with gas – ask a chef why. BBQ’s. I have recommended to factories to change to coal or move offshore, In the next few years 50,000 plus jobs have to go.
            Good example is IPL [ASX 10May16] warning that their fertilizer plant may have to close due to natural gas supply. Inevitably, we’ll import fertilizer and in doing so, lose control of its quality. Once imported fertilizer is spread across the land you cannot take it back.
            So what would life be like without gas? Close manufacturing and import everything, all plastic products, chemicals, fertilisers and anything made of steel etc. Convert all households to electricity. This transition will be costly at the same time putting people out of work.
            Alternatively, import USA Shale gas. This makes me angry because the Greens and activist groups all support importing shale gas as they did in Germany and Scotland. NIMBY syndrome nothing to do with environment.
            If interested see my submission to the NT gas inquiry & published in NT news Oct.
            https://www.linkedin.com/pulse/letter-northern-territory-fracture-stimulation-inquiry-don-mcmillan?trk=pulse_spock-articles
            The sad thing about this experiment is that the people most affected [retrenchment] are the ones that least can afford it.

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