Wind industry propaganda is an artform, which works on the adage, once employed by a crazy little German with a funny mustache, that: “If you tell a big enough lie and tell it frequently enough, it will be believed.”
The latest wind industry wheeze is to turn black into white, by claiming that occasionally adding wind power to an electricity grid (weather permitting, of course) lowers retail power prices. Here’s Alan Moran unpacking the latest furphy.
Black is white: and wind generators drive down electricity prices, too …
8 June 2016
Wind industry lobbyists Pitt and Sherry, and their journal, RenewEconomy, jubilantly produced the following table as proof that wind energy lowers prices.
They pointed out that in May wind enjoyed its biggest ever month, with 8.5 per cent of the National Electricity Market supply and argued that this had led to prices falling. They also claimed that the table, as it shows a lower price differential between South Australia and other states in May compared to March, demonstrates that wind drives down the price of electricity.
Here is the table for May and for March. (April is not shown but was relatively windless).
Wind can, as the lobbyists maintain, in fact have a short term depressing effect on price – imagine what happens to the overall price of hamburgers if the government comes along with subsidised product that doubles the available quantities. But eventually the price has to be reflected in the costs.
These are $120 per MWh for wind compared with $40 per MWh for coal. And that does not include the premium costs wind must incur in transmission and in back-up required as a result of its inherent unreliability.
This subsidy is one key statistic that is not incorporated in the above table. Through the Renewable Energy Target, the government forces the consumer to pay over $80 per MWh as a subsidy to wind farms. So, if wind were to earn the average pool price it would still get more in subsidies than it earns from willing customers.
But that is only part of the story. As the table demonstrates, wind generation only earns 66 per cent of the average pool price in South Australia. That is because wind is unreliable and subject to natural supply not consumer demand so that it tends to be available at times when it is, relatively speaking, not needed. In May, when wind was responsible for half of South Australian output it therefore earned only $50 per MWh (and the remaining plant earned $100 per MWh – wait for the calls for an end to this discrimination!)
South Australian wind generators in May of this year where therefore earning $50 per MWh from the market plus another $82 from an enforced subsidy. That is the equivalent of an external tariff of 164 per cent!
Only in the palmy days of the pre-Keating tariff cuts did we see industries, like motor cars, with such a level of assistance. In those days the rationale was that Australian motor car manufacturing was an infant industry which pretty soon would stand on its own feet if it could get a temporary leg-up.
Wind cannot even make the spurious claims of being an infant industry. Though there have been attempts by governments to double down on the wind subsidies by also subsidising windmill manufacturing plants these have been just another waste of money. And, although tariff subsidies of old were a clear drag on the economy, those subsidies and their price-lifting effects tended overwhelmingly to be on consumer goods.
Electricity is also a production input and the bedrock of all economic activities and Australia is sacrificing what should be the world’s cheapest supply on the altar of vacuous green idealism massaged by cold eyed rent-seekers.
Pitt and Sherry and its media wing, Ruin-Economy have always been fast and loose with the truth. But to claim that wind powered South Australians enjoy lower power prices than their Eastern State cousins is patent nonsense; and they know it.
True it is that, for periods of 3-4 hours at a stretch, when SA’s wind farms are producing around 60-70% of their 1,477MW total capacity (see above) spot prices plummet. Thanks to the LRET and the fixed and guaranteed prices of up to $112 per MWh, set by Power Purchase Agreements (underpinned by the REC subsidy Alan mentions as being currently worth $82 per MWh), wind power outfits can and do happily dispatch power to the grid for nothing – even paying the grid manager $20 per MWh to offload it (see our post here).
As part of the trade, the REC is handed over to the retailer, reducing the cost to the retailer of what it pays on the PPA price. However, it’s the PPA price (inclusive of the value of the REC) that is recovered in retail power prices. In relation to collecting the cost of the REC Subsidy from power consumers, Origin Energy’s Grant King correctly puts it:
“[T]he subsidy is the REC, and the REC certificate is acquitted at the retail level and is included in the retail price of electricity”.
It’s power consumers that get lumped with the “retail price of electricity” and, therefore, the cost of the REC Subsidy paid to wind power outfits.
It’s the State-sanctioned market perversion that allows wind power outfits to dump electricity, lowering the spot price. However, depressed spot prices are momentary; and pass as quickly as the cold fronts that drive them.
When the wind drops out, the spot price rockets: peaking power plant operators sit back, wait until the grid is on the very brink of collapse, and then ‘offer’ to supply the shortfall at rates of more than $2,000 per MWh and up to the market cap of $13,800 (instead of the average of $70):
In life we’re supposed to take the crunchy as well as the smooth. In South Australia, power punters are stuck with what wind power outfits are guaranteed to get paid when they occasionally deliver: $112 per MWh vs conventional power, guaranteed deliverable 24 x 365 at less than $50. And, when wind power outfits can’t deliver, with spot prices at least 28 times (and as much as 195 times) the norm, South Australians have a pretty fair reason as to why they pay the highest retail power prices in Australia.
A few months back, South Australian businesses were hit with a profit and job killing 90% power price hike, which means they are now paying around double the price paid by their Victorian counterparts (see our post here). And from what can be gleaned from the futures market, that margin isn’t expected to improve much, as this little graphic from the AFR suggests.
South Australia is already an economic basket case. Paying twice the price for power will wreck what little is left of its manufacturing, mining and mineral processing industries.
What intellectual pygmies, like Ruin-Economy’s Giles Parkinson can’t seem to handle are facts and consequences. It’s South Australia that they crow about being ‘Australia’s wind power capital’ and it’s that parlous State that suffers the highest power prices in Australia by a country mile.
But, as every good propagandist knows, never let the facts get in the way of a good piece of ideologically motivated drivel.
In tomorrow’s post we catch up with last week’s events in SA, where its 3 power retailers have just hiked their retail prices by between 7% and 12% (a punishing uplift, running at 3-5 times the rate of inflation). For the wind industry, its parasites and spruikers, yet another set of inconvenient facts, that tend to take the gloss off SA as Australia’s wind power ‘Super Model’.