South Australia’s Wind Power Nightmare Crushing its Biggest Employers

Nightmare (1962) Jerry wakes up

For over 3½ years, STT has been warning about the pending social and economic disaster in Australia’s so-called “wind power capital”, South Australia.

A few weeks back we covered yet another crippling 12% hike in retail power prices, to be suffered by cash-strapped South Australian households; those who, of course, aren’t among the tens of thousands that have already been cut from the grid, unable to pay their escalating bills.

In the meantime, South Australia’s largest employers – energy hungry outfits like Nyrstar’s lead and zinc smelter at Port Pirie; Arrium’s steelworks at Whyalla; BHP Billiton’s giant Olympic Dam copper and uranium mine; and Adelaide Brighton Cement at Port Adelaide – are being belted by spot prices starting at over $1,000 per MWh and which frequently hit the market price cap of $13,800 per MWh.  Those figures compare with prices received by scheduled, base-load generators of between $45-70 per MWh.

South Australia’s chaotic electricity supply and pricing disaster – from which there is no escape – is the direct product of the Federal Government’s Large-Scale Renewable Energy Target – designed as a $45 billion tax on all Australian electricity consumers, returned as a subsidy in the form of Renewable Energy Certificates (or LGCs) to wind power outfits (see our post here).

The LRET has two key effects on SA’s power market (and will have the same effect in any of the other States that are stupid enough to follow its lead).

First, is the fixed and guaranteed price paid to wind power outfits when the wind is blowing – at around $110 per MW, almost three times the rates charged by conventional base-load generators.

Second, is the rampant price gouging that takes place when wind power output collapses on a total and totally unpredictable basis.  See our complete analysis here: South Australians Locked in Wind Power Price Disaster: Retail Prices Jump Another 12%

If any State or Country wants an insight into what a wind powered future looks like, then look no further than South Australia.

Over the next few posts we will focus on the greatest energy debacle ever seen in Australian history.  The mainstream media have finally caught up with the scale and scope of the disaster in SA: Adelaide’s The Advertiser and national broadsheet, The Australian have been running a series of front-page articles detailing the quagmire in which SA now wallows (we’ll pick up on those stories shortly).

But first, we’ll turn to the Australian Financial Review’s, Ben Potter who has been on the scent for months now.

Arrium hit by solar, wind energy prices
Australian Financial Review
Ben Potter
29 June 2016

Rising energy prices fuelled by South Australia’s ambitious renewable energy target have helped send stricken Whyalla steelmaker Arrium cap in hand to governments seeking $150 million-plus in taxpayer aid.

Higher energy prices may have added as much as $12 million to Arrium’s annual costs, with rising gas prices and South Australia’s wind and solar power among the main culprits.

South Australia’s Labor government has pledged $50 million, federal Labor leader Bill Shorten has offered $100 million if he wins and Prime Minister Malcolm Turnbull has countered with a $49 million loan.

Arrium’s former board blamed its problems on global overcapacity in steelmaking – which has sparked a trade war. The company called in administrators in April after it failed to refinance its $2.8 billion debts.

But surging energy prices, fuelled by South Australia’s 40 per cent share of renewables, have also had a role.

On Tuesday, Mr Shorten declined to guarantee that federal Labor’s target for 50 per cent renewables in 2030 would not send the rest of Australia down the path followed by South Australia, which has the highest and most variable energy prices in the national electricity grid.

Mr Shorten also declined to say whether Labor would formally expand the Renewable Energy Target in order to increase renewables to 50 per cent of the energy mix.

“When you look at how else we can improve renewable energy as a mix, we do it by creating investment certainty,” he told reporters in Canberra.

Arrium’s administrator Mark Mentha said the steelmaker paid an average $71 a megawatt hour for electricity on the spot market in South Australia last year, spending $29 million on electricity for iron mining and steelmaking at Whyalla, South Middleback Ranges and Iron Knob.

That’s about $8 million more than the same amount of electricity would cost in Victoria and NSW, or would have cost a couple of years ago in South Australia. As well, the price Arrium pays for natural gas at Whyalla has surged from just under $5 a gigajoule to just under $6 a gigajoule, lifting its annual gas bill to about $24 million from about $20 million.

The problem is worsening. Since the closure of South Australia’s last two coal-fired power stations in May, Arrium has been paying $115-120 a megawatt hour for electricity on the spot market. Gas prices are also set to rise to $7.30 a gigajoule by October.

If maintained, these prices could add $13-15 million to the annual energy bill, further impairing the steelmaker’s competitiveness just as Mr Mentha prepares it for sale.

“The cost of electricity in South Australia is a real issue. The cost of energy inputs is a real issue,” Mr Mentha told The Australian Financial Review.

It was a problem not just for Arrium but for other big energy users like BHP Billiton’s giant Olympic Dam copper and uranium mine, Port Pirie smelter owner Nyrstar, Oz Minerals and the Iron Road consortium building a new $4 billion mine on the Eyre Peninsula.

Mr Mentha, of corporate advisers Korda Mentha, is working on a rescue plan using pledges of taxpayer aid to help fund a plant upgrade as a carrot for bidders. He hopes to sell the company by the end of the year.

But managing the business is tricky. Electricity prices spike about 50 to 60 times a year, sometimes to the National Electricity Market cap of $13,800 a megawatt hour, but typically to between $2,500 and $4,000 a megawatt hour.

You can send a load of iron over to the blast furnace and “the price can spike” – and you can’t be sure you’re going to make a profit turning it into steel, Mr Mentha said.
Australian Financial Review

whyalla smelter

Arrium & Whyalla: soon to be an LRET ‘wipeout’.

****

Power Crisis Brings Back Fossil Fuels
Australian Financial Review
Ben Potter
15 July 2016

red alert

Turmoil in South Australia’s heavily wind-reliant electricity market has forced the state government to plead with the owner of a mothballed gas-fired power station to turn it back on.

The emergency measures are needed to ease punishing costs for South Australian industry as National Electricity Market (NEM) prices in the state have frequently surged above $1,000 a megawatt hour this month and at one point on Tuesday hit the $14,000MWh maximum price.

Complaints from business about the extreme prices – in normal times they are below $100 – prompted the state government to ask energy company ENGIE to switch its mothballed Pelican Point gas power station back on.

Cold weather and the closure of South Australia’s Northern and Playford coal-fired power stations as wind provides an increasing share of the state’s power have combined to send NEM prices to their highest average levels since the 2007 drought.

But South Australia, which led the charge into wind and solar energy and gets two-fifths of its power from these sources, has suffered the highest prices on the mainland, increasing the pressure on the state’s industrial energy users.

“Large end user customers are feeling the pain,” said Brian Morris, vice-president of energy services at Schneider Electric and chairman of the Energy Users Association of Australia.

“As large customers roll off their energy contracts and need to renew those contracts they are being faced with significantly higher prices for the future.”

Electricity contracts for delivery in 2017 and 2018 are priced at $91-100MWh in South Australia, compared to $50-63 in Victoria, NSW and Queensland.
Australian Financial Review

No sensible policy maker can pretend to ignore the results of attempting to run an economy on the weather. What’s laid out above is no mystery; it’s inevitable. We told you so.

consequences

About stopthesethings

We are a group of citizens concerned about the rapid spread of industrial wind power generation installations across Australia.

Comments

  1. Problem is that politicians do not understand English, nor do the idiot Greenies. “Conventional” BECAME conventional because it is the cheapest, most convenient and most RELIABLE source of energy.

  2. Reblogged this on Climatism and commented:
    “…direct product of the Federal Government’s Large-Scale Renewable Energy Target – designed as a $45 billion tax on all Australian electricity consumers, returned as a subsidy in the form of Renewable Energy Certificates (or LGCs) to wind power outfits.”

    Green centralised planning, like central economic planning of socialist regimes gone by, has failed with truly devastating economic results.

  3. Reblogged this on catsaremine3.

  4. GREGORIAN43 says:

    Which dumb arse ever thought that renewable energy was ever going to be cheaper than conventional? I’LL BET IT WAS SOMEONE ELECTED TO A COSY POSITION IN CANBERRA WITH A FAT RETIREMENT BENEFIT AT THE END.

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