South Australia’s Wind Power Disaster Kills BHP’s Plans to Expand Olympic Dam Mine

olympic dam

BHP started life in 1885 as the brainchild of station hands and boundary riders on Mount Gipps station in western New South Wales.  The town that sprung up around their find of one of the largest lead, silver and zinc deposits in the world, Broken Hill, shares the name with the company, ‘Broken Hill Proprietary’.  BHP quickly earned the name of “the Big Australian” and fast became Australia’s economic barometer: whatever was good for BHP, was good for Australians.

World beating woolgrowers, beef producers, dryland farmers and vignerons aside, South Australia has very little going for it – in terms of prosperous, self-sustaining enterprise; and what there is depends very heavily upon the fortunes of BHP.  BHP, now ‘BHP Billiton’ owns and operates the enormous gold, copper and uranium mine at Olympic Dam in SA’s far north (see above).

South Australia’s hapless Labor government has been banking on the expansion of Olympic Dam for years now (it spent the hoped-for mining royalties and state taxes years ago), with the elusive promise of some $20 billion worth of capital investment; the direct creation of thousands of highly-paid construction and mining jobs; and the flow on of tens of thousands of jobs, in a state with the highest unemployment in Australia, by a mile.

Last week, we covered the story of BHP Billiton paying $2.57 million in a single day for electricity – that would normally cost them around $250,000 – due to a total and totally unpredictable collapse in wind power output: South Australia’s Energy Fiasco: Wind Power Dropout Leaves BHP with Whopping $2.5 Million Power Bill

Faced with South Australia’s wind powered pricing and supply calamity, on Friday last, BHP Billiton announced categorically that it has no intention of expanding its Olympic Dam mine, ever – as reported by The Advertiser: Olympic Dam expansion’s finally dead and buried with BHP not seeking indenture deal extension

Here’s why.

Business blows up as turbines suck more power than they generate
The Australian
Micheal Owen
20 July 2016

Wind turbines in South Australia were using more power than they generated during the state’s electricity crisis, which has prompted major businesses to threaten shutdowns and smaller firms to consider moving interstate.

The sapping of power by the turbines during calm weather on July 7 at the height of the ­crisis, which has caused a price surge, shows just how unreliable and ­intermittent wind power is for a state with a renewable ­energy mix of more than 40 per cent. Australian Industry Group chief executive Innes Willox ­yesterday said the rise in prices, ­already the highest in the country, had disrupted industry and served as a warning for the rest of the ­­­­nat­ion. “That is a serious blow to energy users across SA and has disrupted supply chains upon which thousands of jobs depend,” he said.

“The real risk is if this volatility becomes the norm across the ­National Electricity Market.

“In June, electricity cost South Australia $133 per megawatt hour on average — already a high price. But since July 1, electricity prices have spiked above $10,000 per MWh at times.”

Mr Willox echoed warnings of the South Australian government on the weekend, saying “We will see similar episodes again, and not just in SA”, and backing calls for major reform of the NEM.

“Changes in the pattern of ­energy demand and the ongoing build-up of wind and solar make life increasingly difficult for ‘baseload’ electricity generators across the country,” he said.

The power crisis comes amid growing pressure from independent senator Nick Xenophon to invest hundreds of millions of taxpayer dollars into struggling South Australian businesses to save jobs, and as the Turnbull government attempts to establish a hi-tech ­submarine manufacturing industry in the state.

An analysis of data from the Australian Energy Market Operator, responsible for the administration and operation of the wholesale NEM, shows the turbines’ down time on July 7 coincided with NEM prices for South Australia reaching almost $14,000 per MWh

NEM prices in other markets have been as low as $40 per MWh with the AI Group estimating this month’s power surge in South Australian electricity prices had cost $155 million.

While all wind farms in South Australia were producing about 189.72MW between 6am and 7am, by early afternoon the energy generation was in deficit as the turbines consumed more power than they created. By 2.20pm, energy generation by all wind farms was minus-2 MW. The situation forced several major companies, including BHP Billiton and Arrium, to warn the state government of possible shutdowns because of higher energy prices, forcing Treasurer and ­Energy Minister Tom Koutsantonis to intervene by asking a private operator of a mothballed gas-fired plant in Adelaide for a temporary power spike.

BHP, which employs about 3000 people at its Olympic Dam mine in the state’s far north, said its operations in South Australia were under a cloud.

“The security and reliability of power have been a significant ­concern for BHP Billiton and the sustainability of Olympic Dam,” the miner’s head of corporate ­affairs, Simon Corrigan, said.

Opposition energy spokesman Dan van Holst Pellekaan said the snapshot of wind power operations in the state showed the Labor government’s energy policies had created an oversupply of cheap wind energy at times but that forced it to import from interstate when prices shot up.

“This wouldn’t be a problem if we still had a reasonable amount of base load generation but we don’t,” he said.

Mr Koutsantonis yesterday said improved interconnection for a “truly national electricity ­market” would drive prices down immediately. Federal Energy Minster Josh Frydenberg declined to be interviewed yesterday, but said he would convene a Council of Australian Governments meeting as soon as possible.

Not everyone is unhappy — farmer Peter Ebsary hosts four turbines from the Snowtown wind farm in South Australia’s mid north. The wind farm, owned by TrustPower, is the state’s largest.

“We get a financial return and don’t have to do anything … we just sit back and collect the money as long as the wind blows,” he said.
The Australian

Dan van Holst Pellekaan

Dan van Holst Pellekaan seems to think that wind power is ‘cheap’.
Strange, but BHP doesn’t share Dan’s enthusiasm.

***

If Opposition energy spokesman Dan van Holst Pellekaan is pretending to be the answer to SA’s energy supply disaster, heaven help BHP and South Australia.

Dan might get out more and learn that, when the wind is blowing, SA’s power consumers are being whacked with the retail margin on top of paying wind power generators a guaranteed price of around $110 per MWh – even though wind power outfits often pay the grid manager to take it; and, when the wind stops blowing it’s local peaking plant operators (OCGTs and diesel gen-sets) that take up a fair proportion of the slack. Dan can start his much needed education here: South Australians Locked in Wind Power Price Disaster: Retail Prices Jump Another 12%

Then there’s the twaddle from turbine host, Peter Ebsary that: “We get a financial return and don’t have to do anything … we just sit back and collect the money as long as the wind blows”.  Nonsense.

Each of the four whirling wonders on Ebsary’s property earn him a fixed annual licence fee of $10,000 (or, perhaps, $15,000, depending on when he signed up); whether or not they produce a single spark is immaterial.  However, what they produce matters to Trustpower.

So let’s compare the $40,000 Ebsary gets each year (enough to buy a 4×4 ute, say) with the Renewable Energy Certificate subsidies paid to Trustpower; and collected via retail power bills from all Australian power consumers for just one of those turbines.

We’ll assume Ebsary is hosting Trustpower’s 3MW Siemens turbines and that they run around 40% of the time: Snowtown is the windiest place in South Australia and the capacity factor is close to 40%.

If that turbine operated 24 hours a day, 365 days a year – Trustpower would receive 26,280 RECs (24 x 365 x 3).  A REC is issued to a wind power outfit for each and every MWh dispatched to the grid, irrespective of whether there is a market for it: hence, wind power outfits often pay the grid manager up to $20 per MWh to take their skittish product, in order to collect their RECs.

Assuming, a capacity factor of 40%, that single turbine will receive 10,512 RECs annually (26,280 x 0.4). At the current REC price of $85 per REC, that single turbine will, in 12 months, rake in $893,520 in REC subsidy.  When the current oversupply of RECs is absorbed, and the LRET goes to penalty, the REC price will hit $93 and that single turbine will receive $977,616 in REC subsidy alone.

But wait, there’s more: that subsidy doesn’t last for a single year. Oh no. Trustpower’s turbines operating now will continue to receive the REC subsidy for 16 years, until 2031 – such that a single 3 MW turbine spinning today can pocket a total of between $14,296,320 and $15,641,856 (depending on the REC price) over the remaining life of the LRET.

Not a bad little rort – considering the machine and its installation costs less than $3 million; and that dimwits, like Peter Ebsary, agree to hand over complete legal control of their properties to Trustpower, for a piddling annual fee of $10-15,000 per turbine for the honour. On those ‘irresistible’ terms, it’s little wonder that turbine hosts, Clive and Trina Gare gave evidence to the Federal Senate last June that hosting 19 turbines for AGL at Hallett was “the worst decision of their lives” (see our post here).

Now, we know that The Australian’s Michael Owen is pretty new to the game, so he can be forgiven for the odd ‘rookie error’.  On the front page of the print edition, Michael wrote that:

“While all wind farms in South Australia were producing about 5780MW between 6am and 7am, by 1pm the energy generation was in deficit as the turbines consumed more power than they created.”

That result would have been a ‘loaves and fishes’ kind of wind power generation miracle: the total capacity of SA’s 18 wind farms is 1,580MW:

SA WF

The same error was repeated in another Australian article on page 2 (which appears below) – note the graphic with its Y axis at 6,000MW, almost double the wind power capacity on the entire Eastern Grid of 3,771MW.  We note that Michael corrected himself in the online edition (which is what appears above) when he amended the passage to read:

“While all wind farms in South Australia were producing about 189.72MW between 6am and 7am, by early afternoon the energy generation was in deficit as the turbines consumed more power than they created.”

The answer to what is (or more often what is not) being delivered by Australia’s wind farms is always only a few clicks away, courtesy of the boys over at Aneroid Energy. So let’s cross now to see what was really going on in SA on 7 July:

SA 7.7.16

Hmmm. Yet another stellar performance from SA’s ‘clean-green-team’. With a pre-breakfast effort of between 160 and 240MW, the whole team must have been suffering from over-work or fatigue, as output plummets 180MW (240 to 60) in the space of a few minutes before 9am; blips up a spurt of 140MW for a couple of minutes; and then crashes 140MW to the canvas, where it remains for the balance of the day.

That, fairly typical, effort is what led to peaking power operators gouging $14,000 per MWh out of the grid manager, for power that was costing Victorians around $45 per MWh at the same time.

In the face of an economic and social disaster, Labor’s witless Energy Minister, Tom Koutsantonis simply curses and threatens his neighbouring states that they too will soon face the same supply and pricing calamity being played out in South Australia.

And the Liberal’s opposite number, Dan van Holst Pellekaan continues to hold the delusional belief that wind power is “cheap” – and that SA can simply import the deficit from interstate (his boss Steven Marshall is peddling the equally deluded belief that SA can simply invest in bulk electricity storage).

While SA’s gormless political betters flounder, the crushing impact of the LRET and wind power on “the Big Australian” is an unmitigated catastrophe; which will have long-term and irreversible effects on South Australia’s beleaguered economy.

Sun and wind sustainable energy sources? Not for Olympic Dam
The Australian
Barry Fitzgerald
20 July 2016

power failure

There is an irony in South Australia’s energy crisis threatening the sustainability of BHP Billiton’s (BHP) Olympic Dam mine.

Apart from the increased costs — South Australia’s spot electricity price was five times that of NSW and Victoria yesterday at $253 per MWh — the supply crisis goes to the security and reliability of the mine’s electricity supply.

Olympic Dam is the world’s biggest uranium deposit and its remote location gives it special status among the world’s nuclear power utilities as a secure and reliable source of uranium for their nuclear power. But it is impossible to have a secure and reliable source of energy if the energy supply to the source of that energy has become subjugated to the whim of the wind and the sun.

BHP has not gone as far as to say it will close Olympic Dam because of the electricity price hikes and the uncertainty around reliable supply but it is known to be deeply concerned about the instability and a future in which South Australian electricity costs look set to remain uncompetitive.

Revenue loss from a temporary closure would be about $5.5 million a day from Olympic Dam’s mix of copper, uranium and gold sales. That takes no ­account of the massive costs of placing the operation on care and maintenance, and an equally huge bill — it would run to tens of millions — to restart.

Complicated mining operations are not designed to be switched on and off. For that reason, it would have to be assumed that in any prolonged crisis situation, load shedding of what power was available would give preference to heavy industry.

But that is not the sort of environment SA should be providing business, particularly one like Olympic Dam, which could still be around in 100 years or more, given the right sort of investment environment. And short of the deposit itself, there is nothing more important for a project like Olympic Dam than its energy costs.
The Australian

BHP’s announcement that it has no intention of expanding Olympic Dam is a devastating blow to South Australians.

Indeed, it’s a catastrophe for Australia’s (once outstanding) reputation as a place where international capital could happily find a home as investment in the development and exploitation of Australia’s abundant mineral wealth.  Now, that confidence has been shattered for all time.

SA’s ludicrous obsession with wind power has destroyed a once reliable, secure and affordable electricity supply.

That wanton, ideologically driven, result has now killed off the prospect of BHP investing $20 billion in a single project; and, therefore, killed off thousands of high-paying mining jobs and tens of thousands of other jobs in associated and support businesses, as well as in the wider economy.

Given that the LRET is a National cross for all to bear – and that States like Victoria and Queensland are equally obsessed with wind power, foolishly pledging to follow SA’s wind power lead – BHP’s decision to cut its losses at Olympic Dam will be echoed by miners and potential mining investors across Australia.

Welcome to your wind powered future.

crystal-ball

About stopthesethings

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

Comments

  1. Phil Lindsay says:

    BHP should build and own a mini nuclear power station to supply its electricity needs .

  2. Hail the mighty goat says:

    Kane Thornton the CEO of the Clean Energy Council (CEC)has come out and said with this weeks up coming CEC conference that there should be a “honest discussion” in relation to events in SA.
    Perhaps Kane could start off the Ceres wind farm proposal, 600MW powering 275,000 homes they promise. How much power could be guaranteed in any one point in time for the $2 billion expenditure?
    If a gas generator can’t compete with heavily subsidised wind when the wind is blowing, shouldn’t they be able to profit when wind can’t deliver? Why does the wind industry think the laws of supply and demand don’t exist in power generation.
    The renewables lobby has consistently stated that the days of a centralised grid system dominated by incumbent fossil fuel generators are ending. Why then with South Australia energy disaster are there now calls for an interconnetor.? To what source and who pays for it?
    The CEC conference has a session on how to go about community engagement. Perhaps you could get Senvion to talk in relation to the Ceres project the “rules of engagement.” You could all learn from that disaster.

  3. One has to wonder if Australia’s current crop of ideologically besotted ALP politicians retains even a tenuous connection with real world economics. The “silver bodgie”, whatever his faults, at least understood that if the business bottom line was in red, it was pretty much a case of “that’s all folks”.
    Maybe it’s time for the current crop of ALP intellectual lightweights to think about revisiting that distant past when Labor sought to enhance Australian prosperity rather than destroy it?

  4. Analitik says:

    Can you link to where Dan van Holst Pellekaan says wind power is cheap? In this recent interview, he said,
    “The Weatherill government’s overzealous rush into wind power, is directly responsible for the surge in price for electricity in South Australia.”

    http://www.triplem.com.au/adelaide/shows/roo-ditts-breakfast/blog/2016/6/south-australian-energy-prices-are-going-to-soar/

    Maybe he’s changed his mind since you heard him last talk about wind farms.

    • Try the article above: …

      Dan van Holst Pellekaan said the snapshot of wind power operations in the state showed the Labor government’s energy policies had created an oversupply of cheap wind energy at times but that forced it to import from interstate when prices shot up

      • Trevor Coghlan says:

        Trevor Coghlan and his group of investors have been trying to start up the Northern power station and Leigh creek mine and produce base load power for 18 months but this state government is not interested. One of the world’s largest power generation supply companies is behind them and still the government is not interested. This station with the modifications planned would also consume up to 1,000,000 ton of biomass and would be one of the cleanest thermal stations in the Southern Hemisphere. This project and the jobs it would create with the use of this technology would produce several thousand jobs well into the middle of this century.

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