South Australia is where the wind industry got going in Australia; and the inevitable and disastrous results of South Australia’s ludicrous attempt to run itself on the whims of the weather mean that South Australia is the place where the wind industry meets its doom.
No commercial power retailer in their right mind is going to sign up to a long-term power purchase agreement with a wind power outfit from here on; and, accordingly, no commercial banker is going to extend the finance needed to erect any more of these things, anywhere. Save a handful of projects backed with guaranteed contracts with the ACT government and funded by subsidised loans from the Clean Energy Finance Corporation, windfarm construction is at a standstill (see this moan from The Australian today).
In a week when the wind industry, its parasites and spruikers were reduced to hopeful and delusional ranting, it was especially pleasing to see a new entrant to the common sense and reality team – ITS Global – launch into the fray with a piece that sounded altogether familiar. But first some background on ITS Global from its website.
ITS Global specialises in public policy in the Asia Pacific region. Its expertise include: trade, economics and investment; environment and sustainability; aid and development; and corporate social responsibility and risk. It enables clients to assess implications of policy; develop and implement strategies to manage policy impacts; and to improve policy formulation.
ITS Global has clients in manufacturing, services, agriculture, forestry and mining sectors.
ITS Global is recognised for the quality delivery of its services by clients in government and business. Clients include the Asian Development Bank (ADB), AusAID, the OECD, the Department for International Development of the UK (DFID), the Ministry of Economy Trade and Industry of Japan (METI), the Australian Department of Foreign Affairs and Trade (DFAT), the United Nations Development Program (UNDP), the ASEAN Secretariat, the APEC Secretariat and private sector organisations.
ITS Global is headed up by a top-notch economist, Alan Oxley who runs with a team of trade and free-market economics specialists, which is evident in this short sharp and shiny analysis of South Australia’s wind power calamity. The piece was written in advance of the ‘SOS summit’ held at the instigation of South Australia’s witless Energy Minister, Tom Koutsantonis; at which he pleaded for relief from SA’s self-inflicted case of excess ‘wind’. And, no, STT didn’t actually write it.
COAG and South Australia’s energy crisis
17 August 2016
Federal Environment and Energy Minister Josh Frydenberg called a meeting of the Council of Australian Governments (COAG) Energy Council this Friday.
The meeting has already attracted the attention of groups such as GetUp, who are attempting to use the occasion as a platform for criticism of Australia’s major energy retailers. Their views are outlined in a new report published by the campaign group; not surprisingly the report doesn’t examine the impact of South Australian state policies and the recent South Australian energy debacle.
How to avoid a repeat of this episode will be high on the agenda for the COAG meeting.
Put simply, SA’s energy crisis is the result of the state’s short-sighted promotion of solar and wind generation without compensatory planning and policy.
Wind farms and other renewable-energy generators have undercut the prices of efficient base-load, coal and gas power plants, in South Australia because they receive non-market, guaranteed returns from selling Generation Certificates to electricity retailers under the Renewable Energy Target (RET).
Under the RET, electricity retailers must buy enough certificates to demonstrate their compliance with the scheme’s increasing annual targets.
The revenue earned by each wind farm from the sale of certificates is additional to the revenue received from its sale of electricity to the electricity market and is designed to guarantee a return to wind farms to justify the investment.
If sales of electricity grow slowly (as they are in South Australia’s slow-growing economy), the subsidized market share of wind farms and other renewables will rise and the sale of electricity from conventional base-load power plants will fall.
At some point coal and gas-fired conventional power plants become unable to contribute towards their fixed costs, and they go out of business. This is what has happened in South Australia.
If the demand for electricity is low while the wind is blowing and the sun is shining, the price of electricity in South Australia will be low. Conventional generators will make losses, while the market losses of the renewable generators will be covered by their sale of Generation Certificates.
If the demand for electricity is high and it is a windless, overcast day, the price of electricity in South Australia will be high, because it will be mostly produced by high-cost, back-up, peaking generators.
The high cost of maintaining back-up generation capacity means that the average price of electricity produced in a system dominated by renewables will always be expensive without strong interconnection to large, inexpensive, electricity-producing regions that produce most of their electricity from coal, gas or nuclear sources.
South Australia’s interconnectors with Victoria are able to supply only 23 per cent of South Australia’s peak demand. When the Heywood interconnector was down for upgrades last month South Australia was forced to rely on high wholesale gas prices to supply base-load power, hence the spike in spot energy prices that touched $14,000 per megawatt hour.
Germany provides another case study of wind subsidy folly. The country has spent more than €200 billion on its Energiewende, or “energy revolution”. In the process, its traditional power plants have been closing, the country’s power prices have been soaring, and its meaningful industries have been packing up.
According to the Wall Street Journal, average electricity prices for companies in Germany jumped 60 percent over the past five years because of costs passed along as part of government subsidies of renewable energy producers.
Germany’s BASF choose the US for its $1 billion propylene factory in Texas to take advantage of low energy costs. BMW and SGL Carbon, which produces carbon fibers for BMW’s E-series electric cars, built their $300 million carbon fiber plant in Washington state because of competitive energy costs.
The Spaniards, meanwhile, have thrown 100s of billions of euros in subsidies at solar and wind power, and have achieved nothing but economic punishment in return. The thousands of “green jobs” did not materialize and the industry was put to the sword last year.
And earlier this month Portugal announced plans to begin phasing out support for utilities generating renewable power as high electricity prices have been blamed for hampering its struggling economy. The subsidies will end as contracts start to expire in 2017.
Back in South Australia, and faced with the highest power prices in the country, if not the world (on a purchasing power parity basis), the Weatherill government likes to think of itself as a green-energy example for the rest of Australia. It sure is.