Wind power: the perfect way to kill a growing industry.
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Power costs spike short-circuits onshore abalone growth
The Australian
Michael Owen & Verity Edwards
5 December 2016
The largest onshore abalone growing company in the southern hemisphere, whose power bill is set to rise by $650,000, has joined mining giant BHP Billiton in warning that unreliable and expensive energy costs in the southern states are killing investment and jobs.
Malcolm Turnbull said he shared those concerns: “How can you attract investment to your state if not only is your wholesale cost of energy the highest in Australia but it’s not even reliable?”
Yumbah Aquaculture at Port Lincoln, on South Australia’s west coast, received an electricity contract quote for $1.35 million, $650,000 more than its current $700,000 contract.
An amalgamation last month of the former Southseas Abalone operations at Port Lincoln, Kangaroo Island, Bicheno on Tasmania’s east coast and Narrawong near Portland in Victoria’s southwest has made Yumbah a major energy-intensive user as it supplies more than 500 tonnes of premium abalone each year.
Yumbah’s Port Lincoln manager, Tom Hyde, said skyrocketing electricity prices in South Australia, worsened by the close of the state’s last coal-fired power station in May, were crippling operations.
The company was now planning to invest in more of its own back-up power generators, with South Australia having suffered two major blackouts in little more than two months because the state, powered by a 45 per cent renewable energy mix, has an over-reliance on an interconnector with Victoria.
The Eyre Peninsula onshore abalone farmer knows without a reliable source of baseload electricity, he cannot pump water through the tanks where $10m worth of his molluscs grow.
“We always thought we had sufficient back-up power but we’re going to have to invest in more because of the situation in South Australia. We have to keep the pumps going,” he said.
“We’re land-based abalone farmers and power is a huge part of our industry. It’s not just affordability, it’s reliability, and if the power goes down our stock dies, and you can’t insure molluscs.”
Mr Hyde harvests about 600 tonnes of greenlip abalone annually, more than half of that from his Point Boston farm, 640km west of Adelaide.
Yumbah exports about 90 per cent of its stock, and his abalone is in high demand throughout Southeast Asia. A 93 per cent increase in Yumbah’s power bill for next year means future expansion plans have to be cancelled.
“We’ve just purchased the land next door at Point Boston with the hope of expanding but now that’s put on hold until the South Australian problem has been addressed,” he said.
BHP’s Olympic Dam mine in South Australia’s far north faces similar problems. Olympic Dam asset president Jacqui McGill said the September blackout and last week’s outage had cost the miner $100m.
Lack of power reliability and rising costs was of “deep concern” to BHP Billiton’s board as it considered any further investment in Olympic Dam, which employs 3000 people in South Australia.
“We operate and sell into a market where we compete with people around the globe, not just in Australia. Having competitive pricing of power and security of supply of power is paramount for any business,” Ms McGill said.
The Prime Minister “absolutely agrees” with BHP’s concerns, and warned the looming closure of Hazelwood coal-fired power plant in Victoria “will and has already added to the wholesale price of electricity”.
South Australian Premier Jay Weatherill promised to bring more competition into the state’s energy market to increase capacity, lower prices and improve reliability.
The Australian
South Australia’s base-load plant at Port Augusta and GDF Suez’s Pelican Point CCGT plant both stopped operating as a direct consequence of the market perversion caused by the Federal Government’s Large-Scale RET. The same applies to Victoria’s Hazelwood plant.
Wind power is already heavily subsidised under the LRET, which, as we detail below, allows wind power outfits to flood the market when the wind is blowing, literally paying the grid manager to take it – which knocks conventional generators out of the market, leaving them burning coal or gas (and incurring constant expense), but with little revenue (or no revenue whatsoever) to offset that cost (let alone turn a profit).
The graph above shows the output from SA’s last remaining base-load plant, Torrens Island during July, which is the reverse mirror image of the occasional output from SA’s 18 wind farms (with a notional capacity of 1,576MW), shown below:
In short, wind power outfits collect the same amount of revenue, irrespective of the spot price. However, conventional generators receive the prevailing price – and, unlike wind power outfits, do not receive any form of subsidy for what they dispatch: the market perversion driven by the LRET and subsidies for wind power is what has caused SA’s conventional generators to become unprofitable; and it’s that lack of profitability that led to Alinta’s decision to close its Port Augusta plant; and led to GDF Suez mothballing half of its Pelican Point CCGT plant 2 years ago (until SA’s hapless Labor government went cap and subsidies in hand to get its owners to fire it up, its working half only enjoyed a return when wind power wasn’t being given away).
The Power Purchase Agreements (PPAs) struck between wind power outfits and retailers (which you’ll never see the likes of Infigen aka Babcock & Brown or Trustpower aka ‘Tilt’ talk about publicly) are built around the massive stream of subsidies established by the Large-Scale Renewable Energy Target (LRET) – which is directed to wind power generators in the form of Renewable Energy Certificates (RECs aka LGCs).
Under PPAs, the prices set guarantee a return to the generator of between $90 to $120 per MWh for every MWh delivered to the grid.
In a 2014 company report, AGL (in its capacity as a wind power retailer) complained about the fact that it is bound to pay $112 per MWh under PPAs with wind power generators: these PPAs run for at least 15 years and many run for 25 years.
Wind power generators can and do (happily) dispatch power to the grid at prices approaching zero – when the wind is blowing and wind power output is high; at night-time, when demand is low, wind power generators will even pay the grid manager to take their power (ie the dispatch price becomes negative)(see our post here). In recent times, wind power outfits in SA have been paying the grid operator up to $20 per MWh to take power with, quite obviously, no commercial value.
However, the retailer still pays the wind power generator the same guaranteed price under their PPA – irrespective of the dispatch price: in AGL’s case, $112 per MWh.
PPA prices are 3-4 times the cost that retailers pay to conventional generators; retailers can purchase coal-fired power from Victoria’s Latrobe Valley for around $25-35 per MWh, although with the pending closure of Hazelwood, the cost of that reliable, meaningful power can only rise.
Underlying the PPA is the value of the RECs that are issued to wind power generators and handed to retailers as part of the deal.
The issue and transfer of RECs under the LRET sets up the greatest government mandated wealth transfer seen in Australian history: the LRET is – without a shadow of a doubt – the largest industry subsidy scheme in the history of the Commonwealth. That transfer – which comes at the expense of the poorest and most vulnerable; struggling businesses; and cash-strapped families – is effected by the issue, sale and surrender of RECs. As Origin Energy chief executive 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. The REC Tax/Subsidy has already added $10 billion to Australian power bills, so far.
Between 2016 and 2031, the mandatory LRET requires power consumers to pay the cost of issuing 470 million RECs to wind power generators. With the REC price currently $86 – and tipped to trade around $93 as retailers get hit with the shortfall penalty set by the LRET – the wealth transfer from power consumers to the Federal Government (as retailer penalties) and/or to the wind industry (as REC Subsidy) will be somewhere between $40 billion and $50 billion, over the next 15 years:
SA’s Wind Power Debacle Escalates as Australian Wind Power Subsidies Hit $3 Billion a Year
With more wind power capacity per head than any other State, South Australians are going to be lumbered with a disproportionate share of the ludicrous cost of the REC Tax/Subsidy, set by the LRET.
The escalating cost of power (and its erratic supply) has rattled major employers like Nyrstar, placing its operation in jeopardy, threatening the loss of 750 jobs in economically depressed Port Pirie. And that has already led to more than 50,000 SA households suffering along without any power at all (see our post here).
South Australians have Premier Jay Weatherill and his merry band of Labor lunatics to thank for, what can only be described as, an ‘energy debacle’. Notwithstanding the scale and scope of SA’s brewing economic disaster, Labor still seems wedded to pushing the wind industry’s barrow.
Having directed planning panels all over the State to keep rubberstamping wind farm applications – and otherwise encouraging more of these things to be speared into the heart of thriving rural communities; like those situated in the Eastern Mount Lofty Ranges and on Yorke Peninsula – Labor seems simply incapable of retreating from the brink.
Albert Einstein’s definition of “insanity” springs to mind: “doing the same thing over and over again and expecting different results”.
Backing the likes of New Zealand’s Trustpower or the cowboys behind Senvion (aka REPower, aka Suzlon) in their bids to carpet South Australia’s most agriculturally productive regions with hundreds more of these whirling wonders beggars belief.
What South Australians need is reliable, secure and affordable power – of the kind to be delivered by Alinta’s (still in tact) Northern Plant at Port Augusta and GDF Suez’s Pelican Point CCGT plant, that – but for the power market perversion caused by the LRET’s massive REC Tax/Subsidy for wind power – would have been happily delivered without costing SA’s taxpayers a red cent.
The very last thing South Australians need is any more of the same.
The results of its wind power experiment are in: it’s been a costly and dismal failure. You have been warned.
About stopthesethings
STOP THESE THINGS 
Hi,
I started a PETITION “SA PREMIER JAY WEATHERILL : Demand the RESIGNATION of the Energy Minister for HIGH POWER PRICES CAUSING SA’s JOBS CRISIS and 15,000 household POWER DISCONNECTIONS, frequent POWER BLACKOUTS and the JULY 2016 POWER CRISIS” and wanted to see if you could help by adding your name.
Our goal is to reach 100 signatures and we need more support.
You can read more and sign the petition here:
https://www.change.org/p/sa-premier-jay-weatherill-demand-the-resignation-of-the-energy-minister-for-high-power-prices-causing-sa-s-jobs-crisis-and-also-15-000-household-power-disconnections-frequent-power-blackouts-and-the-july-2016-power-crisis?recruiter=135406845&utm_source=share_petition&utm_medium=email&utm_campaign=share_email_responsive
Please share this petition with anyone you think may be interested in signing it.
Thankyou for your time.
Good article
It seems that we (in SA) will need to have even more crashes of our electricity supply system and further escalating prices before common sense returns to market basics.
If you introduce Govt interference in the market (LRET / REC’s) which essentially gives a free ride to one segment of the generator mix (and conversely penalises the others in the market) not only do you get market distortions (aka perverse outcomes) such as early exit of base load generators form the market, but you also get the opposite of the renewable mantra “renewables will put down ward pressure on prices, or we (wind farms) are price takers ! – these lies, lies, lies are now not chanted – nor are they challenged.
We in SA now have an unmitigated mess of a power generation and supply system.
it is not all the fault of the local SA Labor Govt, although they have had a big influence in us arriving at this point, through the encouragement of wind farms and associated relaxation of planning laws to induce them setting up in SA. (this is an ideological mantra which is blowing up in their faces, and they need to reverse from this position (renewables contributed 50% to SA’s generation in the last quarter – so they have achieved their aim – now they should stop all new wind farms.
The main area of blame is the crazy LRET / REC subsidy which basically allows one segment on the market (wind farms) to fully justify their projects (capex and opex) on the money from the subsidy (REC’s) alone.
The crazy target of 33,000 GWhrs of renewables by 2020 will extend the unreliability from SA to Victoria and NSW and Qld if they push ahead with wind farms, and the changes in their markets will be the withdrawal of coal fired base load along with increases in the forward prices.
I am an electricity broker – operating in SA
Give you an example of what the increases in the SA forward prices
A) in 2015 I was contracting for supply in 2016/2017/2018.
Virtually all business’s need to forward contract for their supply.
Prices for peak for these years was around 7.5c/kWh, and for off peak around 3.5c/kWh.
B) in 2016 (early part of the year) prices for 2016/17/18 were similar.
C) Mid year Alinta announce they will shut down their Port Augusta power stations in early 2016.
D) Prices increase by end of year peak 11c/kWh, off peak 4.5c/kWh.
E) early 2016 – prices for 2017, 18 & 19 continue to increase – Alinta shut down Port Augusta power stations (780MW) in May.
F) mid 2016, prices (for 2017 -19) increase to around 14c/kWhr peak, off peak about 6.5c/kWh.
G) now (Dec 2016) prices for 2017/18/19 are around – for 2017 17.5c/kWh for peak and 9c/kWhr for off peak. – if you can get offers !!!
So in 18 months peak prices for 2017 have gone from 7.5c/kWh to 17.5c/kWh (an increase of 230%), and off peak prices have gone from 3.5c/kWh to 9c/kWhr (an increase of 260%).
The LRET is the single biggest disaster to our economic and social structure in recorded history (apart from World Wars 1 & 2)
Is the reduction in Australia’s emissions this important – I don’t think so – the activists claim they are doing it gor their grand children – well I want something left for my children – cause if we keep on with this the grandkids lives will be completely screwed!
Weatherill has no one to blame but himself and his merry band of fools for the situation SA finds itself in and he continues to try and force the people of this State to accept something they do not want. The evidence of the failure of Wind to keep the lights on and to encourage financial investment and jobs for all is there to be seen and was some years ago – but he will not see it, he is blinded by the whirring of blades in an ever increasing progress backwards.
He can only see wind, fracking and burying some other countries dangerous waste. That’s no way forward all it will do is turn this wonderful and beautiful State into a no-go destination, a place of a dead and dying environments, he has and is continuing to ignore our needs and would rather put his own whims and fantasies first.
In January 2012 I attended and presented my Submission to the: ‘Statewide Wind Farms Development Plan Amendment Development Policy Advisory Committee Meeting’, arranged as part of the process of John Rau’s (Attorney General) Ministerial Development Plan Amendments. (MDPA)
The Amendments were brought about by then Premier Mike Rann’s dislike of a court decision in favour of Richard Paltridge who was fighting the Acciona Allendale East Project.
In this submission I detailed a number of things of concern with respect to the Government and its Ministers changes and the reasons they considered changes were needed. My conclusion was that the whole process was brought about by the Government to achieve its goals no matter what evidence was available to show caution was needed in the progress of Industrial Wind Installations in this State. It became obvious to me that there were those in Government and Ministerial positions determined to support Wind Energy no matter what the cost to the people of SA.
Following are some quotes from my Submission:
‘…an acoustical research project seeking funding from our State Government last year was knocked back, why, apparently because there was no interest. Even though the Senate inquiry recommended such research and the ever increasing concerns of medical professionals and those affected are calling for it. The only ones who have no interest are the Wind Energy proponents and our Governments.’
During my research for the Submission:
‘… I came across the document produced by RenweablesSA, “Investigative Land Use Planning and Development System Study”, Final Report, dated December 2010”
This report was researched and written for RenewablesSA by URPS a private company who has undertaken other work for the government.…’
‘…The report consists of summaries of consultations with members of the Wind Industry, planners and others. At the end of each section there is a highlighted box which has key points listed.
On reading through this report it became obvious if readers relied on these key points they would have an inaccurate assessment of what was actually being reported.
For instance under 4.0 Additional Targeted Consultation, Key points state, ‘The economic benefits of wind farms to regional areas is recognised and valued’, where in fact this was not mentioned in the 2.5 pages of summary, and other key points are weak in relation to what appears to have been reported in summaries throughout the document.
Referring to Consultation with Councils, again in point 4.0 it says ‘The consultation process was also used to ‘test’ key directions proposed by this report’. Which suggests the report was completed prior to speaking with Councils.
Not all industry members were dissatisfied with how the planning regulations were being operated, and some were happy to continue with the current system.
Those with concerns appeared to have been ones who had had court dealings.
The “Key messages from targeted consultation” on page 14 notes “there is a knowledge gap relating to the health impacts of noise from wind farms” and “There is increasing concern in the community regarding the unknown health impacts of wind farms” and “The economic benefits of wind farms to regional areas is recognised and valued.”
Economic impacts were not mentioned in the summary, and the community were not consulted, and while we are concerned about health impacts this MDPA certainly doesn’t address them.
‘Obviously work on this report commenced sometime before its finalisation in December 2010. This means when Mr Rann … in parliament, on 22 June 2011, stating ‘the government would be considering options for maintaining certainty in light of the court’s decisions.’ He failed to mention the court decision was made ‘on merit’, or that he [already] had a report recommending the use of Category 2. [The court case referred to was the Paltridge Allendale East case]
‘Two projects have not gone ahead and one is in the balance. The first the Myponga/Sellicks proposal began its journey in 2002 and was one Mr Rann declared a conflict of interest in as his brother had an involvement with the project,…’
‘The project was given Major Development status in 2003 by Jay Weatherill against advice of his Planning Department who recommended not to proceed because ‘…the site is not considered to be an appropriate location due to its high scenic value and proximity to the urban area.’ and ‘…this detrimental impact will be real for those opposed.’ (Chris Pippos-newspaper article). In 2009 this project was given notice to commence significant construction by September 2010 or lose approval to build. In January 2011 approval was withdrawn, after the RenewablesSA report was completed.
… opposition to it with respect to its Visual Impact, and while the company requested to increase the size of turbines and reduce their number permission wasn’t given.’ [NOTE: SA had a different Planning Minister who withdrew approval]
Companies appeared to be happy with the current regulations, In fact the RenewablesSA Report supports this, though you wouldn’t know it from the boxed key points.
‘AGL ‘said it would probably hold back $US2 billion of additional projects until prices for renewable energy credits increased.’ Also …’we don’t have a price on carbon and no price signal to proceed with new wind farms’. ‘…the market for the certificates had remained “Soft and soggy” … it would take until 2014 or 2015 for that surplus to wash through the system’. (The Australian, 7 March 2011)
Pacific Hydro ‘based on current electricity wholesale prices the certificates needed to be $45-$50 to spark investment.’ (The Australian, 7 March, 2011)
Origin Energy ‘proliferation of guidelines and standards by states and the draft national wind farms guidelines had created a “confused, cumbersome and inefficient” environment.” …’It is an environment that is detrimental rather than supportive of wind farm projects…’ (The Australian, 7 March, 2011).
Giles Parkinson –Climate Spectator – September 2011
Re Infigen – ‘…the company had to cease production from its wind turbines at certain times because the excess wind output sent prices into negative territory.’ ‘…but its operating margins fell due to the lower prices and increased maintenance costs as some of its wind farms come out of warranty periods.’ …’reduced demand caused by mild weather and the economic impact on manufacturing, and partly because of cheap gas, and partly because of an excess of wind capacity particularly in South Australia.’
The Australian, 25 May 2011
Interest in wind farm projects has stalled amid the uncertainty over the carbon price and the flood of renewable energy certificates already on the market, reducing the incentive to build’.
Further, Mr O’Loughlin from RenewablesSA on 31 May 2011 said in relation to a decision by the Ministerial Council on Energy to disallow energy consumers to partially underwrite transmission line costs in relation to the proposed Green Grid project said ‘…most developers would not now risk such a large investment up front’ and …’the cost of building wind farms under existing grid lines was continually rising as the best wind generation sites were already taken and new, tougher rules on siting turbines closer to housing were making them less economic.’
The Advertiser, 20 November 2010
That renewable energy from catchments such as wind farms ‘have pumped enough reserve power into the grid to safeguard Adelaide’s supply through the next two summers.’
Not sure how they would achieve this, as it cannot be stored.
‘However, the looming end to the RET system in 2030 was also of concern as quoted by Mr O’Loughlin in his “Submission on the South Australian Interconnector Feasibility Study: Draft Report.” Dated 12 January 2011.
‘…Given that the renewable generation target peaks at 2020 under the RET, the Green Grid developers consider the commissioning of large scale wind farms post 2020 are unlikely.’
It should be noted that Jay Weatherill took over from Mike Rann on 21 October 2011, which was prior to the consultation period and enactment of the MDP Amendments.
The removal of freedoms to the people of SA which these changes made were in contradiction to both the the Rio Declaration which Australia is a signatory off and The Australian Human Right UN agreement.
…our ‘Human Rights which are inherent, inalienable, indivisible and universal. They are the birth right of all people and cannot be lost or taken away. They are all of equal importance and apply to all people …’ (Australian Government, Department of Foreign Affairs and Trade).
Rio Declaration http://www.unep.org/Documents.Multilingual/Default
Principle 1: Human beings are at the centre of concerns for sustainable development. They are entitled to a healthy and productive life in harmony with nature.
Principle: 4 In order to achieve sustainable development, environmental protection shall constitute an integral part of the development process and cannot be considered in isolation from it.
Principle 10: Environmental issues are best handled with participation of all concerned citizens, at the relevant level. At the national level, each individual shall have appropriate access to information concerning the environment that is held by public authorities, including on hazardous materials and activities in their communities, and the opportunity to participate in decision-making processes. States shall facilitate and encourage public awareness and participation by making information widely available. Effective access to judicial and administrative proceedings, including redress and remedy, shall be provided.
Principle: 13 States shall develop national law regarding liability and compensation for the victims of pollution and other environment damage. States shall also cooperate in an expeditious and more determined manner to develop further international law regarding liability and compensation for adverse effect of environmental damage caused by activities within their jurisdiction or control to areas beyond their jurisdiction.
Principle: 15 In order to protect the environment, the precautionary approach shall be widely applied by States according to their capabilities. Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measure to prevent environmental degradation.
‘…In 1972 the Right of Appeal in development matters in South Australia was introduced by Don Dunstan and agreed to on a bipartisan basis, but since then it’s been steadily eroded and this MDPA finally crushes it with respect to some citizens of the State depending on where they live, which is discriminatory and as such could result in consequences…’ [Dunstan was a Labor Premier of SA]
‘…do the processes undertaken and these amendments align to the Governments own Ministerial Code of Conduct? No.
Points 2.4; 2.5 and 2.6 refer to Ministers not deliberately misleading the public or parliament; making no decision without due consideration for what the impacts were likely to have on’… rights and interest of the people involved and the citizens of South Australia’; and a reminder that “Ministers, their departments and agencies carry out work on behalf of the public.”
The lights were on and shining brightly prior to 2010, but the Government only wanted to switch them off, they did not and still do not want to know or see what the dangers were/are, they have tried to keep us in ignorance but have failed to recognize the ability of their people to read and search out information and the truth, they disrespect our capability to rationalize and make a sound judgement, they ignore our ability to speak out and campaign against them. They have shown themselves to be self-serving and incapable of accepting they have made mistakes.
This is not a failing of SA’s Government alone, but is being repeated by other State Governments and the Federal Government, for any of them to continue down the path they have taken will render this nation a servant to any country which has the ability to keep the lights on to see their way forward.
DATA. not words, will hopefully prevail.
I ask the question who is in denial? Whilst I believe mans activities on this planet do have an affect on Mother Nature the science behind climate change is not black and white. It is foolhardy for anyone to suggest they could understand fully the complexities and integration of so many natural forces behind our weird and wonderful weather system. Yet to have an opinion to other than that of the greenies one is condemned as a denier.
The true deniers are those who keep propagating the fiction that a modern society can be run on wind, solar and batteries. They even tell us it would be cheaper. Sadly SA is living proof having gone from a reliable power grid to the debacle it now is that this is fantasy. Having lived in this state all my life I have never seen the sense of hopelessness that people now feel.
This propaganda has reached plague proportions. The ABC radios current affairs programs are full of how every incident in our lives can just about be related to climate change. The Project is so biased in its views i turn it off in disgust.
Whilst for we in SA the future is somewhat uncertain it is not late for the other Australian states to fight like hell against this scourge.