Renewables Rent-Seekers Panic as Wind Power Operators Forced to Pay Back-Up Costs

If there is one thing that renewables-rent-seekers dread more than calm and cloudy weather, it has to be uncertainty.

Always keen to preach about how cheap wind power has become, but always reticent to release their grip on the subsidy teat, the wind industry, its parasites and spruikers are now in a flat panic after the release of Alan Finkel’s report on Australia’s electricity market fiasco.

As detailed in our last few posts, much of it arises from the realms of fantasy and fiction. However, it has thrown one whopping spanner in the works, by dictating that wind and solar power generators be required to deliver power around the clock, whatever the weather.

Finkel’s edict provides wind and solar power outfits with a choice between adding monstrous (as yet, non-existent) batteries to their operations and building fast-start peaking power plants (which means either highly inefficient Open Cycle Gas Turbines or diesel generators) to cover routine, total and totally unpredictable collapses in power output – such as this classic performance from every wind farm scattered across the entire Eastern Grid, with a notional capacity of 4,395MW:

The ultimate cost of covering that chaos is born by power consumers, not by wind power outfits, which have, until now, avoided any responsibility for the inability to deliver a reliable and meaningful power supply, by which we mean available as and when consumers demand it.

While there is plenty to criticise in Finkel’s report (not least the fact that he fails to even consider nuclear power – the only stand-alone method of generating power without CO2 emissions), placing the onus on wind and solar power generators to deliver power according to demand, rather than the time of day or the vicissitudes of the weather has placed the prevailing business model for renewables-rent-seekers under a proverbial cloud.

In effect, from here on, wind and solar power generators will be forced to put up or pay up, making any new investment a whole lot less lucrative for investors.

Over the coming weeks, you can expect to hear lots of wailing and gnashing of teeth, as the likes of Infigen and Pac Hydro seek to avoid the cost of providing power on the same terms as conventional generators have been doing for over a century.

So, if nothing else, Finkel has added yet another layer of uncertainty to the wind and solar power industry, which always and everywhere depend upon government mandates, subsidies, guaranteed feed-in prices, threats and fines; and require that the true costs of their inability to deliver are always born by somebody else.

In a moment we’ll take a look at how that uncertainty is playing out in the market for renewable energy certificates: which is a pretty fair indicator of the long-term future of renewable generation in Australia. But first, we’ll turn to The Australian’s Terry McCrann.

Solar and wind power will never come cheap
The Australian
Terry McCrann
10 June 2017

Sorry, Alan (Kohler), you are wrong.

There is no way that wind and solar is cheaper to produce than coal-fired power, despite the assorted — and your — claims of the cost spiralling down. Wind and solar are not 21st century disruptive technologies but a back to a 19th century future ones.

The only way they are able to be competitive with coal is by massive direct subsidies and their mandatory use under the RET — the renewable energy target.

Plus, absolutely fundamentally, their ability to tap into real, coal-fired, power generation when, you know, the wind don’t blow and the sun don’t shine.

Don’t take my word for it. Even climate warming true believer Alan Finkel said as much — albeit, so as to keep the charade going, he said so opaquely.

One of his key conclusions was that intermittent forms of electricity generation should be required to invest in “reliable” back-up supply. So that South Australia’s — dire — present does not become all of Australia’s future.

When you price the cost of doing that — whether the back-up is (insane) batteries, (equally insane) pumped hydro or indeed coal- or gas-fired generation — into the cost of that “free” wind or solar, it suddenly ain’t so cheap.

Indeed, our colleague Robert Gottliebsen made exactly this point yesterday when he wrote: “When we make the calculation (of the true cost of renewable energy) Australians will be shocked at how badly they were misled.”

The example Kohler presented of this claimed coming flood into especially ever-cheaper solar photovoltaic was extremely instructive.

As he called it, the “little-known” ReNu Energy (RNE) will own and operate the solar plant (on shopping centre roofs) and sell the power to the retailers in the centres. Cost (on the first four centres) $4.3 million; annual cash return to RNE’s investors, $700,000, or 16 per cent.

Sounds great. What Kohler didn’t note was that every megawatt hour of electricity sold into the centre also, ahem, “generates” what’s called a large-scale generation certificate for RNE — which gets to sell it to power retailers to meet their “renewable energy” obligations.

Right now these LGCs are trading about $80, so if RNE got to sell its actual power at the $50 or so per MWh implied in Kohler’s article, it would actually pocket $130. With the $80 (per MWh) being paid by consumers of coal-fired power.

So renewable — wind and solar — is “made” supposedly price competitive coming and going. It gets the direct cash subsidy and that subsidy is paid by the real power generation it is purportedly competing against!

Plus, its real power generation competitor has to make its power available, instantly, to RNE when … the sun don’t shine; even the very process of all these free riders dipping in and out of the grid not only forces up the grid power price but makes it unreliable and prone to blackouts.

OK, batteries? Apart from the extra cost, while batteries can — sort of — work for wind power, they are useless for solar.

First, these shopping centre roof panels are never going to be generating enough power to keep the lights on and also recharge the batteries; and if they make it through the night with some power left, what if they hit one cloudy day? Or two? Or three?

More batteries; and if so at what cost? OK, let’s have the batteries connected to the grid; to be charged by real — coal-fired — power. At what point do we begin to recognise that we have taken up residence on the Planet Lunacy in a galaxy far, far away from reality.

RNE, not exactly incidentally, makes its intended feasting at the great climate (actually, painfully expensive) “free lunch” boondoggle refreshingly clear in its own presentations.

Indeed its, for want of a better term, business model entirely depends on it. One of its two major “revenue streams” is the LGCs. And it notes that while electricity to the shopping centre will come first, from the PV panels on the roof, any, ahem, “shortfall” will be “sourced from a retail electricity provider”.

In effect what RNE and any other “free lunch feasters” are doing in the small is exactly what SA has been doing in the large: produce high-cost renewable energy with every MWh subsidised by a now $80 per MWh payment by users of real power generation. While also demanding access to that real power generation when needed.

And note, even with the massive LGC subsidy, SA’s largely wind and solar power is the most expensive in Australia. At least Finkel says this is insanity.

SA could only “do it” because of the long extension cord plugged into Victoria’s Latrobe Valley. But after the closure of Hazelwood, Victoria — and SA — will need their long extension cords into NSW.

What happens when every state is, figuratively speaking, wandering around with a long extension cord, looking for somewhere to plug into?

Finkel is trying to pre-empt that, literally, black reality with his Clean Energy Target.

But by building it on the foundation that we have to have more and more wind and solar, it cannot but build in substantially higher and higher cost. Because all that extra wind and solar will have to have “reliable” back-up.

Yes, it might be “cheaper” than an emissions trading scheme or its EIS clone — all forms of a carbon tax — but that “cheaper” is relative: it would not deliver cheaper electricity prices, only cheaper than the even more insane alternative.

As I noted last week, why are we doing this anyway? With the US leaving Paris and China and India (that’s more than 50 per cent of global emissions) building more and more of the cheapest form of generation, coal-fired power stations.

Oh, and talking about long extension cords, Kohler’s RNE is actually new to solar; it’s actually “transforming from geothermal”.

Remember geothermal? It was going to power Australia. All we needed were long extension cords plugged into — well fancy that — SA’s hot rocks.
The Australian

Terry talks up the price of renewable energy certificates (RECs aka LGCs) when he says that they are trading about $80.

Here’s the LGC forward trading price on 3 June 2017 – note the collapse in the forward price from ‘Cal 19’ – which starts on 1 February 2020:

One week later, and after Finkel’s report hit the press, and the price for LGCs is still on the slide – this was the market position on 10 June:

Those interested in watching the LGC price head south can follow its progress on Mercari’s website here.

The forward price for LGCs (RECs) matters more than ever because hopeful wind farm developers, unable to secure retail power purchase agreements, are pinning their future on being able to simply contract to sell LGCs to retailers such that they can avoid the shortfall penalty (a $65 per MWh tax on retail power bills), leaving the wind power generator to try and sell its electricity to somebody else. Which, in places like South Australia, when the wind is blowing, means literally giving the electricity away or even paying the grid manager to take it.

With the future LGC price heading south and likely to trade around $40 (or less) the chances of getting finance to build any new wind farms are pretty slim.

The future for wind power in Australia was always a touch and go proposition. Finkel’s demand that wind power generators deliver power around the clock, whatever the weather, and to pay the full price of doing so, is probably the last nail in its coffin. For embattled Australian businesses and households it’s a funeral that can’t come soon enough.

Alan Finkel: unwitting wind industry killer.

About stopthesethings

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

Comments

  1. Also reported by David Crowe in the Australian 8th June,
    a google search should link you to the article,—–
    “bar to be raised for wind, solar farms”

  2. GiveaDogaBone says:

    Assume 30% generation capacity for a wind farm @0 CO2 emissions.
    Fossil-fired generation would by by gas from closed cycle(CCGT) or open cycle(OC) @370 or 620 CO2 emissions [2:].

    CCGT backup delivers 370 average over the time.
    OC backup delivers 620*0.7=434 average over time.

    Conclusions:
    1: The lesser average CO2 emissions are produced by CCGT running continuously.
    2: CCGT running continuously saves the capital and operating cost of the windmills and the higher maintenance costs of ramping fossil-fired plant.
    3: Finkel has a major problem [1:,2:] with being forced to fit OC backup for VRE! He has argued the destructive effects of ramping at high rates and demonstrated the folly of VRE generation that needs 100% backup.

    [1:] Finkel p99 Supported by gas peaking plant ?
    Box 3.3 – Falling costs of technology
    AGL recently outlined its estimates for the cost of different fuels. AGL considers that a new wind farm supported by gas peaking generation (through the ‘firming cost’) to now be cheaper than
    new CCGT at a $8/GJ price. A new solar farm supported by gas peaking generation would also be cheaper than new CCGT at a gas price of $12/GJ (see Figure 3.11).
    1

    [2:] Finkel p202 Estimated Operating Emissions for New Power Stations
    Open cycle gas turbine (OCGT) 620 (kg CO2-e/ MWh)
    Combined cycle gas turbine (CCGT) 370 (kg CO2-e/ MWh)

    • GiveaDogaBone says:

      https://www.vgb.org/en/lcoe2015.html?dfid=74042 Levelised Cost of Electricity
      Investment Cost
      Euro/kW Min Max
      OCGT 400 720
      CCGT 550 800
      Wind onshore 1000 1800
      Wind offshore 2800 4500
      PV on ground 900 1600
      Basically, onshore wind and ground PV cost twice as much capital/kW as OCGT and CCGT.

      1kW of CCGT costs 550
      1kW of OCGT backup + 1kW of onshore wind costs 400+1000 = 1400

      Gas Burn:
      Does 1kW of CCGT burn more or less gas than 1kW of OCGT running for 70% of the time?
      Assuming the combustion efficiency of each is comparable, the relative emissions of CO2 are 370 for CCGT and 434 for OCGT; these reflect the gas burn. The CCGT burns less gas than the OCGT+wind combine.

      Conclusion:
      1: 1kW OCGT + 1kW wind costs 2.5 times as much capital as 1kW CCGT using the vgb numbers
      2: The OCGT+wind combine burns more gas (and emits more CO2) than the CCGT alone.
      3: I do not (and probably was not intended to) understand the AGL statements/numbers in Box 3.3, although I managed to extract the OCGT/CCGT comparison.

      I am left with a question, “What does the wind actually achieve?”.
      It seems it forces the backup onto the much less efficient OCGT.
      As compared to CCGT, that :-
      1: increases the gas burn and CO2 emissions,
      2: it drives up the capital cost,
      3: and the gas costs.
      4: The extra system costs of intermittency are not included but should be.

  3. The last sentence omitted from our previous post; sorry.

    DEVELOPERS SHOULD PAY FOR INTERMITTENCY, NOT BE PAID (HANDSOMELY) FOR IT.

  4. Our post today.

    First off, apologies to STT, whose posts we usually pass on as soon as we see them. Because we’ve been wholly occupied with other matters since the end of last week, we’ve seen the posts on the Finkel report but today is the first opportunity to properly read them.

    Finkel – who is he? Australia’s Chief Scientist. What!!!!
    We had honestly thought, skimming not only STT’s reports but the press pieces their posts contained, that it was someone of the same ilk as the self-styled guru. To say we are gobsmacked is an understatement.

    Finkel has been taken apart by STT, in their own inimitable and knowledgeable fashion, as he has by, in particular, Judith Sloan writing for the Australian.

    The report has the wonderfully optimistic title of Blueprint for the future: Independent Review into the Future Security of the National Electricity Market.

    Sounds good doesn’t it? But as STT have said, it’s a mix of Alice and Goldilocks, which is why we have taken one of STT’s photos to introduce this subject. There are three posts, but it’s the third, today’s that we are concentrating on, link below and in particular these paragraphs:

    ‘While there is plenty to criticise in Finkel’s report (not least the fact that he fails to even consider nuclear power – the only stand-alone method of generating power without CO2 emissions), placing the onus on wind and solar power generators to deliver power according to demand, rather than the time of day or the vicissitudes of the weather has placed the prevailing business model for renewables-rent-seekers under a proverbial cloud.
    In effect, from here on, wind and solar power generators will be forced to put up or pay up, making any new investment a whole lot less lucrative for investors.
    Over the coming weeks, you can expect to hear lots of wailing and gnashing of teeth, as the likes of Infigen and Pac Hydro seek to avoid the cost of providing power on the same terms as conventional generators have been doing for over a century.’
    And so, for this one thing – hats off to Finkel.

    It chimes entirely with the statement from Amber Rudd (the then Secretary of State for Energy & Climate Change) in November ’15 : ‘In the same way generators should pay the cost of pollution, we also want intermittent generators to be responsible for the pressures they add to the system when the wind does not blow or the sun does not shine.
    Only when different technologies face their full costs can we achieve a more competitive market.’

    The Conservatives, we believe, were working steadily towards this wrecking ball to the industry’s golden goose thinking. We are in a state of political flux in the UK right now, but the one thing we are sure of is that the Tories can play the long game.

    And could have just been given a helping hand on the energy front by Mr Finkel.

  5. Reblogged this on Wolsten.

  6. Paul Miskelly says:

    Did anyone else happen to note what I regard as the supreme irony that, on Saturday last, the day after the release of the Finkel report, wind output in SA lazily fell to zero? Mind you, total output across the entirety of the Eastern Australian grid wasn’t too flash either. As STT hints with the chart reproduced here, this is but one of many days so far this year, as in every other, that wind output, whether by-State, or in total, dips to nothing.

    STT, we tried to tell them years ago, didn’t we?

    I love the analogy of the States running around with extension cords, trying to find an outlet that is “live”.

  7. Reblogged this on ajmarciniak.

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