Alan Finkel’s Bogus Adventure: Staggering Costs of Clean Energy Target Hidden From View

One thing time Finkel will never be accused of is under-selling his 42% renewable energy target, re-boxed and badged as a clean energy target ‘CET’.

However, the trouble with hubris is that it does not take very long to prick the over-eager salesman’s balloon.

As we pointed out in yesterday’s post, Finkel’s forecast power price cuts rely on work done by consultants Jacobs (formerly SKM). SKM made predictions about where Australia’s power market would be now, back in 2014 during the RET Review.

Back then, ACIL Allen and SKM predicted that Australia’s wholesale electricity price would fall to around $50 per MWh this year: instead it’s around triple that, rising from $130 per MWh to $150 per MWh since the closure of Hazlewood in April. In economic modelling terms, a complete cock-up on SKM’s part. Its progeny, Jacobs hasn’t done it any better.

Here’s just some of where Finkel went wrong.

Finkel report assumes banks will charge excessive costs on coal power
The Australian
David Uren
15 June 2017

The Finkel report has assumed that coal-fired power stations will face punishing financing costs — equivalent to those imposed by banks when lending to impoverished countries — to support its conclusion that consumers will face spiralling electricity costs unless­ there is an emissions reducti­on plan.

The Finkel prediction that electricity prices would fall under its ­favoured clean energy target ­assumes the cost of building ­renewable energy capacity falls by as much as 4.5 per cent a year until at least 2026, and 3.5 per cent a year beyond that.

The economic modelling prepared for the electricity market review­ shows a CET would prod­uce a massive fall in the wholesale cost of electricity, reversing the doubling of prices over the past five years. Prices would fall from $75 per megawatt hour now to $55 by 2030, and below $40 by the early 2040s.

By contrast, if current energy policy remained, leaving the renewa­ble energy target as the only means of supporting lower-emission electricity, wholesale prices would reach $90/MWh by 2035.

The pivotal assumption in the economic modelling, prepared by consulting firm Jacobs, is that the policy uncertainty surrounding carbon emissions is pushing up ­financing costs, whereas adoption of a CET or the alternative emissions­ intensity scheme would end the debate. “Because the policy for achieving emissions reductions is now known with certainty, there is no risk premium applying to investment in new plant,” it says of the CET. “Policies are assumed to be perfectly credible.”

By contrast, the modellers estim­ate the current uncertainty imposes a “risk premium” of 5 per cent to the cost of investments in coal generation (including maintenance), while there is a further 2 per cent cost for gas and 1 per cent increase for renewable energy.

The World Bank estimates that the risk premium for banks lending to ventures in countries such as Kenya, Bangla­desh or Yemen is about 5 per cent.

“Investors face high risks in investin­g in new emissions-intensive plants, with the perception that such new plant could become stranded assets if any mitigation policy was implemented,” it says.

It adds that owners of coal plants would only undertake major refurbishment or maintenance if assured of a quick payback.

The modelling shows that emissions fall rapidly over the next 30 years under all scenarios, dropping­ by 53 per cent under existing­ policy with the RET and 61 per cent under a CET or EIS, ­reflecting the retirement of brown- and black-coal plants.

The modelling assumes coal power stations are closed as they reach 60 years, or start incurring losses, whichever occurs sooner. The Liddell power station in NSW is the next to close in 2022. No new coal-fired power is being built.

Under the existing policy, renewable­s would account for 52 per cent of power by 2050, compared with about 70 per cent under the CET or the EIS. The report assum­es coal and gas prices continue to rise. Shortages will push domesti­c gas prices above inter­national prices out to 2023.

The electricity market will continue to rely on coal and particularly gas as a flexible source of power to cover shortfalls from inter­mittent wind and solar supplies­. Battery storage will not become feasible for significant capacit­y until after 2030.

However, these costs will be more than offset by the near zero cost of dispatching additional wind and solar power.
The Australian

David Uren is fairly new to the renewables circus, so can be forgiven for peddling myths such as wind power having a “near zero cost” of dispatch.

It’s a line included in Finkel’s report, which is just as bogus as his claims that more than doubling the penetration of wind and solar in Australia would cause power prices to fall.

Sure, the wind is free, but it costs a packet to keep these things up and running. The Operations and Maintenance costs alone are around $24-25 per MWh, for each and every MWh generated – a fact made plain in the financial statements of Australia’s most notorious wind power outfit, Infigen (see above).

And that cost only increases over time, as blades disintegrate; gearboxes grind to a halt; bearings collapse; and generators wear out and cease to generate (see our post here).

Here’s Judith Sloan lifting the lid on some more of Alan Finkel’s totally bogus assumptions.

Bogus scenario built on assumptions is no basis for action
The Australian
Judith Sloan
15 June 2017

As I was preparing to write about the modelling that underpins the Finkel report on the electricity system, I noticed an article from The Times. It was about wind power in Europe.

The message was that investment in wind farm capacity had ­increased by more than 8 per cent last year, yet wind-power output had fallen 0.7 per cent. That’s what happens when you invest in intermittent power.

It was noted in the same article that renewables, including solar, account for only 4 per cent of electricity generation worldwide. Australia is around 20 per cent and Finkel wants 42 per cent by 2030.

The modelling that underpins the Finkel conclusions was released this week. It was undertaken by the same group that undertook modelling for the Climate Change Authority that showed there would be no coal-generated electricity in 2030 and only 1 per cent gas.

The Finkel report recommends a clean energy target, set at 0.6 tonnes per megawatt, from 2020 based on the requirement that our emissions from electricity fall by 26-28 per cent by 2030 relative to 2005 — our Paris commitment.

According to the modelling, wind power will go from 12 per cent in 2020 to 18 per cent in 2030 and 35 per cent in 2050. Yes, you read that right: 35 per cent in 2050. Large-scale solar goes from 3 per cent in 2020 to 6 per cent in 2030 and 18 per cent in 2050.

A key trick the modellers use to boost the case for the CET is to create an essentially bogus business-as-usual scenario. This allows Finkel (and Energy Minister Josh Frydenberg) to claim that doing nothing is not a choice. By adding all sorts of risk factors associated with what is ­assumed to be a policy vacuum, the business-as-usual (BAU) weighted average cost of capital of coal soars above renewables. But this is just an assumption, not a fact.

The reality is that a new clean-coal plant (high-efficiency, low-emissions) can easily compete with renewables if those renewables have to pay for the cost of the back-up needed to convert them into reliable energy. You need to double or even triple the capital costs of turbines, for instance, to get a like-for-like comparison.

Note also that when the modellers compare the BAU with the CET and the rejected emissions intensity scheme, there is no new investment in coal between now and 2050 under any of the scenarios, with only slight differences in the rate of closure of existing coal-fired plants.

Incidentally, for those who think lifting the CET benchmark to, say, 0.8 or 0.9 tonnes per megawatt would solve some of the ­problems evident with Finkel’s preferred approach, the modelling clearly shows that coal fares very badly under all scenarios because it is the emissions reductions, rather than the benchmark, that drive the final outcome.

So how about this? If renewable energy providers think they need the guaranteed cash flows from the reverse auctions that the ACT and some state governments are pursuing, why doesn’t the federal government think about running reverse auctions for new clean-coal plants — one in NSW and one in north Queensland, say? That could level the playing field.

Many quibbles could be made about the modelling, more generally. In particular, the price assumptions look way too low, but it is clear that prices spike when coal-fired plants exit the system.

The assumption on demand looks particularly suss. In the underlying model, demand goes from about 200,000 gigawatt hours now to only 230,000 GWh in 2050. Think about it: the population is forecast to go from 24 million to just below 40 million in 2050 — an increase of 50 per cent — but the demand for electricity increases only 15 per cent. Something very strange is going on.

Sure, we might become much more efficient in power use, and higher prices will encourage this. But my guess is there is a hidden assumption that virtually all the large users of power — mainly the smelters, which account for 10 to 15 per cent of consumption — will close down over the period and won’t be replaced. That’s the deindustrialisation scenario the government must resist.
The Australian

About stopthesethings

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

Comments

  1. Jim Hutson says:

    In the Senate estimates hearing on the 1st of June 2017, Senator Ian McDonald, (LIBERAL) North Queensland, asked the Australian Chief Scientist Dr Alan Finkel a basic question, a very important basic question on the impact of Australia’s climate and energy policy on global temperature. Senator Ian McDonald, ” In Australia we emit less than 1.3% of the worlds carbon emissions. If we were to reduce the worlds emissions of carbon by 1.3 % what impact would that have on the changing climate of the world “.

    Dr Finkel, ” VIRTUALLY NOTHING.” Senator Ian Mcdonald, ” if Australia then reduced it’s emissions by 50% what impact would that have on the world. You just answered on that. So in the words of Senator Malcolm Roberts , One Nation , ” So even if Australia cut all our emissions it would have no impact ” My take on all of this, remember we have one third of one percent of the worlds population. We cannot produce the 1.3 % so those figure I believe would be taking our coal exports into account. We are living in la la land.

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