No Comparison: Why Wind Power Can Never ‘Compete’ with Conventional Generators

It was the weather that drove sailors to steam.

 

The well-chewed ‘chestnut, about wind power being cheaper than coal or gas-fired power is a nonsense. For a start, the Operations and Maintenance costs of running wind turbines is in the order of $24 for every MWh dispatched – see our post here and this from our favourite whipping boys, Infigen:

The wind might be ‘free’, but wind power is anything but.

Then there is the fiction that wind power is actually ‘competing’ with conventional generation sources.

‘Competition’, in the wind industry’s eyes, is a pretty fluid concept: for most of life’s endeavours, it means a head-to-head race between all competitors, starting at the same time and traversing the same course, from start to finish. Not so with wind power.

In this piece, David Brewster pricks that bubble, beautifully.

The idle Conversation about wind power
Catallaxy Files
David Brewer
18 August 2017

Many people continue to use the wrong metrics to assess the economics of renewables, both because they have not got to grips with what sort of product electricity is, and because they misunderstand the reasoning of economic actors in the electricity market. The result is a distorted debate based on meaningless comparisons.

A classic example is at The Conversation here, though the same site has posted numerous similarly misleading “FactChecks”. They all focus on comparing the costs of electricity from wind or coal, but this only shows that they literally do not know what they are talking about.

The first thing to understand – which The Conversation does not – is that electricity is not like pairs of shoes that can be sold at the same price tomorrow as today. The product consumers demand is not a quantity of megawatt hours but the continuous supply of electricity – its permanent availability to them in whatever quantity they require. This necessity for continuous supply places a premium on “despatchable” power from fossil-fuel, nuclear or hydro plants.

This type of power is more valuable than power that cannot be controlled (wind, solar), and much more valuable than power that cannot even be predicted (especially wind). Moreover, power that is rapidly despatchable (hydro, some gas turbines) in response to sudden surges in demand or unexpected failures at other plants is more valuable still for its ability to plug gaps at short notice.

These differences in the value of different types of electricity already render The Conversation’s comparison of coal and wind power per megawatt hour useless. And rectifying its analysis is not, as pretended, just a matter of adding in “balancing costs” such as additional rapidly despatchable sources, extra storage capacity, or upgraded transmission equipment.

For the insertion of a low-quality, unreliable source into the grid also reduces the efficiency and increases the cost of baseload power from coal or other sources which need to operate continuously to be efficient.

This leads to a second major unappreciated fact, which is that suppliers do not make economic decisions based on costs. Instead they make decisions based on the estimated difference between costs and revenue.

If wind power can underbid baseload coal whenever the wind is blowing, existing coal stations won’t start up, and new ones won’t be built, because they cannot operate efficiently being turned on and off all the time, and therefore cannot generate enough revenue to justify operation or construction as the case may be. This in turn leads to a higher and higher percentage of unreliable power in the mix, with eventual blackouts.

The only way of assessing the true cost of wind and solar is to look at the overall electricity price before and after renewables are added to the mix. Once you do that you find overwhelming evidence from all over the world that markets with even modest shares of power from intermittent renewables have considerably higher prices than those without.

That this is not a coincidence is confirmed by both the tightness of the correlation, and the equally impressive correlations over time within the same market – as the share of renewables increases, the price of electricity goes up, and it goes up very sharply with even 20-30% of nameplate capacity, or 5-10% of energy output, sourced from wind.

All this means that the analysis at The Conversation that:

in March 2016…the Australian Capital Territory government conducted its second “wind auction”. The government uses wind auctions to buy contracts for future energy supplies. The lowest price in the 2016 auction yielded around $60/MWh in current prices. This figure is based on a flat rate of $77/MWh for 20 years and assuming around 3% inflation, which is the upper end of Australia’s inflation rate target of 2-3%…

Based on recent prices for newly installed wind power of around $60-70/MWh, and recent price projections for new supercritical coal power at around $75/MWh, it is reasonable to say that – as things stand today – wind power would be cheaper than coal as a new-build source of electricity.

…is just tripe. It is tripe, first, because the coal price buys a continuous reliable supply whereas the wind price buys power whenever the wind is blowing – even when demand is low, so that taking the wind power means shutting down a coal plant that would operate more efficiently if it kept going.

It is tripe, secondly, because wind power should never be bought on a 20-year contract in the first place. Since it is intermittent and unreliable, it should be traded only on a spot basis. But if it were traded on a spot basis, its price would tend to zero as its availability increased. That applies both to the share of wind in total capacity, and to how hard the wind happens to be blowing at any given time: the general rule would always be that wind power would be cheapest when there was most of it.

In this perspective, the $60/MWh figure is best seen not as a market price, reflecting supply and demand, but rather as the floor level of a price support scheme which must be paid regardless of the market value of wind power at the times when it is available.

Electricity is not unique in the time-dependence of its value. Transport offers similar examples, e.g. Uber fares, or plane fares. Imagine a company that conducts an auction to supply 100 return air trips for its staff from Sydney to Melbourne in 2018.

Bidder A asks when do you want them, and when told, undertakes to meet the demand to provide all the tickets at peak periods, on Sundays and Fridays between 3 pm and 7 pm, on 12 hours’ notice, so that employees can spend whole weeks in one city or the other at the drop of a hat.

Bidder B says we can supply 100 return trips all right, but we’ll give you two hours’ notice when each plane is leaving and if you haven’t got anyone who wants to go, tough. Oh, and by the way, the flight can be at 2 am. Does the company then give two hoots whether Bidder A’s tickets are $10 more than Bidder B’s?

The bottom line is that any comparison between prices per MWh of wind and coal is meaningless. The only valid comparison is between the system price of electricity with and without wind power. Once you focus on that you immediately see that wind is totally uneconomic – and that is without considering the potential huge direct and indirect losses from the blackouts it will cause.
Catallaxy Files

A very solid effort from David Brewster. However, there are a couple of points worth dealing with in a little more detail.

The figures put forward above that wind power generators are receiving prices as low as $60/MWh from the ACT government, ignores the value/cost of the Renewable Energy Certificate which the generator receives from the Clean Energy Regulator, in addition to the price fixed under the ACT government contracts referred to.

Adding the value of a REC (one of which is issued to the contracted generator for each and every MWh of wind power dispatched) takes the total cost of each MWh delivered under the contract to $145, based on the current REC price of $85. In the ACT contracts the REC is simply not accounted for in the ‘price’ of $60 per MWh, but the cost of it is always and everywhere borne by retail customers: there is, of course, no such thing as a free lunch.

David Brewster is on the money when he talks about the ability of wind power outfits to underbid conventional generators, thereby setting Australia up for widespread blackouts of the kind routinely suffered by South Australians.

Across the board, it’s the value of RECs to wind power outfits that allows them to dump power into the grid when the wind is blowing. Sure, wind power generators can undercut conventional generators, with wind power outfits even paying the grid manager to take their skittish wares. But that, occasional, weather dependent ‘bargain’ is only made economically possible by the value of the REC received.

Under the Federal government’s Large-Scale RET, 26 million RECs are required to be issued to and surrendered by retailers to meet this year’s target, alone. The target rises to require 33 million RECs to be issued and surrendered to the CER in 2020 and runs at that rate until 2031.

The target will never be reached, which means retailers will be hit with the shortfall penalty, which costs their customers $93 for each and every MWh they fall short of the target. The cost to Australian power consumers of the REC Tax/Subsidy and shortfall penalties will top $42 billion over the life of the current LRET: It’s Time for Frydenberg & Turnbull to Come Clean on the Cost of Subsidised Wind Power

What David Brewster gets absolutely right is the fact that power delivered at the whims of Mother Nature (see above the output from every wind turbine connected to the Eastern Grid during June) has absolutely no market value. And that’s probably got something to do with our selfish, have-it-here-and-now attitude to power consumption. Funny about that…

Oh, you want the weather forecast, why’s that then?

About stopthesethings

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

Comments

  1. Malcolm Turnbull was out today beating his Snowy Hydro 2.0 will fix all drum.  Generating enough power for thousands of homes and creating thousands of new jobs. 

    This is nonsense of course, pumped storage doesn't generate any additional power it simply takes power generated elsewhere and stores it for later use when, because of pump/turbine and pipeline energy losses, only around 60% to 70% of that power is recoverable.  Mind, this doesn't take account of the additional energy losses that occur in the transmission grid, first wheeling the power from remote generation sites such as wind farms to the snowy region and then again wheeling that power via the grid to remote load centres such as state capitals.

    Likewise the thousands of construction jobs will not materialise unless the taxpayer subsidises Turnbull's water world with shiploads (billions) of dollars.  Cheaper to create those jobs with government funded rock painting schemes?

    Pumped storage is only economic if the pumping energy is available at near zero cost, as was the case when the existing small Snowy pumped storage schemes were built.  At that time, before the electricity market was so egregiously distorted by the RET scheme and other state based renewables subsidy schemes, coal generation was available during the night at very low cost.  Using wind generation when/if it happens to be available will never be economic even if the wholesale power price is zero thanks to the mandatory RET subsidy of currently around $85/MWh paid to wind generators.  The net result, already unaffordable wind energy would become even more unaffordable pumped storage energy?

    This Snowy 2.0 pumped storage scheme (the Tantangra scheme) was evaluated years ago at a time before the massive renewables subsidies and other distortions were foisted on the electricity market, even then it did not stack up economically.  With todays magic pudding electricity market there is not a snowflake's chance… it will happen without massive taxpayer subsidies.

     

  2. John McKerral says:

    In the case of the ACT contracts with the wind farms in SA, who pays the RECs applicable to that transaction? Probably the residents of SA. Is there any way of the ACT being charged for the RECs? If not the poor residents of SA are subsidising the ACT.
    Also the ACT should pay for the line losses in transmission of that electricity from SA to the ACT, do they?
    Does the ACT pay their share of the transmission line costs for that wind generated electricity from SA?
    I believe that they are getting away with out paying those costs.
    John

  3. The One Sided Conversation are very biased about some things and practise a lot of censorship.

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