Crunch Time: Australia’s Self-Inflicted Energy Crisis Down to Wind & Solar Obsession

At the heart of Australia’s self-inflicted power pricing and supply calamity is an obsession with intermittent and unreliable wind and solar.

Mandated and massive subsidies – that those attempting to deliver electricity using nature’s wonder fuels have been wallowing in since the Australian Labor Party seriously upped the RE ante in 2010 – resulted in a rapid expansion of wind and solar generating capacity.

The result has been an unmitigated disaster: rocketing power prices (see Dr Michael Crawford’s simple and elegant graphic above) and a grid on the brink of collapse.

A fortnight back we reported on events in NSW, where daily surges in demand were met with daily collapses in wind and solar output: the former a result of the weather alone; the latter a result of the (cloudy) weather and what’s referred to in adult-circles, as ‘sunset’.

The grid manager was forced to chop big industrial users from the grid, including the Tomago aluminium smelter; and the spot price for power went through the roof: Wind Power Output Collapses Send Power Prices into Orbit: The World’s Biggest Joke Just Got Serious

STT hears that NSW was within seconds of experiencing the kind of state-wide blackout for which Australia’s wind and solar capital, South Australia has become world-renowned.

Not that that would be a complete disaster; an evening or two in the dark would finally bring home to Sydney-siders the fact that their infantile virtue signalling comes with a sting in its tail. We strongly doubt that a few unscheduled ‘Earth Hours’ – of the kind South Australians have learnt to grin and bear – would go down all that well in Harbour-town.

While that near-disaster was a close-run thing, the Federal Energy Minister, Josh Frydenberg is determined to ensure that kind of chaos becomes the ‘new normal’ with his National Energy Guarantee.

STT is going to deal with the NEG being pushed by Frydenberg (and resisted by the Monash Forum, among others) over the next few posts, so sit back and enjoy the ride. The ESB’s collection of wishful thinking and bureaucratic gobbledegook is available here: Draft National Energy Guarantee

In its original formulation, it was pretty simple and may have even worked: PM’s Reliable Power Play Spells Disaster for Unreliable & Intermittent Wind Power

As set out in in our post from October last year (linked above), central to the NEG was the idea of a reliability obligation – based on a worst case scenario, here’s how that part of the NEG was meant to work:

No more blackouts

If the NEG were to be defined by its objective, it would be referred to as a guarantee of ‘No More Blackouts’.

The starting point is a ‘worst case’ demand scenario, using forecast electricity consumption, based on past data. The forecast is to take into account seasonal variations in power demand, related to temperature and weather conditions, from which daily demand can be predicted. At the height of summer, a week of +40°C temperatures across a State heralds maximum demand, as businesses and householders crank up their air-conditioners and refrigerators have to work overtime.

For example, a state like South Australia, on such a day, requires around 3,000 MW to keep the grid up and running.

Up to now, there has been no requirement on retailers to ensure that they have 3,000 MW guaranteed available for delivery. Instead, in South Australia retailers signed up to long-term Power Purchase Agreements (PPAs) with wind power outfits, guaranteeing the purchase of however much wind power is generated from its total capacity of 1,698 MW. (In order to keep the grid stable, AEMO has capped daily wind power output at 1,200 MW, placing a curb on around 500 MW of its capacity, when wind conditions would otherwise see close to 1,600 MW being generated. That move occurred in response to the 28 September 2016 State-wide blackout, when every wind turbine in SA shut down automatically to prevent their self-destruction during a gale, and the system went ‘black’.)

Plenty of experience of sweltering without power has taught South Australians that, on a hot summer day, wind power is usually delivering nothing much at all. A 1,000 MW collapse in wind power output on 8 February this year, when temperatures hit 42°C and wind power output hit the floor, left 90,000 South Australian households boiling in the dark.

Such an event becomes highly unlikely under the NEG.

The NEG is designed as a state-based requirement on retailers that, on such a day in SA, will require them to have contracts with generators securing 3,000 MW of dispatchable power. Dispatchable means coal, gas and hydro. All three sources are delivered to South Australia via two interconnectors (Heywood and Murray Link), with a notional combined capacity of around 870 MW. SA has a 1,280 MW gas-steam plant owned by AGL at Torrens Island and a 440 MW Combined Cycle Gas Turbine plant at Pelican Point, owned by Engie (aka GDF Suez). It has a run of OCGT and diesel peaking plants, with another 276 MW of diesel fueled OCGTs on their way.

Retailers will need to pick from that selection to meet their NEG obligation. At this point many commentators start talking about mega-batteries but, for now, the grid-scale bulk storage of electricity is in the unicorn and pixie dust realm.

Retailer’s NEG obligations are going to be determined on a daily basis by the amount of power they would need to sell to meet their retail customers’ demands, on a worst-case scenario basis: on a scorching SA summer’s day, across all retailers, they will be obliged to have contracted a total of 3,000 MW of dispatchable power. On that scenario, a retailer with a one-third share of the SA market, will need to have contracted to secure 1,000 MW of dispatchable power to meet their NEG obligation.

In other words, for every MW a retailer has promised to sell its customers, it will need to have a contract to purchase a MW of dispatchable power to meet that promise.

In markets where a commodity is sold forward by its producer to a trader (fixing a price long before it is ready for delivery), the trader covers that purchase with another contract to sell the commodity to a processor or end user at the nominated time for delivery, so that the two contracts operate ‘back-to-back’, and the risk is spread across both. The NEG will result in the same type of market for dispatchable power. In effect, retailers have already promised (and therefore forward sold) power to their retail customers. Under the NEG they will be bound to contract with generators of dispatchable power for the same volume they should expect to deliver to their customers on a worst-case scenario, on any given day.

Josh Frydenberg’s department is filled with deluded climate alarmists and his office is not only staffed by wind and solar worshippers, it’s overrun with renewable energy rent-seekers like, John Grimes from the Solar Council and Kane Thornton from the Clean Energy Council. That pair have practically earned permanent resident status in the Minister’s office.

So, it’s little wonder that the NEG, as originally proposed, has been completely gutted. For a start, the reliability obligation is now based on meaningless averages, rather than the worst case scenario, which would have protected the grid and all users by ensuring that there was adequate supply on any given day, to all users, not just a lucky few.

Over the next few posts, STT is going to examine what happened to what should have been a relatively quick and simple fix to Australia’s energy crisis; and which, instead, has turned into the Renewable Energy Target on steroids.

We’ll start with a couple of pieces from The Australian.

Industry told Turnbull policy an emissions intensity scheme ‘by stealth’
The Australian
Simon Benson
18 June 2018

Power companies and large ­industrial energy users were ­privately told during the deliberations of a secret government-­appointed working group that the national energy guarantee was an emissions intensity trading scheme “by stealth” that would favour renewable energy sources.

The admission was made by a member of the Energy Security Board to industry experts drafted to advise on the structure of the government’s NEG, and forced to sign confidentially agreements.

An industry source on one of the working groups told The Australian that they were advised that the NEG would favour companies that had invested in renewable energy, such as AGL.

Several Liberal MPs are now warning that the government’s policy amounts to a broken promise, following the release late on Friday of the draft final report into the operation of the NEG.

The document, completed on the advice of the working groups, confirms that the NEG will operate like an emissions intensity scheme — a system the partyroom had ruled out in late 2016 when first proposed by Energy Minister Josh Frydenberg. It would set targets based on demand forecasts, which industry insiders admitted could be easily gamed by renewable energy players and retailers.

It would also virtually exclude all or any emissions-offset measures such as carbon farming — currently the cheapest form of abatement at about $15 a tonne.

The reliability standards also appear likely to be based on average demand, and not periods of ­extremely high usage and low ­renewable supply when blackouts are most likely to occur.

NSW Liberal MP Craig Kelly, the chair of the Coalition’s backbench committee on energy, said he expected the partyroom would push back against the latest ­design work on the NEG.

Mr Kelly said it appeared the NEG would impose an emissions intensity scheme on the electricity sector and appeared to ­ignore the “hockey stick” ­approach to the emissions ­reduction trajectory out to 2030.

He said the “hockey stick” ­approach was aimed at giving ­energy companies the chance to backload their compliance with the Paris target under which Australia is ­obligated to reduce emissions by 26 per cent on 2005 levels by 2030.

“Obviously, the partyroom has concerns about the cost of the Paris agreement to the economy already,” Mr Kelly said. “I would assume it would be hesitant to ­endorse an interpretation of the agreement that will make it more costly to achieve.

“The literal reading of what’s been agreed under Paris was to achieve a 26 to 28 per cent reduction on 2005 levels by 2030. However, it now appears that there’s a push to interpret that as an accumulative emissions reduction which is added to each year, which sets emissions-­reduction targets for every single year throughout the decade.”

Tasmanian Liberal senator Eric Abetz said he would be seeking an explanation as to why the emissions-reduction task was not being delayed until the end of the 2020s, arguing it would have ­reduced costs by allowing more time for new technologies to come online.

“My recollection of the discussion (about the NEG) was that the emissions-reduction task would be backended and therefore I would seek very detailed explanations as to why we are no longer following that more sensible path,” Senator Abetz said. “Fundamentally, getting our energy policy absolutely right is going to be a determinant of our success at the next election and at the moment I’m not sure that we have convinced the Australian people of our absolute commitment to keeping prices affordable.”

Under the updated design work on the NEG, 100 of the ­nation’s biggest energy users would be required to contract their own back-up power or agree to dial down usage. The updated design work, produced by the ESB, calls for a system of contracts that would help shift some of the burden of reliability in electricity supply on to big customers, reducing the cost to power retailers.

The government would also back emissions-reductions targets under the NEG with new penalties, including a fine of up to $100 million for failing to meet the target. The NEG would require businesses using 5MW or more of peak-load power, as well as ­energy retailers, to sign up to the ­reliability requirement to ensure there was enough dispatchable energy in the system to keep the lights on.

Finance Minister Mathias Cormann said yesterday the NEG had received ­Coalition partyroom ­approval, amid “strong and overwhelming support” for the package. “Our commitment is to bring down electricity prices, to improve the reliability and stability of the energy system and, subject to those commitments, to bring down emissions consistent with the commitments that we made in Paris,” he said.

Mr Frydenberg said the government had “turned the corner” in helping drive down the cost of electricity bills despite admitting recent price declines had not gone far enough.
The Australian

The depth of delusion that’s gripped Josh Frydenberg is made evident by the nonsense that power prices have started to head south.

Frydenberg should get out more (away from that office of his, packed with its cabal of RE zealots and RE rent-seekers).

In those states pushing wind and solar (NSW, VIC and SA) and the ACT, electricity costs to businesses have jumped between 20 and 28% in just 12 months; that RE superpower, South Australia has lumbered its households with another 19% hike in their power prices, on top of prices which are already the highest suffered in the world.

Some might wonder why the number of South Australians on hardship programs has dropped in the last 12 months. The answer is pretty simple: retailers only offer payment plans (aka hardship programs) to people who are connected to the grid. The increased number of household disconnections in South Australia means fewer households on hardship programs; they simply can’t afford power, at all.

Frydenberg continues his attempt to turn night into day, claiming power prices are falling when the opposite is true; and hoping that his version of the NEG will turn him into some kind of national hero.

Fat chance of that.

Either Frydenberg is an unwitting dupe or he is a willing accomplice: either way, for Australian households and businesses his NEG means more of the punishing same.

Here’s The Australian’s Economics Editor, Judith Sloan detailing why.

Frydenberg caves in — renewables have beaten common sense
The Australian
Judith Sloan
19 June 2018

This may sound strange but the renewable energy industry — I prefer to call it the unreliable energy industry — is overjoyed by the public discussion about the need for new coal-fired electricity plants to be built here.

The rent-seekers — the owners of wind farms and solar installations — know there will be no investment in coal-fired electricity, certainly not in terms of new plants. Even investment in maintaining or extending the lives of existing coal-fired plants is rationed.

New coal-fired plants are unbankable, given the policy settings. They cost a lot, their economic lives are too long and the risks are too high.

The only scenario in which a new high-efficiency, low-emissions plant can be built — and plenty are overseas — is government ownership. Even then, the delay before commissioning would be three to five years. There are no circumstances under which the Coalition under Malcolm Turnbull will agree to the government building, owning and operating a HELE plant.

As for Labor, it doesn’t even know what a HELE plant is; its intention is to head in the nonsensical direction of 50 per cent renewables (globally, wind and solar account for 8 per cent of electricity generation) and a higher emissions reduction target.

So why are the renewables players so excited about the ongoing discussion of investment in new coal-fired plants that will never happen? It diverts attention from the main game, which is the definition of reliability that will apply in the new policy framework, the national energy ­guarantee.

They also are seeking to have other features of the final design favour renewable energy, including the restrictions on the use of carbon offsets, both local and international, to meet the emissions reduction target. There is even a possibility that there will be no allowance for offsets in the final version.

While Energy Minister Josh Frydenberg feels pleased with himself that he has secured reasonably broad support for the national energy guarantee — there are a few exceptions — everyone knows that it will come down to the detail. It shouldn’t surprise anyone that the latest iteration of the guarantee was released last Friday at 5pm.

Let me outline three key weaknesses in it. They are: the lack of a defensible definition of reliability; the way the emissions reduction target is put into effect; and the use of offsets. (I apologise for the technical nature of some of this discussion — it’s unavoidable.)

The most appropriate way of defining reliability — supply meeting demand when and where it is required — is to map out scenarios in which renewable energy sources plus other sources will not be able to meet the needs of the market and to identify the back-up arrangements that can be relied on. It can’t be an averaging process; extremes must be considered.

Note, for example, that extended wind droughts can occur; witness Germany and Britain recently. It also can be cloudy for extended periods. These back-up options include battery, pumped hydro, gas peaking or even diesel generators.

They may be uncommon events, but because Australia’s electricity grid is self-contained (we can’t import electricity from other countries, as is the case in Europe) we must plan for them.

One of the papers released last Friday simply states that “a reliable system is one with enough energy (generation and demand side participation) and network capacity to supply consumers — this implies that there should be enough energy to meet demand, with a buffer known as reserves”. A key carve-out is “demand side participation”.

The game that the renewable energy sector is playing is to define the scenario for which back-up is required on terms that suit it. Instead of meeting demand when and where it is required, its preferred alternative is to assume that demand is managed down (all big industrial users are expected to reduce their use of power as well as some households) before there is any need to provide back-up.

In this way, the renewable energy industry will be able to point to a motley collection of diesel generators and a few batteries (which provide power for a few hours at most), which will allow the retailers to meet the reliability requirement under the terms of the national energy guarantee. It’s a neat trick because it avoids the expensive exercise of providing or contracting for true back-up

This sort of demand management is Third World stuff and the clear danger is that these big users will just power down forever, particularly as they are also being told they have to provide back-up themselves. They have made it very clear that they cannot rely on renewable energy. So when contracts expire, they will simply shut up shop and relocate overseas.

When it comes to how the national energy guarantee will work, demand forecasts will be made out to 2030. The renewable energy industry will seek to have these forecasts low-balled because this will accelerate the exit of older baseload coal-fired plants as well as reduce the need for back-up.

These demand forecasts will then translate into an abatement number by 2030 (the reduction in tonnes of CO2) and from this an emissions intensity target will be calculated. It will be of the order of 0.4 per megawatt hour, which knocks out all coal, and gas will be used only as a peaker. The national energy guarantee is effectively an emissions intensity scheme.

An abatement trajectory will have to be set for the decade, but the minister already has ruled out back-ending the emissions reduction task even though it would be very sensible to wait to see what the rest of the world does. Note that last year global emissions rose by 1.6 per cent. There may be some scope for small overs and unders from year to year, but this doesn’t really address the problem.

Having made our commitment to the Paris climate agreement and fallen into the trap of not subtracting the emissions of energy-intensive exporters as other nations have — the target would be 21 per cent to 23 per cent, rather than 26 per cent to 28 per cent, if we had done this — the best way forward is to allow retailers to acquit their emissions reduction requirements by buying carbon offsets.

These can be local — Australian carbon credit units (think local carbon farming) — and international. Either way, it is a far cheaper way of making our contribution to emissions reduction than through the labyrinthine national energy guarantee. (We will have to stop calling it the National Electricity Market; it simply won’t meet any definition of a market given the heavy-handed regulation, excessive direction and high penalties.)

The bottom line is the renewable energy industry has won. And this includes the big three vertically integrated players since they are heavily invested in renewables but will be able to milk their baseload assets in the ­interim.

Prices may be plateauing at the moment, but they will continue their upward path soon. Liddell will close in 2022, but it is in such a shocking state of disrepair its output will be unreliable in the meantime. The grid is regularly close to breaking point now. Large-scale, energy-intensive plants will close across time, leaving an economy dominated by the service sector and government. We will have thrown away one of our greatest sources of comparative advantage: cheap, reliable electricity.
The Australian

Here’s the output of every wind turbine connected to the Eastern Grid last month. Now, try and put ‘wind power’ and ‘reliability’ in the same sentence.

Welcome to your wind powered future!