Pumped Hydro Pipe-Dreams: Why Using Wind Power to Pump Water Uphill is Economic Nonsense

Australia’s obsession with wind and solar is literally destroying its economic future. Instead of clambering out of the hole, Malcolm Turnbull and Josh Frydenberg just keep on digging.

The patrician and aloof Malcolm Turnbull has become a political parody.

At a time when a Prime Minister ought to be outraged at the wholesale destruction of businesses and whole industries (along with tens of thousands of meaningful jobs) caused by spiralling power costs, Turnbull changes the subject and starts waffling (his trademark) about his Snowy 2.0 pumped hydro scheme.

Touted by Turnbull and his hapless sidekick, Josh Frydenberg as the Nation’s mega-battery, the heavily-hyped pumped hydro scheme (shelved in the 1970s because it was uneconomic then) has been heralded as the saviour for the Australian wind industry.

The line goes something like this: if we use 3 MWh of wind power to pump water through 27 km of tunnels, over an elevation of 900m, later, when power consumers actually need it, Snowy Hydro could return 2 MWh to the grid.

Never mind squandering 1/3 of the electricity originally generated; never mind that with the inclusion of the $85 per MWh REC the cost of the wind power involved exceeds $110 per MWh; never mind that the owners of Snowy 2.0 will charge a further $150-300 per MWh to re-deliver power to the grid; never mind that, in reality, the power used to pump the water uphill will largely come from coal-fired power plants, delivered overnight when it’s cheapest.

For a break down of the costs and engineering of what’s proposed see our post: Turnbull Plays ‘The Man from Snowy River’ in Uncosted Pumped Hydro Plan

Whether or not Turnbull is simply protecting his son, Alex’s investment in Australia’s most notorious wind power outfit, Infigen is a moot point: Born Lucky: Stars Align Perfectly for PM’s Son with Mammoth Bet on Wind Power Outfit Infigen

But one thing is for certain, the numbers on Snowy 2.0 simply don’t stack up. They never have, and they never will.

But don’t take STT’s word for it.

Dr David Carland holds a PhD (Econometrics); MEc; BEc (Hons); MAICD, has over 30 years of investment banking and commercial experience in both the private sector and government, and specialises in the structuring, financing and developing of energy and resource projects.

Dr Carland reckons that Snowy 2.0 is underwater before the first sod is turned.

A group of Liberal and National MPs heard it straight from the horse’s mouth.

Financier finds holes in cost and supply claims for Snowy 2.0
The Australian
Joe Kelly
6 July 2018

A select group of Coalition MPs has received a briefing that questions the extent to which Snowy Hydro 2.0 can mitigate the costs caused by the departure of baseload power generation from the market.

— the executive director of Australian Resources Development Limited — argues that once the Snowy Hydro project is operating it will provide only partial back-up energy at a high cost.

The briefing from Dr Carland was given one-on-one to a number of Coalition MPs in the last parliamentary sitting week. It came as the Nationals mounted a rearguard action to ensure the government’s national energy guarantee was supplemented by a new fund of up to $5 billion to help deliver three new baseload power generators and as Tony Abbott called on Australia to exit the Paris Agreement.

Senior National MP and Resources Minister Matt Canavan told Sky News yesterday many of his colleagues were “concerned about the level of baseload dispatchable power in the system” and argued that these concerns were shared by the Australian Energy Market Operator.

“They produced a report to the government last year saying that there has not been enough investment in dispatchable power and that there are risks to the system right now,” Senator Canavan said.

While he stressed there was full support for the national energy guarantee among his Nationals colleagues, he noted the federal government and states had “underwritten the support of large-scale investments in intermittent power supplies and renewable power supplies for the past 10 years in a serious way”.

Nationals leader Michael McCormack said he supported a “sound energy policy that can help to achieve reliable supply and affordable energy prices” but refrained from commenting on his discussions with the Prime Minister about the $5bn fund revealed by The Australian.

Former Queensland premier Campbell Newman also backed Mr Abbott’s call last night to leave the Paris Agreement, saying that remaining in the deal was madness. “We are cutting our own throats. We are going to export energy intensive industries to places like India and Vietnam and perhaps China,” he told Sky News.

Using Snowy Hydro’s modelling assumptions, Dr Carland’s calculations show the “levelised cost of energy” — or unit-cost of electricity over the lifetime of an asset — will deliver power significantly in excess of $90/MWh, after allowing for the cost of storage, cycle losses and the initial cost of buying energy at off-peak prices.

The effect of “cycle losses” means Snowy 2.0 will have to buy around 30 per cent more power in order to pump water uphill than it can generate when water is released from the upper storage.

“Snowy 2.0 is a pump storage operation that is a net user of energy and therefore cannot resolve the longer-term issues of the lack of baseload supply in the national electricity market,” Dr Carland told The Australian. “Based on Snowy Hydro’s own modelling the scenario in which Snowy 2.0 prospers is a world in which average power prices continue to rise.”

In response, Snowy chief executive Paul Broad said: “What Snowy 2.0 does is make sure that cheap power is not wasted.

“The concept of peak and off-peak prices in the future will be less relevant and in our view the energy market is changing rapidly.

“Snowy 2.0 is based on a market from the mid-2020s onwards. We have not used the traditional price intervals of peak and off-peak pricing to determine the economics of Snowy 2.0.”
The Australian

The only reason that Snowy 2.0 is on the table, is the chaos depicted above.

The nonsense being peddled by Paul Broad & Co goes that using wind power to pump water uphill, instead of dumping it into the grid at times when there’s no demand for it, will make them both economic.

The only time that pumped hydro becomes economic is when the power used to pump the water is close to free (note the figures cited above – wind power generators can’t make money unless they’re getting the equivalent of over $100 a MWh, a figure that includes a Renewable Energy Certificate worth $85).

Baseload coal-fired plant keep their boilers running overnight, at a time when demand is low. Those generators can deliver power at those times for less than $30 per MWh, at a profit.

Because power from a pumped hydro plant can be delivered later during periods of peak load, pumping water uphill at those rates makes commercial sense: selling power when the spot price jumps from around $100 per MWh to $2,000 per MWh or even all the way to the market cap of $14,200 per MWh.

The Snowy 2.0 scheme has been put forward on the basis that it will prevent the kind of price gouging that occurs when the sun sets and calm weather sets in and wind and solar output collapses; and, as a result, return retail prices what they were in the 1970s.

A moment’s considered reflection is enough to recognise that Turnbull’s pumped hydro scheme is a nonsense.

A growing number of Liberal and National MPs have reached that very conclusion.

Which brings us to the overly-ambitious and way too eager to please his seniors, Matt Canavan, who reckons that “there was full support for the national energy guarantee among his Nationals colleagues”.

Plenty of Nationals, including Barnaby Joyce and Keith Pitt are dead against it. And if Matt bothered to ask them, he would find a very large number of both National and Liberal MPs who are more than just a little angry at being taken for fools.

The NEG that was originally presented to the party room had plenty of support, because it actually required retailers to enter contracts with owners of dispatchable generation plant, to guarantee that every one of their customers would receive power, whatever the weather.

The original reliability obligation central to the NEG was based on a worst-case scenario: eg, breathless 42°C weather in February, when power demand hits its peak and wind power output inevitably hits the floor. The sort of occasion when wind ‘powered’ South Australians expect to lose power, altogether: Déjà Vu (All Over Again): Yet Another Wind Power Output Collapse Plunges 200,000 South Australian Homes into the Dark Ages

The NEG being promoted by Frydenberg has no such requirement, and is based on meaningless averages such that, on those worst-case scenarios, major energy users will be unceremoniously chopped from the grid. The Energy Security Board calls it ‘demand management’. Business and industry call it a ‘forced blackout’.

STT hears a group of Liberal and National MPs, led by the Monash Forum, are lining up to force Turnbull and Frydenberg to either address Australia’s energy crisis with government backed investment in meaningful baseload power generation, or to walk the plank.

Tony Abbott’s call for Australia to pull the plug on the Paris Climate agreement might have sounded like a voice from the wilderness. However, every Liberal and National backbencher knows that their constituents will not thank them when they get their power bills next month.

Retail power prices continue to rocket. And despite plenty of soothing words from Turnbull and Frydenberg about falling rates, the reality on the ground is very different.

There’s nothing like the threat of electoral annihilation to focus an MP’s mind. And rocketing power prices – for a government claiming that it’s got a handle on the problem – is a guarantee of that very threat.