From The ABC
Renewable energy reduces power prices by more than cost of subsidies, study finds
By Liz Hobday
Posted Thu at 3:06pmThu 6 Dec 2018, 3:06pm
Related Story: Renewables ‘heading for 80 per cent of electricity market by 2030’
Related Story: Labor to revive National Energy Guarantee ‘even if it’s not the best’
A landmark study has shown that renewable energy has reduced electricity prices by far more than the subsidies paid for it.
Key points:
- The study’s lead author said the research proved renewables were the key to lower power prices
- Researchers found South Australians were paying, on average, the highest electricity prices in the world
- Gas-fired power is pushing prices higher, while wind and solar are placing downward pressure on prices, the study found
The independent study, by the Victoria Energy Policy Centre, focused on the South Australian electricity market and confirmed households in the state have on average the highest electricity prices in the world.
The report comes as the Federal Government attempts to develop a fresh energy policy after the collapse of the National Energy Guarantee earlier this year.
The Government hopes to pass new laws to force energy companies — especially retailers — to offer customers cheaper electricity.
The study’s lead author, Associate Professor Bruce Mountain, said the research provided verifiable evidence that renewables drive down prices.
“I think in the current climate it’s critically important,” he said.
“We have an evidence base that puts this issue on the table for people to engage with.
“What our study finds unequivocally is the route to lower prices lies with cleaner sources.”
Wind and solar reduce prices by more than subsidies
The study used computer modelling to crunch electricity price data from the past five years.
It sampled wholesale market prices every half hour from 2013 to 2018, and calculated the factors that led to those prices.
It found that even though South Australians were paying the highest average bills in the world, wind and solar generation in South Australia actually brought wholesale prices down — and by far more than the subsidies paid for them.
It found that in the 2017–18 financial year, renewables reduced wholesale prices by an average of about 30 per cent, or about $37 per megawatt hour, mostly due to wind generation.
This was far more than the cost of the subsidies paid for them, which the study calculated was $11 per megawatt hour of electricity produced.
Renewable generators have been able to sell electricity on the wholesale market very cheaply, because the ongoing cost of producing electricity from wind and solar is effectively zero.
These cheap offers from renewable generators on the wholesale market displace more expensive offers from gas generators, effectively reducing prices for the entire market.
But gas generation drives up prices
But the study found the reduction in wholesale prices thanks to renewables has not been enough to offset the high price of gas.
The closure of the Northern and Playford coal-fired power stations has left South Australia reliant on expensive generation from gas-fired power stations, which are needed especially when wind and solar are not producing energy.
The study found electricity sourced from gas pushed prices higher by about 40 per cent on average in the 2017–18 financial year, or $56 per megawatt hour of electricity.
“Every additional unit of production you get from the wind or from the sun, that displaces gas generation, and brings your price down,” Associate Professor Mountain said.
“As long as you have so much gas generation with such inefficient and old gas plants … your prices will be high.”
The Grattan Institute’s energy program director, Tony Wood, said the study was a sharp analysis of the South Australian experience.
“Certainly renewables have benefited the system, and we would have had higher prices in South Australia without renewables, fundamentally because of the high price of gas,” Mr Wood said.
“And that’s a conclusion that I think makes sense and this report shows it very clearly.”
Policy vacuum part of the problem
The researchers also compared the average Australian household prices with those in European countries, which have the next highest residential electricity bills, and found other states on the east coast were not far behind.
South Australia was closely followed by Denmark and Germany, countries which pay by far the highest taxes.
The graph showed high prices were also being felt by households in other Australian states — next in line were New South Wales, Queensland and Victoria.
Mr Wood agreed that South Australia’s current energy mix meant expensive gas generation was setting the price for the whole market.
HT/SMS
Proof that math is dead.
Comment on the scatterplot (Electricity cost vs. Installed renewable capacity):
Price for electricity in the Netherlands is on trend. However, energy bills in the NL are composed of two components, electricity and natural gas, of which the latter part is more than half of the bill generally speaking. The natural gas price contains quite a big tax to support renewable energy generation, which does not show in the wholesale electricity price.
Regardless of whether one agrees or disagrees with the study’s findings, subsidies for renewables should end. Let them compete in a free market. If they are truly cheaper energy sources, the market will sort that out.
The idea is to replace coal with a combination of renewables and gas. The gas is needed as backup to fill in for generation blips. The type of gas generation needed to fill in is a lot more expensive than gas generation designed to provide base load, and the variable cost component of gas is significant.
Is the study saying that Australia has the wrong proportional mix of gas and wind?
There is no such thing as “the cost of solar power” because solar power can’t exist on its own. It’s the same with wind power. What is relevant is the cost of the combination of solar and gas that provides reliable power. If you have sub-optimized the mix, then by definition you can lower the total cost by adjusting the mix.
It’s not so simple as that even. What they’re doing is playing around with this “Levelized Cost Of Energy” which takes the price of the total unit, divided by the energy produced. Sounds simple, right? Except that a standalone gas (or even coal) fired power plant can run about 98% of the time throughout its life, and the calculation of LCOE reflects that. But if that same plant must be built to back up the unreliables, but by law can only produce power when the unreliables can’t, then the LCOE has a much smaller denominator to work with, driving up the LCOE. Nothing else has changed, to turn an economical source of energy into uneconomical! Now that’s a deck stacked against you, if you’re a power company!
The argument that renewables will ever be cheaper than fossil fuel ( or nuclear ) energy defies logic. If renewable require 24/ 7 backup why are they needed at all. Just have the 24/7 backup and save not just the subsidies but all money wasted on renewables. Cut out the middle man . This article is a fanciful joke.
So…. how does this work?
They are saying that when the wind blows, the cost of wind-generated electricity is low. Which is probably true. Since price depends on market conditions, if the wind is blowing well and there is lots of electricity available, prices will be low.
And that if the wind ISN’T blowing, and you have to use gas, there will be much less energy available, and prices will be high.
But, of course, that’s not a gas issue. It’s a rigged market issue. Or rather, not an issue at all, because these studies are not meant to provide enlightenment, they are meant to provide support. As a drunk uses a lamp-post…
WUWT posted this “study” with no comment or analysis? This “study” is dishonest.
http://joannenova.com.au/2018/12/santa-says-renewables-push-down-prices-sydney-morning-herald-believes-him/
Once again the conclusions reached in this study are the result of computer models…. not real world empirical data. w
It doesn’t take a genius to start with the most expensive electricity in the world and then write a ‘model’ that ‘determines’ that adding in more electricity which has no fuel cost will reduce the net electricity cost. In fact, it takes an idiot. There is a whole lot more to the cost of turning on a light bulb in your home than the fuel cost of the electricity. There are some minor details, such as reliability, power lines, sunk cost, repair, maintenance, billing, administration, etc., that add to the cost. It takes only a fool to ignore these.
When otherwise intelligent people can’t tell the difference between politically inspired nonsense and reality… is when one starts to worry.
Yeah, right. Like the kind of landmark a dog leaves on the pavement. All the people living with ‘renewable energy’ know or care about is that their prices have gone up as the fraction of renewables goes up. A “study” which appears designed to convince them otherwise is either a lie or the product of an incompetent mind.
If renewables really could compete, they would need no subsidies at all. That is precisely why proponents of renewables also propagate the lie about fossil fuels being subsidized. When you point out the lie in their numbers they then retreat to the lie about “external costs”. That allows them to make up any number they like-another lie in other words. It is always one lie stacked on top of another.
The naive faith of many in academia is frequently exploited by these types of “study”, and will lead to the longer term mistrust of people and publications coming out of apparently corrupt university departments.
A “study” which appears designed to convince them otherwise is either a lie or the product of an incompetent mind
you are too generous, It can be both.
Evil or stupid—or both?
Dark or dim—or both?
Ignoring that the prices are increased, and reliability decreased takes a lot of hard work.
The report in question is a level of deceptive financial reporting worthy of Lord Stern.
But it seems to come quite naturally to climate consensus promoters.
A weird argument that depends upon very high gas prices – from their quoted cost reductions, sounds like their gas power has a wholesale cost of over $100 per MWhr or more than 10 cents per kWhr.
These were gas prices years ago in the U.S. (actually were higher),before fracting drove the prices of gas so low that utilities built baseload gas power generators to replace coal plants. And led to export of LNG to China, Japan, etc. This article makes the rather irrelevant point that if conventional power generation is expensive enough, renewables are cheaper. Molten salt nuclear reactors being developed by Moltex Energy have calculated that their small modular reactors can produce power for less than $40 per Mwhr, two and a half times cheaper than Australian gas fired power and much cheaper than renewable power, especially when one considers the fact that
a molten salt nuclear reactor never requires a refueling shutdown, can produce power in load following manner, meaning no need for peak power generation plants , can be located anywhere,
close to within cities, reducing transport losses. Its environmental footprint is miniscule – thousands of times less than wind and solar, and doesn’t require bodies of water for cooling.
Considering alternatives indicates incompetence about power generation technologies.
great, so where are all these Molten Salt nuclear reactors so I can see how well they work in the real world compared to their calculations? Eh? there are none? get back to us when they have some.
Considering alternatives indicates incompetence about power generation technologies.
considering something that doesn’t yet exist in commercial operation indicates stupidity as well as incompetence about power generation technologies. When they actually bring one on line in the real world so everyone can see how the reality stacks up to the hype, then they’ll be worth considering vs the alternatives. not before.
Unicorn farts can produce power for less then $20 per Mwhr, twice as cheap as Molten salt reactors. By your logic considering molten salt over Unicorn farts indicates incompetence about power generation technologies.
Back in the real world, actually existing power generation technologies being considered is not an indication of incompetence. Choosing unreliable intermittent power generation technologies (ie wind and solar) for the backbone of your grid, however (as I’m sure you will agree), is.
Good ol’ Kent Beauchert above claims Molten Salt reactors are “load following”, not quite true. As these reactors may be arguably more dispatchable than very large LWR designs, they still have some kind of operating fluid to drive a turbine to spin the generator to make the power in the first place. YOU can only “ramp” down any “fueled” generator so much until you can’t recover and ramp up fast enough to address demands on the grid. Alternatives are intermittent as the utility has CONSTANTLY whined about. These are YOUR electric power administrators, hold them accountable for the money YOU pay them for each kWh of electricity they sell to you. Distributed energy storage constructed along the grid infrastructure IS the answer to intermittency AND the required fast action of the load demands along the grid. The TESLA energy storage system installed across the Neoen wind farm has proven to be a grid smoothing and frequency regulation resource on the grid. This ancillary use of the battery has proven to be a greater stabilizing function on the grid than another Peaker plant. The battery storage has engaged in milli-seconds to a few seconds instead of several minutes to perhaps an hour for typical fueled generation resources.
Since the subsidies are paid from tax moneys which are coercively lifted from the very same people who have to pay the high electricity costs, then they should have been counted at the fully burdened cost. i.e., for every penny collected in taxes, some portion falls through the cracks in government “overhead”, to pay the workers and keep the lights on in the (tax-money constructed) buildings… that amount needs to be added to the price of the subsidies. Which doesn’t change the fact the whole “study” is hogwash. It was a hired hit, the company producing the report knew what answer they needed to get when they accepted the commission, they were going to produce that same result even if they never even turned on a computer to model their models.
Australia does not subsidise intermittents via tax. We have well disguised theft (RET) whereby electricity consumers are required to pay for certificates that retailers are obliged to buy from intermittent generators in proportion to their total sales. The present prices are AUD62/MWh for LGCs and AUD36/MWh for STCs. In 2017 LGCs reached AUD90/MWh, about the same price as electricity in the wholesale market so doubles income of large scale intermittent generators.
If the federal government does not increase the RET, the price of LGCs will collapse by 2021 as the industry will reach the 2030 CO2 reduction target as early as 2021. The high grid price is encouraging rapid uptake of rooftop solar. On weekends rooftop solar peaks at about 70% of the supply in the South Australian network on a mild sunny day.
When electricity industry representatives talk about investment certainty in the industry they mean they want the target for intermittent market share to stay ahead of actual so the value of the subsidy does not collapse.
Very few people outside the industry understand the RET. It is essentially government mandated theft from poor consumers to more wealthy generators. I make enough income from my rooftop generation to pay for my gas heating. By the end of winter I usually have a small gas bill but aiming to reduce heating requirement to get a net income. As soon as intermittents were given priority access to the grid market it was clear prices would be driven higher. Early installers of rooftop solar also got very favourable terms.
Great. Since renewable energy is so good at reducing electricity prices, then companies and consumers will naturally want to switch to renewables and we can eliminate the subsides as they are clearly not needed. So why do we still have subsidies? And how come electricity prices have skyrocketed since the introduction of renewables in the mix despite renewables reducing the prices?
What’s up with all the reposts from green blogs and mainstream media?
Target practice.
Deconstruction practice.
I felt like an idiot for asking myself this question: “Okay, exactly where is the link to this LANDMARK STUDY ?” — I couldn’t find it in the article, nor in any rendition of the article or reference to the article posted. Why was a link to the EXACT article referenced obvious ?
But then I thought, “Well, surely, I’m not that dumb — it must NOT be so obvious, after all. If it’s there, I still have not found it, and so I went looking for the original LANDMARK STUDY myself, and I think I found it here:
https://www.vepc.org.au/reports
and, at the time of this writing, here is the EXACT link to the EXACT “landmark study” referenced:
https://docs.wixstatic.com/ugd/cb01c4_1e9c944ea9524f38b3d1d392e08e94c0.pdf
Now I don’t know how long those links might say active, but, as of 12/12/2018 8:50 AM Eastern Standard Time USA, they are active.
I haven’t read it yet, but now I know where it is, if I wish to torture myself to do so.
If renewables reduce electricity prices even without subsidies, then why are they being subsidized?
Do away with the favouritism and a straight up market-based competition will lead to a fossil fuel phased out without all the government manipulation.
Research? Audit would address the truth, not “research.” Given their own emphasis on timing in a national debate, cherry picking studies by special interests are more accurately labeled “propaganda.”
Okay, from the EXACT report referenced, this is interesting — a disclaimer:
That does not seem to indicate a lot of real-world confidence in this … “landmark study”. They don’t seem to want to put at risk the careers or “educational institutions” associated with this … “landmark study”, which indicates to me that academics cannot be held accountable for real-world application of their dream-world … “research”.
Am I being too harsh? — I’ve only gotten as far as the front matter so far.
What an eloquent disclaimer. They might have put it a bit shorter:
Forget this garbage.
‘Installed renewable capacity’
Renewables – wind/solar – have no capacity. They have potential, but not capacity.
Australia has nearly unlimited coal resources, has recently tried to lessen its carbon footprint, and has the highest electricity prices in the world. But it lessens the cost of electricity, so the subsidies are worth it.
Thinking of a Slim Pickens quote from Blazing Saddles.
What’s the difference between a climate scientist and an engineer? A climate scientist merely glances at a watch to determine what time it is, while an engineer checks to see whether the watch being looked at is stopped or actually running.
That’s all I got.
“The Government hopes to pass new laws to force energy companies — especially retailers — to offer customers cheaper electricity.”
“The study used computer modelling to crunch electricity price data from the past five years.” (sic)
“Bruce Mountain says the research comes at a critical moment in the national debate on energy. (ABC News)”
These 3 sentences from the article tell you all you need to know,
Ahh, price controls.
And we had thought it couldn’t get any worse.
According to the US Energy Information Administration, which periodically publishes updated levelized cost of electricity figures for various new generation sources of utility power generation entering service in 2022, onshore wind power is the cheapest source of electrical energy in the US, including the subsidies, at 37.0 dollars per MW-HR. Coal with conventional carbon capture is 48.3, natural gas at 48.3, nuclear at 79.5, hydroelectric at 73.9, photovoltaic at 46.5.
So yes, in the US today, for new plants coming on line meeting current regulatory requirements under the Clean Air Act, wind power is the cheapest source of power we have, and PV is slightly cheaper than either coal or NG.’
LCOE considers capital cost, subsidies (tax credits), operational costs, fuel costs, discount rate, and cost of financing.
There’s no such thing as “the cost of wind power” because wind power cannot exist on its own. It has to be part of a system that includes 100% of the capacity duplicated as backup capacity.
It’s not wind vs. X.
It’s “wind + backup” vs. X.
The the cost of the combined system also changes as the proportion of wind power changes.
Spot on.
Wind energy “exists” and produces power on a reliable basis because prevailing winds are predictable, and wind power is only produced where such winds are predictable. Just because the wind at your house or in your community is not predictable does not make it unpredictable everywhere. There are many places in the world where the wind blows predictably for major portions of the year. That is why those places are where wind farms are developed.
Even dispatchable power plants do not operate 100% of the year – typical annual power production factors for thermal power plants are around 85-87%. For hydro power plants, 50% is average. For current generation wind turnbines, it is 50% also. NEIA uses 43.5% production factor as the average for all wind plants today.
And power storage is also an option for wind and solar, just as it is for hydro. Whether it be chemical batteries or production of hydrogen gas for use in vehicles and stationary power plants.
“…wind blows predictably for major portions of the year.”
— What happens during the minor portions of the year?
Where power storage is an option, is it included in the cost? Where a traditional power plant provides the backup, how much of the plant is included as part of the cost of wind power?
I’ve heard you say some dumb things Duane, but you keep upping the anti.
Yes, meteorologists can predict that today will be windier than tomorrow, but they can’t and never will, be able to tell us what speed the wind will be blowing at 30 minutes from now, much less tomorrow at noon. Until they can get to that level of predictability, then wind is not predictable.
And the idea that it’s ok because the wind is blowing somewhere is even more stupid.
So what if it’s blowing somewhere, when the power is needed here.
Do you think it’s easy to minute by minute change the level of power being sent across the interconnects?
And then Duane goes for the trifecta of stupidity. He brings up claims about mythical power storage devices that are somehow going to make renewables reliable, while also doubling or tripling the cost.
Your argument is the reason that anyone wishing to be paid to supply electricity to the grid must guarantee a minimum level of reliable, dispatchable power, not just the potential to generate power.
‘Coal with conventional carbon capture’
Wut? There is no such thing.
LCOE does not count the cost for the fact that wind is not dispatchable, so it imposes costs on the rest of the system, and wind power might not be useable since it has no relation to electricity load.
The second problem is that to reduce the cost of wind, EIA is using fantasy numbers, which is too bad. They should use realistic numbers. They have a capacity factor of 43%, whereas in actual fact the capacity factor of US wind plants is around 33%. If less favorable sites are used, the factor goes down. The factor in Germany, for example, is 21%. As long as the specify where the wind plant is going I have no problem, but they can’t go into an area with marginal winds, and the areas with winds that strong are very limited. They don’t mention that little detail in the report. A discount rate of 6.5% is far too low – considering inflation of 3% it should be more like 10%. Finally, the cost is reduced by 1/3 from the last actual estimated cost in 2016. Since GE power is going out of business I don’t think the cost is going down.
The actual cost is more like $100/mwh. The people at EIA are tilting in the direction of windmills. the only cost savings is in the fuel ($25/mwh). The levelized avoided cost of electricity is treated the same for a dispatchable and non-dispatchable source, but you cannot avoid any of the cost of the system, except the fuel, with a non-dispatchable source, which is why the costs keep going up as you add wind and solar. Spending $100 to save $25 is no way to save money, so of course prices go up.
Dick
Dick P,
I guess you are one of those experts that the study’s disclaimer says people should consult with before using any information in the study that might have real-world downsides causing lawsuits that the producers of the study wish to avoid to keep their cushy careers in tact … to keep earning the big bucks to pay for their rich-boy/girl/? toy “renewable-energy”-derived, sky-high-expensive electricity.
I decided that I just don’t know enough about the energy business to understand the lingo of the actual report, and so I won’t be trying any further to grasp its errors. Just a cursory attempt led me to believe that there is heavy reliance on an economic model with some convincing looking math, but I’d have to be a wiz in this area to dissect the flaws there, which I suspect do exist in that lovely equation.
I didn’t even know what “wholesale electricity” was — I had to look it up — I didn’t know the product being called this or what consumer bought such a thing. Electricity seems so fugitive — how could you trap it to sell to somebody wholesale, so that they could turn around and sell it to me retail? [that’s where my ignorant mind was at the time].
Now I get that it’s pretty complex how electricity is delivered to my house, and I wonder where, in this complexity, the math of the study might be inadequate.
“In the land of the blind, the one-eyed man is king!”
In a land where the government forces anything that is not a renewable to be prohibitively expensive, renewables will indeed become the cheaper energy source, but your energy will be the most expensive in the world!
These people are selling sow’s ears and trying to convince the world that they are really silk purses.