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The Disastrous Electricity Situation In Australia

Bryan Leyland

Whichever way you look at it, there is no quick, cheap and easy solution to the Australian disaster.

Nominal household electricity price changes, selected capital cities, 2007 to 2016; source: Parliament of Australia

Since 2001 Australia has had an active policy for reducing greenhouse gas emissions that subsidises wind power, solar power and, strangely, heat pumps. It also levies penalties of $65/MWh on those retailers who have slipped behind on their renewable energy obligations. This is more than the average $50/MWh spot price from 2000 to 2014.

In 2015/16 $2,968 million was spent on subsidies for renewable energy. This equates to 30% of the wholesale cost of all the electricity generated. Retail electricity prices have doubled since 2007 and now are about 20 US cents /kWh even though the demand has hardly changed. The main reason for the cost increase federal and state government regulations and subsidies boosting the uptake of wind and solar power.

In 2015, the estimated reduction in greenhouse gas emissions was about 15 million tons giving a cost of $200 per tonne of carbon dioxide avoided. This is about 10 times the generally accepted cost of carbon dioxide.

So what are the prospects for the future?

South Australia has large amounts of wind and solar power and is the leader in renewable energy. A few months ago a storm caused a total blackout of the state that took out one transmission line. Before the widespread adoption of wind power, the loss of this transmission line would not have caused major problems. A large amount of wind power was generating at the time and the power system stability was entirely reliant on a transmission line connecting to the Victorian coal-fired power stations. The system disturbance caused by the loss of the line caused wind farms to shut down: this, plus the failure of the load shedding system to operate in the time available, overloaded the interconnector which then tripped and caused a total blackout.

Another problem that wind power has brought to the state is that wind power output put over peak demand is typically around about 10% of installed capacity. So additional generation is needed to make up for the shortfall in wind. So they have installed open cycle gas turbines and large numbers of small diesel generators that are inefficient, add to the cost and generate carbon dioxide.

If the amount of renewable energy in the other states increases and they continue to shut down thermal power stations that can generate continuously and reliably and stabilise the power system, South Australian type problems are inevitable and will steadily increase.

The market operator expresses hope that batteries and the like will be able to stabilise the power system. Unfortunately, the technology is in its infancy and the cost of battery storage is extremely high. They are placing their faith in expensive, untested technologies that are not available in the quantities needed.

The federal government recognised that they had problems and commissioned a report from Chief scientist Sir Alan Finkel to “develop a national reform blueprint to maintain electricity security and reliability…” Unfortunately, Alan Finkel has no experience in power systems and, it would seem, economic analysis. His report advocated continuing with subsidised renewable energy costs and has been seriously criticised because it would lead to ever increasing electricity prices and  more blackouts. It also appears that the economic analysis was seriously flawed because it used prices that were too low for wind and solar power and unrealistically high for thermal generation. It also failed to compare its proposals with the obvious option of returning to the very successful and low cost coal based system of the past.

In summary, Australia’s wind and solar power experiment has reduced carbon dioxide emissions by a small amount and at a huge cost and doubled electricity prices. The powers that be now want to continue with the subsidies and throw good money after bad to overcome the problems they created.

If the subsidies continue, the electricity system will enter a death spiral.

For instance domestic consumers will see ever-increasing electricity prices that will encourage them to install subsidised solar cells that will export surplus power to the grid – often when it is not needed – and they will only take power from the grid at night. This reduces the energy purchased from the grid so that they no longer contribute a fair proportion of the fixed costs associated with generation, transmission and distribution. So, to recover the lost income, their domestic electricity price must increase. This increase will induce more consumers to purchase solar cells and so the disaster feeds upon itself and gets worse and worse until, in the end, the power costs become so high and system reliability becomes so bad that the consumers revolt, topple the government and, with luck, replace them with a government with sensible policies.

But the new government has a huge problem. What to do with the fundamentally uneconomic wind and solar generation and the huge cost of building new coal-fired generation to replace the stations that were abandoned.

Whichever way you look at it, there is no quick, cheap and easy solution to the Australian disaster.