Electricity: All Hope is Lost

Electricity: All Hope is Lost, by Alan Moran.

With Australian electricity prices now approaching world-beating highs, we have on Friday another meeting of the Council of Australian Government (CoAG) energy ministers who have created the current energy catastrophe.

They are to examine the Finkel report into electricity. … Finkel decided that renewables are inevitable (which is why Malcolm Turnbull appointed him) and commissioned economic research to demonstrate that this is so. The modelling showed future lower prices from the substitution of wind/solar for lower cost coal. It did so by using two mechanisms.

First, it has the renewables subsidised and with priority access to the grid, meaning coal powered stations have either to run at a loss or close down. The optimists assume coal will run at a loss in an oversupplied market then close down in an ‘orderly’ manner.

In theory, this allows a second mechanism – forecast cost reductions of wind and solar – to swing in. … The fabled and imminent onset of cheap renewables will not occur, just as it has not ocurred through the past 30 years of similar erroneous predictions. Ah, but batteries will save the day, I hear some say. But no, they won’t. Batteries are simply a costly way of smoothing out the peaks of renewables’ intermittency.

Compared with the cost of coal at below $50 per MWh for new power stations and less than that for existing ones, wind is at least $90 plus the costs of storage ($14 according to the totally inadequate estimates published by Minister Josh Frydenberg) and requires aditional transmission expenditure.

With current policies having brought wholesale prices to around $100 per MWh, Finkel decided to airbrush from history the sub-$40 prices that prevailed until the renewable subsidies started to bite in 2016. …

Deregulation worked:

Management of the power stations (and poles and wires) was taken away from the de facto union control that had developed over the previous quarter of a century. Benefits of the system’s reform were amplified by the privatisations.

Between 1990 and 2002, labour productivity in Victoria’s electricity generators (including contractors as well as employees,) rose from six man years per GWh to 36 GWh. The increased efficiency was also manifest in the generators’ “availability to run” which was lifted from under 80% to 95%, an outcome that effectively increased capacity by one fifth.

As the national market started to emerge, state-owned generators in New South Wales and South Australia were forced to follow the same cost-cutting path that the new rivals in Victoria had pioneered.

hat-tip Stephen Neil