Adam Creighton: Labor’s Ludicrous Wind Power Policy to Squander more than $100 Billion
In Sunday’s post, we detailed Labor’s descent into wind power madness – with its impossible push for a 50% renewable energy target.
One of the immediate responses has come from the press-pack; who have now turned on the great wind power fraud with a vengeance.
Journalists with a modicum of common sense have woken up to the fact that they’ve been lied to and taken for fools by the wind industry, its parasites and spruikers for years now.
The backlash amongst journos to Labor’s lurch to the infantile left, has caused an ‘awakening’, which has been swift and scathing. The Australian’s Adam Creighton – a lad with a solid economics background – is among those who have caught on to the scale and scope of the fraud.
In this thumping little piece, Adam slams “rent-seeking global turbine manufacturers” – which we take to mean struggling Danish fan maker, Vestas – and otherwise clobbers the pointlessness and insane cost of trying to rely on a power generation source that means future power “supply would depend on the weather” – rather than on that silly old economic chestnut: power consumers’ actual ‘demand’. Over to Adam.
Labor’s renewable energy target policy would waste $100bn
24 July 2015
To make sure we have enough electricity over the next 15 years we can either spend $100 billion on new generating capacity, or we can spend next to nothing.
Both strategies will meet our electricity needs. Labor has decided the former makes a lot more sense, given its new policy to require 50 per cent of electricity to be generated by renewable energy by 2030. In practice this would require tripling the Renewable Energy Target to about 100 terawatt hours by 2030.
This is bizarre policy, not least because Labor agreed with the government to lower the RET to 33 by 2020, only last month. It reflects an almost religious and increasingly pervasive devotion to wind and solar power, whatever the cost.
Hiking the RET so dramatically would divert massive resources into construction of unreliable and costly generating capacity with limited environmental benefits.
ACIL-Allen reckons the cost of new wind, geothermal and solar capacity would come to about $100bn. The extra 11,000 wind turbines alone — 10 times the present number — would cost $65bn.
This is money that could have been used for projects that don’t require government compulsion to make them viable. Or it could have used to research ways to curb carbon emissions rather than enrich rent-seeking global turbine manufacturers.
Australia doesn’t need to invest in any new electricity supply; spending billions to get zero extra output is economic vandalism. In fact, electricity demand has been steadily falling (from 198 TwH in 2009 to 184 in 2014) because of higher network prices, our dwindling industrial base and popular energy-efficiency initiatives.
Current estimates see modest increases to 2030, which could be accommodated by existing capacity. Gas and coal-fired power stations are already being mothballed or closed, Alinta’s Port Augusta plants being recent examples.
Yet an axis of ignorance and self-interest is trying to argue Labor’s 50 per cent mandate will ultimately lower prices for households and create jobs. They seized on initial modelling by Frontier Economics this week that showed typical electricity bills under Labor’s plan would fall by $30 a year from 2016 to 2022 and then rise by $4 a year will 2030.
This occurs because existing fossil-fuel generators are assumed to bear heavy losses. The policy-induced glut of new supply pushes wholesale electricity prices down (especially in a market where demand was falling anyway), in some cases by more than the cost of the renewable energy certificates that the RET compels retailers to buy. The RET, as the government’s 2014 review found, “transfers wealth from electricity consumers and other participants in the electricity market to renewable generators”.
Existing generators might put up with this for a while — shutting a coal power station can cost more than running it at a loss — but in the longer run Alfred Marshal’s basic principle that the prices we pay for goods and services must ultimately cover their costs will begin to kick in.
“We might see a serious backlash from consumers in the medium to long run as fossil fuel generators leave the market, and retail costs start to reflect the cost and fundamentals of renewable energy,” says Tony Wood, an impartial energy expert at the Grattan Institute.
Consider a 100 per cent RET. Without base-load, conventional power sources — be they nuclear, coal or gas — supply would depend on the weather, and prices would reflect the far greater actual costs of production.
Large-scale wind and solar-powered electricity is two to four times more expensive than coal-power electricity, a discrepancy that could grow if the sunniest and windiest sites have been used up already. Whenever in doubt, ask: if renewable energy were so much more efficient and cost-effective than fossil fuels, why do we need to force people to buy it, by law?
Of course, wind and sunshine are free, so the marginal costs of renewable energy can be lower than those for fossil fuels once the turbines and solar grids are built. But it is irrational to ignore their upfront costs and junk perfectly satisfactory power stations unless other benefits were truly massive.
But they aren’t. Yes, the RET will create jobs, but so would deliberately complicating the tax system and hiring 10,000 public servants to enforce it.
Furthermore, the RET, along with the government’s Emissions Reduction Fund, is a terribly inefficient way to reduce greenhouse emissions. Large-scale solar, for instance, does so at about $200 a tonne or 10 times the cost of a simple carbon tax or emissions trading scheme, which both Labor and Coalition now spurn. Wind is about $100 a tonne.
Surely $100bn could be better spent on developing Australia’s rich uranium reserves to create a base-load power industry that can replace fossil fuel generators when they naturally expire.
But when renewable energy is seen as a religion, the case is far stronger. Certain religious observances might appear irrational but if they make people happy they serve a valid purpose. This is the best argument for a $65bn wind turbine building program.
A very solid wrap-up from Adam – who, based on that effort, is likely to end up in STT’s Hall of Fame. However, Adam needs to drill a little deeper on the true costs of the greatest economic and environmental fraud of all time; and – given his apparent antipathy to the wind power rort – we fully expect him to.
As we detailed in Sunday’s post, contrary to Matt Harris’ musings, the impact of momentary spurts of wind power on power prices is limited to the dispatch price (when the wind is actually blowing).
When the wind is blowing – the impact on retail prices (the price that troubles households and businesses) has retailers paying up to $120 per MWh (AGL pays $112) for every MWh of wind power dispatched to the grid – irrespective of the dispatch or wholesale price – which at night time will often be close to – or less than – zero. The rates retailers pay are set by long-term Power Purchase Agreements.
Wind power outfits steadfastly refuse to disclose their PPAs, for obvious political reasons. Infigen and the like aren’t going to win many hearts and minds if they revealed the fact that – in order to remain profitable over the long-term – they need a guaranteed price of around 4 times the average wholesale price of $35 – which doesn’t quite gel with their PR spruiker’s endless nonsense about the ‘wind being free‘.
The other critical detail that Adam needs to expand on, is the actual operating costs of wind turbines – such as operating and maintenance costs (recurring and increasing over time as these things grind their way to a halt): costs that – at $25 per MWh for every MWh dispatched – compare, not so favourably, with the ability of Victorian coal fired power generators to profitably deliver power to the grid, at less than $25 per MWh.
The operation of PPAs and their effect on retail power prices is covered in detail here – as is the actual operating costs of turbines:
Then there’s the way in which the REC Subsidy paid to wind power outfits operates as an additive tax on all Australian power consumers – under the current LRET – a figure that runs to more than $45 billion:
The other misconception – arising from guff pitched up by Tony Wood from the Grattan Institute – is that increasing wind power capacity will see “fossil fuel generators leave the market”. In terms of the fossil fuel generating capacity required to meet total consumer demand – no it won’t.
Fossil fuel generators – with a capacity at least equal to 100% of any installed wind power capacity – will be required to be available and online as ‘spinning reserve’ – 100% of the time – to account for total (and totally) unpredictable collapses in wind power output.
It does not matter whether there are 2,000, 5,000 or 10,000 turbines spread out across the Eastern Grid, as a natural, meteorological phenomenon the wind will stop blowing across that entire area, such that wind power output will drop to a doughnut hundreds of times every year. And that’s a FACT:
The cost of building and maintaining – what is now referred to as ‘redundant’ capacity – essential to provide back-up ‘cover’ for a further 11,000 3MW turbines – would be astronomical:
Not to mention the need to pay fossil fuel generators millions upon millions of dollars in ‘capacity payments’ to ensure sufficient ‘spinning reserve’ and/or fast start up peaking power plants such as Open Cycle Gas Turbines and diesel generators to cover wind power output collapses, almost every day:
Labor’s latest move has simply magnified the costs of the current LRET debacle by a factor of two or more. However, with journalists like Adam Creighton on the trail it won’t be long before Australians work out just why their power bills are going through the roof, now. And when they do, it will be a matter of when, not if, the LRET policy meets its political doom.