Renewables will provide, optimistically, 10 to 20 per cent of global energy by 2035. There is no prospect of seriously reducing fossil fuel emissions without an accompanying fall in global standards of living directly implied by large reductions in per capita energy use
The constant headlines say it all: Australia’s energy system is in crisis. “High power costs floor business” says a lead story in the Australian Financial Review: “Shell-shocked businesses are re-assessing investments and jobs slugged by huge increases in electricity bills.” The Energy Users Association of Australia, which represents the country’s largest power users, believes major industries are on the verge of collapse because of the price of power. BlueScope Steel has warned that climate policies could produce an “energy catastrophe”. A country blessed with massive coal and gas reserves, economic resources that traditionally drive economic growth, has suffered a power blackout in South Australia and is suffering from extremely high power prices.
Let’s start with a brief overview of Australia’s energy system. Australia gets 73 per cent of its power from coal, 11 per cent from natural gas, and about 15 per cent from renewables (hydro 7 per cent, wind 4 per cent, rooftop solar 2 per cent and bio-energy 2 per cent). When the Hazelwood power station closed in March, Victoria lost 15 to 20 per cent of its base-load power, and the nation’s power capacity fell by 5 per cent. In Australia, coal is by far the cheapest way to produce energy and we’ve got plenty of it—hundreds of years’ worth in New South Wales and Queensland. Victoria has 200 billion tonnes of brown coal, enough for another 500 years. And it’s easily accessible—we’ve used less than 2 per cent of brown coal reserves since mining began in the early 1920s.
With coal comes greenhouse emissions, blamed by many scientists for “global warming”. Burning coal produces carbon dioxide, particularly Latrobe Valley brown coal, which is two-thirds water and has to be heated and dried before it can be burned. Gas, also a fossil fuel, produces fewer greenhouse emissions than coal, while renewables, hydro and nuclear produce none. So how does Australia go about trying to cut its greenhouse emissions? With no carbon price, the Renewable Energy Target (RET) rules. The current renewable targets are: the federal Coalition wants 23.5 per cent by 2023, with a 28 per cent target by 2030 under the Paris climate agreement; the federal Labor Party has a target of 50 per cent by 2020; South Australian Labor has a target of 50 per cent by 2025 (it’s now at 40 per cent); Queensland is similar; while the Andrews government in Victoria has a target of 25 per cent by 2020, 40 per cent by 2025. Logically, any curtailing of coal for other more expensive energy uses is going to flow through to higher electricity prices, although there are other factors at work, such as rising network charges.
Gas is more expensive than coal. It takes more capital to bring a gas well into operation than to open a coal mine. Gas power stations, though, are cheaper than coal stations to build. Renewables are inherently more expensive and cost at least three times as much as coal. This is mainly due to the materials they use, and the construction cost. The capital expense is borne mostly by the government; huge subsidies allow wind and solar to be considered economic, but is this so in reality? Money spent in capital construction must be recovered in energy, but renewables don’t produce much energy. The income they generate does not cover the capital cost. Renewables do have running costs; they have some operators. More importantly, they also have maintenance; for example, solar can’t afford to have solar panels covered in dust—it reduces their effectiveness. Figures showing the effectiveness of solar panels are determined in the laboratory; the real world is different. There is also the extra cost of building wind and solar connectors to the main grid. In addition there is the impact on the grid itself. With a mix of solar and thermal generators producing electricity, you challenge the stability of the system.
The intermittency of renewables creates pressure in the system. It has two damaging effects. First, the base-load plant has to shut down, but the plant is not built to shut down and come up to speed again. Normally it stays on line between major overhauls. Second, if you start bouncing the network around, you start to get failures of equipment on the network. In Victoria, there are gas turbines that can be brought on line and taken off quickly. These are mainly used for peak power, but with the Hazelwood closure, and the Andrews government planning to dramatically expand renewable power, some gas would effectively form base-load power, pushing up base power prices. Victoria may even end up importing black-coal power from New South Wales! Ironically, that’s why Victoria set up the State Electricity Commission in the first place—to mine brown coal instead of importing black coal from New South Wales.
The brute fact is that wind and solar are more expensive. The panel headed by the industrialist Dick Warburton estimated in its 2013 report that there existed a cross-subsidy for renewables of $9.4 billion between 2001 and 2013, with a further $22 billion required for the remainder of the scheme until 2030. That’s an average subsidy of about $3 billion a year. The report was ignored because Warburton was said to be a “climate change denier”, but the study concentrated purely on the economics of renewables. A recent report by BAEconomics came up with a similar figure, revealing that the government renewables subsidies were $3 billion in 2015-16. On one estimate, this equated to 6 to 9 per cent for the average household and up to 20 per cent for the industrial customer. These subsidies are not transparent, the report said. Almost three quarters come from government mandates paid for by customers and collected by third parties. Higher prices are passed on by retailers and paid for by consumers. These subsidies do not appear in government accounts, and are thus approximate in the report. The report’s other features include:
