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Policy foundations for affordable, reliable, lower-emissions power, absent NE'G' nonsense

By Geoff Carmody - posted Monday, 24 September 2018


The National Energy 'Guarantee' (NE'G') is officially dead – for now anyway. Good riddance. However, Labor hints it might exhume bits of the corpse should it win the next Federal Election.

Can we restore the affordable, reliable power we once had in a NE'G'-free world? What's the best way to reduce anthropogenic global emissions, if these are a problem?

Affordability and reliability

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We want neither cheap, unreliable power, nor expensive, reliable power. We need the cheapest possible power that's 'on tap' when required. Technology drives the best options, not policy ideology.

Optimising affordability and reliability means giving technology its voice. Today, policy gags technology:

  • It bans some power sources here (eg, nuclear power, some gas extraction).
  • It squeezes out or shuts down existing base-load and back-up fossil fuel power sources.
  • It protects and heavily subsidises renewable energy (solar, wind, manufactured batteries).

Why can't unprotected, unsubsidised, renewables (solar, wind) provide cheap, reliable power? Because their power supply is intermittent, seasonal, uncertain, and low energy-density. It's not 'on tap' 24/7.

Consider just one intermittency example.

Official figures for SA for 2016-17 show solar power generated just under 15% of installed capacity as power supplied. The corresponding wind 'efficiency' figure was 29%.

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If 100 units of generation capacity deliver only 15 (solar) or 29 (wind) units of actual power, what generation capacity do we need to deliver 100 units of power? And how much storage capacity to time-shift power from when generated to when needed do we need on top of that? For solar, we need generation capacity of (100 divided by 15), plus battery storage capacity of (85 divided by 15) for a total of (185 divided by 15), or 12.33 times base-load capacity. For wind, we need (100 divided by 29) generation capacity plus (71 divided by 29) battery storage capacity for a total of (171 divided by 29) or 5.90 times base-load capacity.

So we need between 6 and 12 times base-load capacity to deliver the same power supply.

This is just for average annual intermittency. It's worse after allowing for solar and wind seasonality, uncertainty and low energy density.

Consider the results of a Californian study on seasonality by MIT in a paper titled'The $2.5 trillion reason we can't rely on batteries to clean up the grid', James Temple, MIT Technology Review, 27/7/2018.

For solar power especially, there are large sun intensity variations between the summer and winter solstices. Polar region variations are obviously large, but even in sunny California, they're large too.

For reliability, these variations require massive solar power 'over-production' in summer, massive battery storage of it, and massive battery storage depletion in winter, to ensure year-round reliable power.

There are seasonal cycles for wind, too. Seasonality further multiplies generation and storage capacity needed for reliability, especially for solar, and its costs.

In California, the MIT study estimated that, if solar and wind each provided 40% of power generation, in summer total generation would be around 12 times as much as in winter.

That's lots of excess renewables generation capacity in summer, plus similar battery storage capacity, to ensure adequate reliable winter power.

See chart 1.

 

Chart 1

Clean air task force analysis of CAISO data, 'The $2.5 trillion reason we can't rely on batteries to clean up the grid', James Temple, MIT Technology Review, 27/7/2018.

 

This MIT analysis also looked at renewables costs. It found renewables costs really take off when their power share increases above 50% – even if batteries cost 67% less than now. In fact, they found costs increase as renewables' share increases from any starting level. They do not decline, as claimed by some politicians and others in Australia. As chart 2 shows, according to the MIT study, as Californian renewables' share increases from 50% to 100%, the cost of power (in US$/MWh) increases from US$49 to US$1,612.

See chart 2.

Chart 2

Clean air task force analysis of CAISO data, 'The $2.5 trillion reason we can't rely on batteries to clean up the grid', James Temple, MIT Technology Review, 27/7/2018.

So how should we go about delivering affordable reliable power again?

We need to stand back from ideology. We must allow technology to speak from a level cost playing field. That's the policy foundation for investment in needed power capacity. That foundation gives us as much investment certainty as technology will allow, because it's not dependent on changing political whims.

The first policy foundation is to remove all power source bans, and all distortions against fossil fuels. (ii) Abolish all renewable energy targets (RETs). (iii) Abolish all subsidies favouring renewables. (iv) Let technology speak, don't gag it. This will reveal the lowest cost, reliable power sources.

Lower global emissions

If anthropogenic global warming is a problem, it's global. Australian action (1.3% of global emissions and falling) by itself is ineffective. We need, but never have had, a global response to any such global problem.

Emissions reduction efforts to date target national emissions production. These affect GDP including exports. They exempt imports. 'First movers' therefore suffer trade competiveness losses. Policy encourages those not acting to continue as laggards. That increases their trade competitiveness. Harmonised global action on global warming therefore has never emerged, from Rio (1992) to date.

This is anthropogenic policy design failure. To avoid trade competitiveness effects, policy must switch from national production to consumption. Policy should target a comprehensive, uniform, national emissions consumption base. All exports are exempt. All imports are included. The policy operates like Australia's GST. Comprehensiveness and uniformity deliver the least-cost, least distorting, way of reducing emissions.

The second policy foundation replaces the current focus on national emissions production with a global approach based on national emissions consumption. This improves chances of a genuinely global approach to reducing emissions by eliminating the trade competitiveness flaw inherent in the production model.

What if the rest of the world doesn't adopt a consumption model? In that case, Einstein's definition of insanity continues. Global policy undermines its own objective, as it has since at least 1992.

Then Australia has three options:

i. It's easiest for us to do nothing to lower our emissions. That's what the world is doing, Paris or no Paris, anyway. This option has no net effect on global emissions. We can then concentrate on restoring affordable, reliable power. We'd be better off, global emissions no worse, delivering a Pareto-optimal outcome.

ii. We could indicate we'll adopt a consumption-based approach to pricing emissions, if/when most of the world's major emitters do. Given our tiny emissions share, promoting a global response is the best we can do,if actually dealing with global anthropogenic emissions is really the policy objective.

iii. Pending agreement on (ii), Australia might consider 'leading the way' with a modest consumption price model. This is not costless, but would be closer to a 'no regrets' policy than a production model.

What do we have to lose? The NE'G', RETs, and all their attendant high costs and distortions.

That's a good start towards durable, cheaper, reliable, power too.

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This is a policy summary of a longer article by Geoff Carmody on 17 August 2018 reviewing the many deficiencies of renewable energy policies, titled "Does renewable energy sustain Australian agriculture, or drive it offshore?". The longer paper can be downloaded by clicking here.



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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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