100% renewables for Australia – not so costly after all

This is an excerpt of Giles Parkinson's comments on the Australian Energy Market Operator's report. Parkinson's article is posted at:

http://reneweconomy.com.au/2013/100-renewables-for-australia-not-so-cost...

An exploratory study into 100% renewable energy scenarios for Australia has concluded that its impact on consumer electricity prices over the next few decades may be no more than the increases in the last few years to support much criticised network upgrades and the introduction of the carbon price.

The report by the Australian Energy Market Operator (AEMO) canvasses the potential costs and practicality of transforming Australia's coal-dependent electricity system to 100 per cent renewables, by either 2030 or 2050. It creates two scenarios – depending on the pace of falls in the cost of renewable and storage technologies – but both are considered conservative.

It concludes that the cost could range between $219 and $338 billion and would require wholesale electricity prices of $111−$133/MWh (more than double the current price). Unfortunately, and somewhat controversially, AEMO was not asked to compare these forecasts with "business as usual" (BAU), but it does provide one interesting set of data that does put it into some perspective.

The first is the impact on retail prices.  It shows that the impact on consumer electricity costs from a 100% renewables scenario could be as little as 6.6c/kWh, assuming a reasonably optimistic view of technology costs. That compares to the forecast national average increases in retail costs made by the Australian Energy Market Commission from 2011/12 to 2014/15 of 5.4c/kWh.Taking in the two earlier years of  increases, the jump in retail prices has been higher. ...

The second thing is to consider wholesale prices. A recent "government Policy" scenario from Treasury has a wholesale price of $110/MWh in 2030 (compared with $111 to $133/MWh for 100% renewables). That includes a carbon price of around $52/tCO2 in 2030. (Hands up who thinks there will be no carbon price in 2030. Yes, you too, Greg and Tony).

Apart from the lack of comparison with BAU, the AEMO report was hamstrung by a number of other factors, most notably its forced reliance on the technology costs produced last year by the Bureau of Resource Economics. RenewEconomy has on many occasions questioned those forecasts, which even for 2035 are above current market prices for technologies such as concentrated solar thermal, and assumes, quite bizarrely, no fall in solar PV costs for nearly a whole decade through much of the 2020s.

Still, the AEMO report – although "exploratory" and "limited" in its own words – does come to some useful conclusions. The first is that it says "it is valuable to note that this operational review has uncovered no fundamental limits to 100 per cent renewables." In other words, it is not a question of can, but how much. ...

AEMO noted that its cost estimates did not include any allowance for the costs of any modifications required to the distribution networks, the cost of acquiring the required land for generation, or the costs of stranded assets (coal and gas fired generators). As for land, it estimates that would require between 2,400 sq kms (50kms by 50kms), and 5,000sq kms.

But it also notes that its modelling results are "highly sensitive" to the assumed technology cost reductions, and any changes to these would see corresponding changes to the modelling outputs.  Given the electricity industry's propensity to grossly overestimate the cost of renewable technologies, that means there is scope for greatly reduced costs.

And it should be kept in mind, most of Australia's existing coal and gas fired generation needs to be replaced by 2045 – and as Bloomberg New Energy Finance have pointed out – the cheapest new build generation capacity is already wind, and will soon be joined by solar. That needs to be a critical equation is any assessment of the future, particularly when incorporating environmental costs ...

And there is another missing piece to this assessment – and that is energy efficiency. The modelling is based on AEMO own long term demand forecasts, which have been shown to be pretty hopeless even in recent 12-month forecasts. It does not take into account the sort of energy efficiency gains that could, and should, be contemplated in coming decades.

The IEA, and just about every other major study, suggests energy efficiency should account for at least one third of future scenarios. It points out that it is the energy we don't use that will be the cheapest and most effective. But that also means a greater diversion from business as usual.

-------------------------

An analysis of the AEMO report by Dr Jenny Riesz from the Centre for Energy and Environmental Markets, 'Putting 100% renewables in perspective', 30 May 2013, is posted at http://tinyurl.com/riesz