BRIAN TOOHEY. PM walks with energy dinosaurs

The person known as Malcolm Turnbull who took over as Prime Minister is gone. That’s the one who declared immediately after getting the job that Australians have a wonderfully exciting future provided they recognise “change is our friend, if we are agile and smart enough to take advantage of it”.

That PM has retreated to a reactionary fear of change that underpins underpinning his current energy policy. Instead of championing exciting new technologies with falling costs, he exploits fears of future price rises and electricity blackouts. Rather than adopting a smart response,  he now insists that relying on a clapped-out coal-fired station is the only path to salvation.

The fear of price rises is misplaced. It could be addressed by a couple of policy changes. One is to scrap the current rules which let traditional power generators create big price spikes by “gaming” the national electricity market. This manipulation could be fixed by a simple rule change to calculate prices on five-minute bidding intervals rather than 30 minutes. But rule maker, the Australian Energy Market Commission (AEMC), won’t introduce the necessary changes until 2021. The other change is to finally adopt a clean energy target that allows investors to take advantage of the rapid decline in the cost of solar energy compared to fossil fuels. Instead, Turnbull’s intervention in the market makes it harder for businesses to investors to plan future investment in generating technology. But he made plain on Tuesday that his target will guarantee a place for higher-priced, high emissions coal.

His insistence forcing the highly inefficient Liddell coal fired station in NSW to stay open beyond its 50 year lifespan in 2022 makes no sense. Contrary to some claims, the Australian Energy Market Operator (AEMO) didn’t recommend this option. Turnbull’s claim that Liddell’s closure will leave a 1000 MW supply gap is based on unrealistic assumptions. One is that Liddell dispatches 1000 MW to the grid – it is so decrepit that the figure is 500 MW on average.  Boosting output would require serious investment for a short term gain.

Moreover, the AEMO’s CEO Audrey Zibelman has arranged a 1000 MW reserve from other sources that makes her confident of avoiding a serious blackout this summer. This 1000 MW relies on demand management policies using “behind the meter” measures and the new batteries and standby diesel generators in South Australia. But the crucial demand management component depends on a one-year exemption from rules that prevent this backup source being available in future years. The rule should be changed immediately to encourage a supply measure that is commonplace in the US and other countries.

Even without this addition to available supply, the AEMO’s estimate of the supply shortfall in 2022 is based on extraordinarily conservative assumptions that exclude some new solar, wind and battery projects which are due to start construction soon, but are not yet producing, such as the big new solar thermal plant at Whyalla.

AGL, Liddell’s current owner is investing heavily in renewable generation, backed up by batteries and “peaking” gas plants. AGL has previously announced it is prepared to do the same at Liddell, as has occurred already a former coal-fired station at Collinsville in Queensland.

Spending more money to keep producing coal-fired power at Liddell or elsewhere won’t guarantee no blackouts occur. Coal and gas-fired plants break down, or can be out of action for regular maintenance. When this happened on a large scale in NSW in February, electricity supplies had to be severely curtailed for large consumers, including an aluminium smelter.

It would also help if Turnbull stopped proposing that his government spend several billion on a “pumped hydro” scheme in the Snowy Mountains. The only way this heavy engineering project might be financially viable is if unrestrained spikes in electricity prices are allowed to continue. The reason is simple – it takes more energy to pump the water up for use in the new scheme than the amount of power it produces. This means it can only make a profit if the price of the pumped water is much lower than the price of the power produced.

Rather than promoting this scheme and putting Liddell on life support, Turnbull should revert to the PM who put his faith in an agile embrace of smart changes.

This article first appeared in the Australian Financial Review on Thursday, 14 September 2017

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One Response to BRIAN TOOHEY. PM walks with energy dinosaurs

  1. Laurie Mills says:

    Lots of powerful advice for The Man From Snowy River by the contributors to Pearls and Irritations.

    A web tour is very instructive. Let’s start with Snowy Hydro 2.0:

    http://www.snowyhydro.com.au/our-scheme/snowy20/

    Snowy Hydro Corporation is fully owned by the Commonwealth, NSW and Victorian Governments – and is run for the common wealth of the people of Australia.

    So, it is entirely reasonable for our Governments to invest in Snowy Hydro 2 – and they should do so for two reasons: Return on Investment and as a Public Good.

    ROI?

    One of the features of wholesale electricity is that the price is very volatile – look at the AEMO graph of Electricity Price and Demand:

    https://www.aemo.com.au/Electricity/National-Electricity-Market-NEM/Data-dashboard

    We need to take account of the fact that Pumped Hydro is about 80% efficient:

    https://en.wikipedia.org/wiki/Pumped-storage_hydroelectricity

    This is dynamic, but as I write NSW prices zenithed at about $160 per megawatt hour at 18:00 hours and nadired at about $70 a megawatt hour at 03:00 hours. Using the commercial law of ‘Buy Low, Sell High’ then the possible gross margin for Snowy 2.0 is:

    Generate and sell $160 electricity at megawatt hour then buy pumping electricity at $70 a megawatt hour divided by 0.8 (need to offset the loss) = $72.50 gross profit per megawatt hour. Now, that’s a nice little earner!

    I should comment that Snowy Hydro 1.0 has been doing this reliably since Tumut 3 was finished in 1973 – so no technical risks:

    https://en.wikipedia.org/wiki/Tumut_Hydroelectric_Power_Station

    The second benefit of Snowy Hydro 2.0 is the Public Good. Don’t think of this asset as a generator – think of it as a giant storage battery. As storage capacity comes online as Responsive Dispatchable Power, then inexpensive renewable generation can be expanded.

    The Public Good comes from three attributes of this inter-connected electricity system: power is cheaper (in the USA, industrial solar and wind generators are now delivering power to the network at about $US30-40 per megawatt hour,), reliability for industry and homes is certified by the massive Snowy Hydro 2 battery, and the emissions of solar and wind generators are zero, nil, zip.

    Snowy Hydro 2.0 is agnostic (to use Prime Minister Turnbull’s term) about where it purchases it power to pump water into storage, it could be coal-fired at 03:00 hours, solar when the sun is at its peak around 13:00 or anytime when the wind is blowing strongly.

    Finally, there is a timing issue. AGL has made a perfectly reasonable commercially decision to close Liddell in 2022, which gives us about five years to get Snowy 2.0 operating.

    So Nero, time to stop fiddling if you want Rome not to burn this summer.

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