Monday
Aug182014
by 
Bishop Hill
Bishop Hill The cost of wind
Aug 18, 2014 Energy: grid Energy: wind Foreign An article in the Australian Financial Review takes issue with the Abbott government's plans to scale back subsidies for the renewables industry. The counterargument goes that renewables doesn't actually add very much to the cost of an electricity bill, but I was interested in the graphic that accompanied the article, which breaks down the typical Australian electricity bill.
;)
As far as I can see, nearly every single component cost of the bill is increased by renewables.
- Conventional power stations are forced to ramp their output up and down to compensate for mometary drops in wind, making them much less efficient. Worse, if wind power is subsidised sufficiently to get a lot of turbines connected to the grid, the economics of conventional power stations can be sufficiently adverse to prevent any new investment in new power stations that would take advantage of price reductions in other forms of energy and would also bring more efficient and therefore cheaper power to consumers. In the UK, this has led to the capacity market, in which all market participants will be subsidised.
- Wind is a dispersed form of energy generations, requiring prodigious quantities of power lines to connect the turbines to the grid.
Only the costs of the retail end are not obviously inflated by renewables.
It would be interesting to know how much of the 52% represented by network costs is inflated by the need to connect wind turbines to the grid.
Reader Comments (14)
Well I'm in Australia, and I don't know where they get 28.89 c / kW-hr from, because my rate is closer to 40 c / kW-hr. The summer peak rate is 45 c / kW-hr. (Hence my decision to put rooftop solar on, payback time for me assuming no feed-in is < 8 years).
Some parts of Australia have been spending a lot on "poles n wires" because the regulated environment causes a gaming-of-the-system by that segment, where they get a regulated rate of return (which is greater than the cash rate), thus it makes perfect financial sense to spend up big to get the returns. The shareholders (thats me by the way) love it. The consumers don't.
Most of that poles-n-wires spend is in the lower voltage distribution networks, not the wholesale / high voltage networks at the generators (incl wind). Thus that portion is, I think you will find, close on insignificant.
There are a stack of other big problems with Australian generation and renewables and most vested interest analysts miss the mark somewhat. It also varies a great deal from state to state as each have their own regulatory environment.
To a large degree this is all a set of unintended consequences arising from 2 things: a privatisation of previously state-owned assets (planned for the long term benefit of the population not the commercial activities of a stack of operators); as well as regulatory environments set up to try and get some kind of outcome but which lead to system gaming.
My vague recollection from years back is that, in the UK, the cost of distribution was (is?) roughly the same as the cost of generation ie a ratio of about 1:1.
I suppose the geographical extent of Aus might explain the 52 : 19 ratio of transmission costs to generation cost but I was surprised all the same.
"Only the costs of the retail end are not obviously inflated by renewables."
Even that statement is incorrect.
All the retail premises, offices etc have to use & pay for power. [Even if it is a paper-work exercise.] That (extra) cost is passed on to every consumer.
Surely if renewables don't cost that much then ALL subsidies should be removed.
Regards
Mailman
Mailman
Report tomorrow morning for your lobotomy, please.
I thought the carbon tax had been repealed, although I suppose it will take a lot longer to undo than it took to enforce...
Wally has a somewhat rose colored view of the past performance of the Australian power generators. When they were state owned they were a wholly union controlled industry and the unions exploited their monopoly power without restraint. Privatisation reduced a bloated workforce in Victoria from something like 6000 to 2000. That gives you a sense of scale with regards to the waste built into the system by the unions and their government pals.
Left to market forces, power costs would obviously have come down given those cost savings. But what government would ever dare to let the market do the work.
"costs of the retail end"
Also complicated by all the extra tariffs, subsidy slicing and accounting. And the associated wage bill.
JoNova has a post on this that is well worth reading. It also contains a link to a post by Professor Judith Sloan pointing out that ...
Mr Black...
When the power utilities in Oz were privatised, power prices were promised promised promised over and over by the pollies wot done it... to come down. They did not. Yes, the workforces were slashed and the union power was busted. But in the end the major change was that a single utility owned everything, and this was split into about 7 entities: where I live, 3 generation companies, HV distribution, LV distribution, and initially 2 retailers. It didn't take a great deal of rocket science to work out that:
before sale: margin was about 10% on the total business, ie whats sold to end consumers
after sale: each business wanted margin, and compound interest tells the result: expect price should go from Y where (Y = X * 1.10) for the pre-sale margin, to and after sale result of Y = X * 1.1 (generation) * 1.1 (HV distribution) * 1.1 (LV distribution) * 1.1 (retailer). Thus 110% morphs into 146%.
At the time of the sale I wrote a snotty letter to a local talk back radio show who used to grill the pollies, setting out the above prediction.
And lo, within 18 months my prediction had come to pass.
Where I live power prices have MORE THAN DOUBLED in under a decade. Partly privatisation (power used to be run for the public good with little expectation of a commercial return); partly silly policies. As I stated.
I'm not advocating a return to the previous ways, but to claim that its all well and good in a private market is likewise naive. We have a regulated private market right now, and its being gamed. The poor old public are the mugs who suffer. Hence.... if you can't beat em, join em. Buy shares in the local distribution company. Pays a loverly fat dividend thru thick and thin.
"It would be interesting to know how much of the 52% represented by network costs is inflated by the need to connect wind turbines to the grid."
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That is an inconvenient question. Much sweat may be generated that is not due to any temperature increase/decease caused by the theoretical or theatrical global warming.
Getting rid of the carbon dioxide tax is only part of the solution. The mandatory Renewable Energy Target is another deadweight cost that consumers have to pay for. It is being reviewed, but may remain because of an unpredictable Senate, which needs to sign off on its removal.
Your family is paying $260 a year on useless green power
http://blogs.news.com.au/couriermail/andrewbolt/index.php/couriermail/comments/you_are_paying_260_a_year_on_useless_green_power/
Wind and solar are very compatible with local generation in villages such as in third world countries where the cost of a distribution network and protecting it would drive costs even higher.
As to turbines being blights on the landscape, power lines are everywhere