Home > Economics - General, Environment > Low-carbon electricity future: the big picture

Low-carbon electricity future: the big picture

October 18th, 2010

The latest renewables v nuclear sandpit thread has racked up 300 comments and counting. Rather than attempting to arbitrate, I’m going to assume that both sides are right in their most pessimistic estimates of the other technology. That is, I’m going to look at the implications of assuming that a low-carbon electricity generation (mainly carbon-free with some gas) will imply average costs of $200/MWh.

What does that mean at the household level. Average generation costs are currently around $50/MWh, so there’s an increase of $150/MWh or 15c/kWh.

UpdateI didn’t think I needed to spell it out, but obviously I do. Debate on the merits of specific technologies, such as nuclear v renewables belongs in the sandpit. End update

That’s about 75 per cent on current prices of about 20c/kWh (most of which are accounted for by transmission and retail margins). Assuming it takes 20 years to phase out existing power generation, the implied increase is about 3 per cent per year, much less than the rate of increase we’ve seen recently to cover higher costs of transmission and distribution.

We can extend this to look at electric cars. A litre of petrol yields about 10kWh of power, so, on the pessimistic assumptions set out above, replacing coal-fired electricity with high cost renewable would add the equivalent of $1.50 a litre, roughly doubling the current price. Over 20 years, the implied rate of increase is 3.5 per cent.

Finally, let’s look at replacing Australia’s total emissions (about 600 Mt of CO2 equivalent) with high-cost renewables. At an additional cost of $150/tonne, that would cost 90 billion a year, or 7.5 per cent of national income. But the actual cost of going all-renewable would be far lower, since at such high prices, there would be huge incentives for improved energy efficiency and for substitution away from energy-intensive goods and services. A more plausible cost, even on pessimistic estimates about renewables would be 5 per cent of national income or about 2 years of economic growth.

To sum up, there is very little point in lengthy hypothetical arguments about which low-carbon technology is best. Even in the worst case described above, the cost of decarbonising the economy is small in relation to the costs of uncontrolled climate change.

If we can introduce a carbon price to the economy, and allow it to rise gradually over time, we will soon find out which technologies are the most cost-effective. That’s what we should be focusing on.

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  1. BilB
    October 20th, 2010 at 02:56 | #1

    It occurs to me, Finrod, that this whole issue is about living within ones means.

    You BNC types have over time declared that photosynthesis is very inefficient, the sun is totally unreliable, wind is fickle, waves are too hard to deal with, and heat “from the core of the planet” ..well just don’t go there. Nature is so totally disappointing.

    Yet the whole global warming lesson is about living within our natural means. But you guys want to keep going, stripping what ever is left of the earths stored energy, you’re like the mining industry “if its there it must be had now to improve the corporate bottom line”.

    Underlying Australian’s rejection of Nuclear energy, I believe, is the intuitive understanding that one should live on ones earnings. Of course we all use creditcards to stretch beyond in the belief that when we get what we want we will be content to sit back enjoy the things gained until our income catches up. But of course that is not what happens. Nuclear energy is an extention of that thinking. Rather than learn to live with natures natural energy flow the executive control attitude demands energy results right now, whatever the cost.

    That is where BNC is at. And the intriguing thing is that its inspiration comes from somone who professes to be a naturalist.

  2. BilB
    October 20th, 2010 at 02:59 | #2

    Oops, sorry. I thought that I was making sand castles. Please move to the appropriate spot.

  3. gregh
    October 20th, 2010 at 06:05 | #3

    @BilB I have thought similarly. There (and they) are people who don’t really understand what is happening.They look for a ‘plug and play’ technology that can be slotted into the current system of exploitation – both human and natural – unplug the fossil fuels and quickly plug in the nuclear before anyone notices. Then we can all go back to what we were doing.
    That is why the debate cannot function. It is fundamentally ideological and psychological.
    People who can see a range of possibilities against those who can’t. People with imagination against those without.

  4. Ronald Brak
    October 20th, 2010 at 10:37 | #4

    Earlier I wrote that the US produces slightly more brown coal than Australia. While this is true, I should have made clear that the amount of brown coal as a percentage of total production is much less than in Australia. Brown coal is less efficient than black for generating electricity, but the figure of about one kilogram of CO2 per kilowatt-hour generated from coal should still be reasonably accurate. If anyone has the Australian figures at hand that would be groovy.

  5. Fran Barlow
    October 20th, 2010 at 11:11 | #5

    @Ronald Brak

    In the case of lignite (brown coal) the commonly quoted figure is 1.3 tonnes of CO2 per mWh (or 1.3kg for kWh etc).

    This is imprecise of course because various plants are better or worse at conversion, and because like most hydrocarbon products not all lignite is of the same quality.

  6. Tim Macknay
    October 20th, 2010 at 12:26 | #6

    @Fran Barlow

    Ernestine – the term “climate change” has been in official use since 1992. 1988

    You’re right, Fran. I was thinking of the UNFCCC which was done at Rio in 1992, but it occurred to me after I’d posted my comment that the IPCC was actually established in 1988.

  7. may
    October 20th, 2010 at 12:35 | #7

    dear marknphil,

    subsidies?elucidate please?

    coal fired production of dye solar cells?

    erm.we are in a transitory stage.using the technology and energy sources we have now to produce the technology and energy sources that are replacing them.

    y’know?like horses used to be used to haulcoal.

  8. may
    October 20th, 2010 at 12:50 | #8

    and.
    unable to produce more energy that it took to make it?

    that doesn’t sound right.

    do you mean that all the manufactured solar,wind wave,tide,etc units can never produce more energy than it took to make them?

  9. Ernestine Gross
    October 20th, 2010 at 13:22 | #9

    Tim Macknay :@Fran Barlow

    Ernestine – the term “climate change” has been in official use since 1992. 1988

    You’re right, Fran. I was thinking of the UNFCCC which was done at Rio in 1992, but it occurred to me after I’d posted my comment that the IPCC was actually established in 1988.

    For a longer established time scale on ‘climate change’ see: http://en.wikipedia.org/wiki/Geologic_temperature_record

    Make no mistake, I am not a ‘skeptic’ or denier of the impact of ghg emissions that are, more or less, under the control of humans on ‘climate’.

  10. Hermit
    October 20th, 2010 at 13:57 | #10

    @BilB
    I fear you will come to grief if you try to pull rank in greenyism terms on others. I have paid the grand total of $66 in power bills in the last two years. I make most of my own car fuel. I have a half acre vegie garden. Yet it is obvious to me that the vast majority of people are not set up to do this and never will be. This energy self sufficiency experiment has cost me tens of thousands of dollars and thousands of hours of time.

    My conclusion is that we need a cheap but controllable low carbon energy source that can replace coal, gas and oil. Neither wind nor solar fit the bill so it has to be something else. You can arrive at this conclusion either the hard way like I have or by running the numbers through a public forum. Or you could stay on the moral high ground and become even less relevant.

  11. quokka
    October 20th, 2010 at 14:58 | #11

    I have thought similarly. There (and they) are people who don’t really understand what is happening.They look for a ‘plug and play’ technology that can be slotted into the current system of exploitation – both human and natural – unplug the fossil fuels and quickly plug in the nuclear before anyone notices. Then we can all go back to what we were doing.
    That is why the debate cannot function. It is fundamentally ideological and psychological.
    People who can see a range of possibilities against those who can’t. People with imagination against those without.

    Good grief is confused nonsense. “The current system of exploitation” is not going to be appreciably changed by the engineering choices made about electricity generation. PV panels have no political affiliations and neither do nuclear power stations. It is the most superficial of analysis to suggest otherwise. If the world were to be powered by solar and wind, who do you think will own the generation and distribution infrastructure? – big capital, that’s who. In fact public ownership and/or involvement is possibly more likely in the case of nuclear due to the propensity of private equity capital to seek a quick buck.

    As for for unplugging coal and plugging in nuclear and we all go on doing what we are doing, I must say that would be a great improvement on the current situation and make a huge difference to GHG emissions. Nobody pretends that it would solve all problems and it is a ridiculous straw man to suggest so.

    And no, the world does not need a vast range of “possibilities” to address the GHG issue. It needs to adopt methods that have the highest probability of success.

  12. Tim Macknay
    October 20th, 2010 at 15:17 | #12

    Make no mistake, I am not a ‘skeptic’ or denier of the impact of ghg emissions that are, more or less, under the control of humans on ‘climate’.

    I was never under that impression, Ernestine. Also, the geologic temperature record is irrelevant to my point, which I’m sure you’re aware. To be honest, I’m not really sure why you raised it.

  13. BilB
    October 20th, 2010 at 15:18 | #13

    We have been talking about your experiment for a number of years now, Hermit. It is sad that it has failed, ..failed to give you fulfilment. The energy system I am involved with is not a “scale your life back” type of product. It is a “live it up” energy product which provides you with all of the power that you need to do just that, completely free. One of the many nice things about this is that it is equally accessible to all income levels.

    I’ve just had a lengthy meeting with a guy who is on the boards of a lot of companies and I learnt about some really interesting things that are going on out there. Here is one that I can talk about that a green thumbed guy such as yourself might appreciate

    http://www.biowishtechnologies.com/us/news/biowish-technologies-cuts-poultry-ammonia-emissions/

  14. BilB
    October 20th, 2010 at 15:20 | #14

    I should have added that the biowish product range is technology that seeks to address some of the other 50% of greenhouse gas emissions.

  15. Fran Barlow
    October 20th, 2010 at 15:32 | #15

    @Tim Macknay

    In fact, the earliest offical use of the term climate change may well have been in 1979 at the time of what was called the Charney Report. Up until then the debate about exactly how the anomaly would manifest had led researchers to speak of inadvertent climate modification. cf: MIT, Inadvertent Climate Modification: Report of the Study of Man’s Impact on Climate (Cambridge, Mass.: MIT Press, 1971

    Jule Charney of MIT and the National Academy of Science wrote:

    if carbon dioxide continues to increase, [we find] no reason to doubt that climate changes will result and no reason to believe that these changes will be negligible. {National Academy of Science, Carbon Dioxide and Climate, Washington, D.C., 1979, p. vii}

    Mind you, in 1975, Wallace Broecker had written a short piece in Science {v189, August 1975} referring to Climatic Change producing “pronounced global warming”.

    Doubtless this terminology would have been taken up in the intervening years by the researchers before the WMO and UNEP got together to form the IPCC.

    I can recall as late as 1999 teaching HSIE in the SW suburbs of Sydney and noting that the textbook, Geoactive described the Enhanced Greenhouse Effect. We don’t hear that so often today.

  16. Ken Fabos
    October 20th, 2010 at 18:53 | #16

    Pr Quiggin, I think you’ve made an excellent point although I don’t know how those costs will go if we keep putting off actually making serious commitments to decarbonising our energy supply. I think there is resistance to changing our profligate energy usage and to acknowledging the unsustainable nature of our current modern lifestyles. Climate change is just one of the signs that the limits of our planet are being pushed up against – or being exceeded. Insisting that changing our energy infrastructure can only happen so long as that lifestyle isn’t forced to change in the process seems like denial of the other impacts and limits we really do need to acknowledge and develop policy for. Profligate energy usage may have pushed those limits further than sober analysis of previous times might have predicted but those limits have not been eliminated and cannot be avoided. Population, resource depletion, high energy and water usage for food production, expectations of ever larger homes, more stuff in them… I don’t think that giving priority to low energy costs will do more than carry us a bit further past those limits by maintaining illusions that the way we live is sustainable.

  17. gregh
    October 20th, 2010 at 19:35 | #17

    @quokka
    All you are showing is your lack of imagination and inability to deal with multiple possibilities – most of which are well underway. And I make no apologies for looking for social transformation.

  18. hix
    October 21st, 2010 at 12:08 | #18

    Just put a price on co2 and let the market decide is not a solution at all. Different technologies have different other externalities besides co2. Theres also the question if public sector production is suprior to market production at least for nuclear powerplants.

  19. frankis
    October 21st, 2010 at 12:31 | #19

    @hix
    “Different technologies have different other externalities besides co2″

    Certainly.
    Fossil fuels have had their time in the sun, by now their externalities are well-known and (someways roughly) quantified. The risks we run with them are serious and immediate. Replacement technologies should be expected to start out well-regulated according to lessons learnt from earlier mistakes and according to present knowledge, and assured that as evidence accumulates and science improves they will be better managed than fossil fuels have been. That maybe should involve some Pigouvian taxing of negative externalities associated with some of them. What else can we do? Taxing of widely accepted and endemic “bads” such as the burning of fossil fuels just makes sense.

  20. Bill
    October 22nd, 2010 at 13:54 | #20

    Small problem:- Australia produces 1.5% of global GHG emissions. Even cutting our emissions to zero will have no measurable effect on any aspect of the climate.

    Unless you can persuade China, US, India, and the rest of the developing world to do the same, investing 2 yrs GDP growth in this crusade is entirely useless.

    How many economic degrees will you need to learn that?

  21. Fran Barlow
    October 22nd, 2010 at 14:19 | #21

    Bill said:

    Unless you can persuade China, US, India, and the rest of the developing world to do the same, investing 2 yrs GDP growth in this crusade is entirely useless.

    This claim is repeatedly made but it is nonsense every time it comes up. Firstly and most obviously, not all of the benefit of Australia decarbonising depends on the whole world decarbonising. Australia gets a cleaner environment and is less exposed to the pernicious influence of price volatility in oil markets. It gets to sell a greater proportion of its coal and gas. Redesigning cities to reduce the dependence of the citizens on motor vehicle transport saves them money and time and is likely to make the cost of infrastructure easier to bear.

    Those are tangible goods whether the rest of the world decarbonises or not. Indeed, it may be better in the short run in one sense if they don’t since the value of those coal and gas assets right up until they are exhausted will be greater, putting aside of course the catastriophic implications for all humanity of that course.

    Of course the other benefit — and it is an intangible one — is that if Australia decarbonsises successfully, or more precisely, if it starts decarbonising, then its ability to show that this is possible and we are serious is enhanced, and that makes it politically easier for other states who are not doing enough to argue within their own jurisidictions for more.

    Finally, it isn’t so that other countries like India and China are doing less than Australia in reducing carbon intensity. They are actually doing more, despite the fact that the legacy of damage associated with Australia’s pattern of development during the 2OthC was much greater than either of these jurisdictions and that we still emit more per capita.

  22. Chris O’Neill
    October 24th, 2010 at 11:25 | #22

    Proffesor Q:

    I’m going to assume that both sides are right in their most pessimistic estimates of the other technology. That is, I’m going to look at the implications of assuming that a low-carbon electricity generation (mainly carbon-free with some gas) will imply average costs of $200/MWh.

    No, that’s not the most pessimistic cost estimate of using wind energy. It’s the most pessimistic estimate of using wind energy as long as its capacity does not exceed the minimum demand. In this case it can only supply between 10% and 20% of total MWh. $200/MWh is the estimate without using storage and without wasting capacity.

  23. Ernestine Gross
    October 24th, 2010 at 12:28 | #23

    Chris O’Neill, what happened to the other parts of “the other technology”, namely hydro, and solar, to name two major parts of the other technology besides wind?

  24. jquiggin
    October 24th, 2010 at 12:58 | #24

    @Chris O’Neill

    On the contrary, high estimates of the cost of windpower include large allowances for wasted excess power, while ignoring the point that exactly the same problem arises for “always on” sources such as coal and nuclear. If you didn’t take these factors into account $200/MWh would not just be pessimistic, it would be absurdly high.

  25. Ernestine Gross
    October 24th, 2010 at 13:54 | #25

    @Tim Macknay

    Sorry, I overlooked your comment. The point I wanted to make is that the term climate change is also used in some branches of earth sciences concerned with very long time periods – millions of years. The site I referenced includes an example. I am sure you know that, too.

  26. Chris O’Neill
    October 24th, 2010 at 15:17 | #26

    @Ernestine Gross

    Chris O’Neill, what happened to the other parts of “the other technology”, namely hydro, and solar, to name two major parts of the other technology besides wind?

    As we all know, there is a limited amount of hydro available. Hydroelectricity accounts for 6.5-7% of Australian electricity generation and I think most of that is in Tasmania. Sure it will be increased with a higher price for electricity but I doubt it would ever supply more than 10% of energy on the mainland.

    Solar has an even lower average output/capacity ratio than wind, so it will be capable of supplying less energy than wind without wasting capacity.

  27. Ronald Brak
    October 24th, 2010 at 16:35 | #27

    If the problem of low solar capacity was fixed the world would save billions in lighting costs.

  28. Ernestine Gross
    October 24th, 2010 at 16:37 | #28

    Ronald Brak :If the problem of low solar capacity was fixed the world would save billions in lighting costs.

    Good one.

  29. Chris O’Neill
    October 24th, 2010 at 17:23 | #29

    @jquiggin

    On the contrary, high estimates of the cost of windpower include large allowances for wasted excess power,

    How large are these allowances? The cost would be very dependent on how much capacity is at risk of being wasted. There has been no need for such allowances so far because wind capacity is still within the minimum demand, even in South Australia. I would be very surprised if much allowance has been made for wasted power because at the present time that is hypothetical.

    while ignoring the point that exactly the same problem arises for “always on” sources such as coal and nuclear.

    With exactly the same used capacity, these other sources supply a lot more energy than wind. So the generating capital in wind is used a lot less efficiently than in the other sources. These other sources can also be relied upon to generate their capacity during peak load while wind cannot. Thus wind provides little, if any, relief from the capital cost of supplying peak demand but the others do.

    If you didn’t take these factors into account $200/MWh would not just be pessimistic, it would be absurdly high.

    I don’t think the US$149.3/MWh cost here includes a large allowance for wasted excess power.

  30. Ronald Brak
    October 24th, 2010 at 21:19 | #30

    If people are interested in the cost of wind power in say South Australia, they could look up the average wholesale price of SA electricity and add the subsidy to it. This gives a figure at which people are currently happy to build wind capacity. Off the top of my head I think the figures are roughly 7.5 cents and 3.5 cents a kilowatt-hour. This gives about 11 cents a kilowatt-hour or $110 a megawatt-hour.

  31. Ronald Brak
    October 24th, 2010 at 23:33 | #31

    Now that I think about it, people are willing to build wind capacity in SA for a bit less than the average wholesale price plus the subsidy.

  32. Hermit
    October 25th, 2010 at 06:57 | #32

    @Ronald Brak
    After the usual heatwaves AEMO point out that SA wind farms produces only about 8% of their nominated capacity. That means that the power has to be imported from interstate or the gas fired generators maxed out. It could also be why ETSA wants to remotely switch off home air conditioners in an odds and evens system.

    Rann wants to go for gold taking SA nameplate wind capacity to over 1,000 MW and he thinks the eastern states should kick in for extra transmission. I don’t think the incentive is the 4 or 5c per kwh of the Renewable Energy Certificates so much as the ~20% national quota for RE. Thousands of kilometres of new transmission line criss crossing the landscape and spoiling the view. Wind turbines that don’t put in when they are most needed. This represents an extraordinary sacrifice for an 80% non-solution.

  33. BilB
    October 25th, 2010 at 08:24 | #33

    Hermit, as Ronald Brak pointed out to you wind is costed out on what it does produce, not what it doesn’t. There is no sacrafice.

  34. Ronald Brak
    October 25th, 2010 at 11:17 | #34

    If only the problem of wind intermittency was solved the world could save billions in drying costs.

  35. Hermit
    October 25th, 2010 at 13:02 | #35

    wind is costed out on what it does produce, not what it doesn’t

    How come in both US and Europe windpower is sometimes sold for ‘negative prices’? That is to keep the subsidy coming the wind operator pays customers to take it away. An even better question is how come a simple carbon cap isn’t enough to compete with other forms of generation? In Australia we have RECs, in the US the production tax credit and in Europe the feed-in tariff or renewables obligation. A simple CO2 benchmark should see coal burners looking for other power sources with no need for anybody to be paid subsidies.

  36. Ronald Brak
    October 25th, 2010 at 13:32 | #36

    Hermit, there can be charges on dumping electricity on the grid to prevent people using it as a big resistor. But it’s levied by whoever is running the grid. Customers never buy a negative kilowatt-hour of electricity and if anyone ever offers to sell you I wouldn’t recommend buying it.

    On your second question, I’m not sure what a simple carbon cap is, but putting a price on CO2 emissions is the most efficient way to reduce carbon emissions in the electricity sector.

  37. OldSkeptic
    October 31st, 2010 at 13:09 | #37

    There is another factor not often considered in the ‘coal vs other’ arguments. We can pretty reliably expect coal prices to rise in real terms into the future.

    There are a number of factors.

    Firstly the price of coal is intimately tied to the price of oil, especially that which comes from remoter areas. The energy used in extraction and shipping mostly comes from diesel and heavy oil for ships.

    Now of course there is room for substitution to gas or electricity, but not for ships. Plus the cost of diesel would have to go up a lot to justify the capital cost.

    Secondly coal is running out, especially the high quality stuff. The Energy Watch Group did a report on coal that indicated that the US may have peaked in high quality coal production (http://www.energywatchgroup.org/Startseite.14+M5d637b1e38d.0.html).

    As for Australia there are (according to the BP Energy Revue, 2010) has 36.8B tonnes of Anthracite/bituminous (high quality in NSW and QLD) and 39.4B tonnes of sub-bit/lignite (poor or brown coal VIC & SA) in reserves, 76.2B in total.

    Now according to ABARE we produced 438M tonnes in 2008/09 of block coal and 65M of brown coal. All exports were black coal. At those production levels there are 84 years left.

    But, in doing so there would be nothing left of the Hunter Valley and you get into diminishing returns. You would expect the last 15B or so tonnes of reserves would get pretty expensive to extract. Then there is growth. Since 2000 growth has averaged 3% p.a.. Just on that alone the black coal runs out in 42 years. There are also the issues with coal seam gas and loss of agricultural land, which might lock away a lot of possible coal reserves.

    So realistically you would expect black coal costs (and hence prices) to start rising rapidly by at least the halfway depletion point, about 18.4B, which we would hit in 27 years. International issues will, of course, affect this. If, indeed the US has hit its peak of black coal production and China is somewhere there, then prices could easily start climbing rapidly much earlier.

    Note Australia domestic consumption is rising faster (at about 3.5% p.a.) than production.. Therefore (this is the export land model) there is going to be pressure on what is available for export and what the domestic price will be.

    At some point the cost of electricity from other sources (nuclear, solar, etc) will be cheaper than from black coal and this day may be a lot closer than we think, sometimes in the next 5-20 years is my guess, depending on the source (nuclear is probably the first, followed by wind and solar, then others after that). After that point alternatives become increasingly cheaper relative to coal.

    Now there is also brown coal as used in Vic/SA, but to switch NSW & Qld over to that would be expensive in capital expenditure and prices (shipping costs plus the lower energy quality) and if there is (inevitably) some sort of CO2 price then brown coal gets hit very hard.

    Therefore, from a pure economic point of view, to maximise Australia’s export income from coal and isolate the economy from ever increasing electricity prices, it needs to reduce its own consumption very quickly.

  38. OldSkeptic
    October 31st, 2010 at 18:50 | #38

    I should add – Danger, Danger Will Robinson. Are we facing an electricity crunch.

    Looking at ABARE’s numbers, the trendline growth in Australian electricity means we need about 1.5GW of new capacity a year. But there is only 2.7GW of committed capacity being built over the next couple of years, barely enough to meet demand. There is another 20GM that is ‘tentative’ over the next 6 years or so, some just feasibility studies.

    Which means Watson, it could start to get ugly in 2012/13.

    Of the committed, 9% is black coal based, 23% coal seam gas (that;’s ambitious), 34% gas and 34% wind.

    Of the ‘tentative’: 6% brown coal, 6% black coal, 6% coal seam gas, 31% gas, 33% wind, 3% wave, 1% biomass, 0.3% solar (really), 1% geothermal, 13% to be determined.

    The wind numbers (which are good) , if they eventuate, take us right into the max that the grid can handle (roughly 10%, probably less in an antiquated ancient one like ours).

    Going to get interesting folks. Note: all numbers are approximate, +/- 10% are quite feasible.

  39. Ben
    October 31st, 2010 at 20:57 | #39

    @OldSkeptic
    Why do you say that the grid can handle a maximum of 10%? Where did you get this number from?

  40. BilB
    November 1st, 2010 at 15:16 | #40

    Old news now, but current because the Nissan Leaf has just begun rolling off the assembly line. Looks really good to me.

    http://www.themotorreport.com.au/38743/nissan-leaf-electric-vehicle-revealed-coming-to-australia-in-2012

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