Low-carbon electricity future: the big picture
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.