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.

90 thoughts on “Low-carbon electricity future: the big picture

  1. @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.

  2. @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.

  3. 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.

  4. 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.

  5. @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.

  6. 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.

  7. 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.

  8. 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.

  9. 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.

  10. 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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s