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The Net Cost of Using Renewables to Hit Australia's Climate Target? Nothing

Andrew Blakers's picture

Andrew Blakers is Professor of Engineering, Bin Lu is Ph.D. candidate and Matthew Stocks is Research Fellow, all at Australian National University.

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  • Nov 29, 2017 12:00 pm GMT

Australia can meet its 2030 greenhouse emissions target at zero net cost, according to a new analysis of a range of options for the National Electricity Market, write Andrew Blakers, Bin Lu and Matthew Stocks of Australian National University. Courtesy The Conversation.

Our modelling shows that renewable energy can help hit Australia’s emissions reduction target of 26-28% below 2005 levels by 2030 effectively for free. This is because the cost of electricity from new-build wind and solar will be cheaper than replacing old fossil fuel generators with new ones.

Currently, Australia is installing about 3 gigawatts (GW) per year of wind and solar photovoltaics (PV). This is fast enough to exceed 50% renewables in the electricity grid by 2030. It’s also fast enough to meet Australia’s entire carbon reduction target, as agreed at the 2015 Paris climate summit.

Encouragingly, the rapidly declining cost of wind and solar PV electricity means that the net cost of meeting the Paris target is roughly zero. This is because electricity from new-build wind and PV will be cheaper than from new-build coal generators; cheaper than existing gas generators; and indeed cheaper than the average wholesale price in the entire National Electricity Market, which is currently A$70-100 per megawatt-hour.

Cheapest option

Electricity from new-build wind in Australia currently costs around A$60 per MWh, while PV power costs about A$70 per MWh.

During the 2020s these prices are likely to fall still further – to below A$50 per MWh, judging by the lower-priced contracts being signed around the world, such as in Abu DhabiMexicoIndia and Chile.

In our research, published today, we modelled the all-in cost of electricity under three different scenarios:

  • Renewables: replacement of enough old coal generators by renewables to meet Australia’s Paris climate target
  • Gas: premature retirement of most existing coal plant and replacement by new gas generators to meet the Paris target. Note that gas is uncompetitive at current prices, and this scenario would require a large increase in gas use, pushing up prices still further.
  • Status quo: replacement of retiring coal generators with supercritical coal. Note that this scenario fails to meet the Paris target by a wide margin, despite having a similar cost to the renewables scenario described above, even though our modelling uses a low coal power station price.

The chart below shows the all-in cost of electricity in the 2020s under each of the three scenarios, and for three different gas prices: lower, higher, or the same as the current A$8 per gigajoule. As you can see, electricity would cost roughly the same under the renewables scenario as it would under the status quo, regardless of what happens to gas prices.

Balancing a renewable energy grid

The cost of renewables includes both the cost of energy and the cost of balancing the grid to maintain reliability. This balancing act involves using energy storage, stronger interstate high-voltage power lines, and the cost of renewable energy “spillage” on windy, sunny days when the energy stores are full.

The current cost of hourly balancing of the National Electricity Market (NEM) is low because the renewable energy fraction is small. It remains low (less than A$7 per MWh) until the renewable energy fraction rises above three-quarters.

The renewable energy fraction in 2020 will be about one-quarter, which leaves plenty of room for growth before balancing costs become significant.

The proposed Snowy 2.0 pumped hydro project would have a power generation capacity of 2GW and energy storage of 350GWh. This could provide half of the new storage capacity required to balance the NEM up to a renewable energy fraction of two-thirds.

The new storage needed over and above Snowy 2.0 is 2GW of power with 12GWh of storage (enough to provide six hours of demand). This could come from a mix of pumped hydro, batteries and demand management.

Stability and reliability

Most of Australia’s fossil fuel generators will reach the end of their technical lifetimes within 20 years. In our “renewables” scenario detailed above, five coal-fired power stations would be retired early, by an average of five years. In contrast, meeting the Paris targets by substituting gas for coal requires 10 coal stations to close early, by an average of 11 years.

Under the renewables scenario, the grid will still be highly reliable. That’s because it will have a diverse mix of generators: PV (26GW), wind (24GW), coal (9GW), gas (5GW), pumped hydro storage (5GW) and existing hydro and bioenergy (8GW). Many of these assets can be used in ways that help to deliver other services that are vital for grid stability, such as spinning reserve and voltage management.

Because a renewable electricity system comprises thousands of small generators spread over a million square kilometres, sudden shocks to the electricity system from generator failure, such as occur regularly with ageing large coal generators, are unlikely.

Neither does cloudy or calm weather cause shocks, because weather is predictable and a given weather system can take several days to move over the Australian continent. Strengthened interstate interconnections (part of the cost of balancing) reduce the impact of transmission failure, which was the prime cause of the 2016 South Australian blackout.

Since 2015, Australia has tripled the annual deployment rate of new wind and PV generation capacity. Continuing at this rate until 2030 will let us meet our entire Paris carbon target in the electricity sector, all while replacing retiring coal generators, maintaining high grid stability, and stabilising electricity prices.

By  and 

Andrew Blakers is Professor of Engineering, Bin Lu is Ph.D. candidate and Matthew Stocks is Research Fellow, all at Australian National University.

This article was first published on The Conversation and is republished here with permission.

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Nathan Wilson's picture
Nathan Wilson on Nov 29, 2017

It’s good to see a proposal for a non-fossil based electric grid that is actually pretty well thought out and plausible. The study was done in enough detail that we can gain insight into such systems, beyond the shameless cheer-leading of the TEC article.

Some important features of the proposed system are missing in many such proposals:
– the PV is put in sunny locations (i.e. nearly the whole country is a desert).
– the windfarms are put in windy locations (41% capacity factor is expected at coastal windfarms).
– the storage is closed-loop pumped hydro, built on hills.
– the storage is big: 46% of peak demand in wind-rich system, 69% of peak demand with wind/PV balanced.
– the storage is deep: around 31 hours average for a typical case.
– high capacity long distance transmission connects areas 1000 miles apart into a single balancing area.

One conclusion they draw that may surprise some is that the average cost of electricity in their system is predicted to be 40-70% higher than the levelized cost of wind and solar, due to the need to convert these intermittent power sources into reliable power. This will be disappointing to people who buy rooftop PV systems with the expectation that their utility should firm and time-shift their electricity for free.

An inconvenient truth that they ignore, but which is clear from the data is that minimum cost is achieved with a mix of coal, gas, and renewables. It turns out dispatchable generation does not have to compete with the average cost of renewables, but rather the marginal cost of renewables plus balancing, and that cost will get high very rapidly as renewable penetration reaches around 60%. So that the A$93/MWh average cost of electricity from the all-renewable system is really A$65/MWh at low penetration, and the marginal cost of the next MWh more than doubles as the system becomes mostly renewable, uses lots of storage, and incur growing spillage. That will make it easy for fossil fuel to maintain its market share around 40%.

Their pumped hydro cost is about A$4/W for a 31 hour system (US$2.2/W), so we can realistically expect fossil gas to gain market share in a renewable-rich Australian grid, given the low $1/W capital cost, and economical operation in the low capacity factor backup role. The authors seem to be in denial about this.

But marginal cost aside, the largest barrier to realization of an all renewable Australian grid is the same root cause of their rejection of nuclear power: a powerful coal industry.

Roger Arnold's picture
Roger Arnold on Nov 30, 2017

If this study is valid, then it’s wonderful news for Australia. However, I find myself more than a little skeptical.

The cost of renewables includes both the cost of energy and the cost of balancing the grid to maintain reliability.

It certainly does — or should. But this study’s conclusions are at sharp variance with other studies I recall reading, so I have to wonder about the accounting.

This balancing act involves using energy storage, stronger interstate high-voltage power lines, and the cost of renewable energy “spillage” on windy, sunny days when the energy stores are full.

Indeed. A great deal of new long distance transmission capacity and a great deal of storage, I believe. Plus substantial overbuilding combined with a lot of curtailment in order to keep the transmission and storage requirements tenable.

I’m not saying that the study isn’t valid. It might be, but its claimed results are unexpected. I’d need to know a lot more about the models and data used before I would buy into it. It’s not as if it would be the first time that academics with little experience in the power industry have put bad assumptions into their models.

Engineer- Poet's picture
Engineer- Poet on Nov 30, 2017

This is because the cost of electricity from new-build wind and solar will be cheaper than replacing old fossil fuel generators with new ones.

Except you forgot one thing:  you MUST have dispatchable generation to fill in when your unreliables fail to produce.  You’re going to be replacing those generators anyway, and not with wind and solar.  You’re going to be paying twice.

It’s also fast enough to meet Australia’s entire carbon reduction target

Which is going to get more and more expensive as those targets get more stringent, because the cost of filling in for gaps gets greater as the gaps get more frequent and deeper due to the fraction of unreliable generation going up.

Electricity from new-build wind in Australia currently costs around A$60 per MWh, while PV power costs about A$70 per MWh.

This is LCOE (Levelized Cost of Energy)… meaning it’s a lie.

The only marginally valid metric to evaluate the unreliables is LACE, Levelized Avoided Cost of Energy.  Kilowatt-hours when you don’t need them are worthless no matter how cheap they are; unavailable kWh when you need them are worth as much as dollars apiece.  Non-dispatchable power is only worth as much as the cost it avoids, and that avoided cost is already heading toward zero.

Nathan Wilson's picture
Nathan Wilson on Dec 2, 2017

If this study is valid …

I think the value of the study is the calculations on the amount of storage and transmission needed to satisfy load. The financial part is certainly bogus.

Their transmission system is costed as a single HVDC line (which kills the whole continental grid if it fails). A real system would need be a “grid”, with multiple routes to any source or load. These 100s of miles long lines are only cost effective if they are high power (5+ GW) and well utilized. So a redundant linkage likely gives them more capacity than they can fill with demand.

The basis for comparison, rapid coal plant replacements, is unrealistic. The renewable conversion has the disadvantage of large capital expenses, all at once, and again every 25 years; the coal system does not have these problems. In the old days, technology (efficiency) was improving quickly and fuel was expensive, so it was economical to quickly replace old plants. Modern plants which have already been upgraded to reduce pollution will likely get the minor maintenance needed to extend plant lifetimes past the initial 40-50 year “technical life”.

Adding variable renewables to an existing coal-fired generation fleet always makes electricity more expensive, because the fuel savings alone is not enough to pay for renewable electricity that is added. When storage is added, the economics get even worse.

The assumptions regarding Australian fossil gas prices are also suspect. They assume that Australian users will continue to pay triple what US gas users pay. Most Australian gas gets exported, so local prices are linked to those in Japan. This paper cites an old government report that affirms this. But nowadays, the US gas export industry is expected to grow to match the size of Australia’s, and it will compete in the same markets, so it seems to me that gas prices in the US and Australia must converge: either they will pay less, or we’ll pay more.

Cheaper gas in Australia would mean they would need fewer coal fired plants (replacing them with cheaper gas peakers), but the coal they kept would have higher capacity factors and thus more economical operation. This reduces the cost (and emissions) of business as usual.

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