South Australia has the world’s highest electricity prices. The ABC in Australia reports on a new study. This study concludes that the impact of solar and wind energy is to reduce bills, whereas the impact of gas is to increase bills. This is perfectly correct – and perfectly misleading.
The author of the study is Professor Bruce Mountain. He says that the way to lower electricity rates is to reduce the use of fossil fuels in producing electricity. Is he right?
The meat of the study goes something like this. When the wind is blowing, wholesale electricity rates go down. This is true. There is a large amount of wind generating capability in South Australia. When the wind blows, there is competition between vendors for market share, and prices drop.
When the wind dies down, rates go up. All of the wind generators are now idle. Their place is taken by a large number of inefficient gas turbine generators producing expensive energy in the system. The solution, according to Mr. Mountain, is to reduce the amount of electricity generated by these inefficient gas turbines and increase the amount of energy purchased from wind generators.
This is a splendid solution. The South Australian government seems likely to order more wind turbines, which, when the wind stops blowing, will be quite as useless as the ones it already has.
So, why does South Australia have the world’s highest electricity rates? Why do Germany and Denmark, two countries with very different economies than Australia, also have extremely high rates? Answer: all three of them have the same renewables policy.
Background
There are basically three classes of generators to think about:
- Baseload generators (cheap power)
- Coal (and biomass) fired steam plants
- Combined-cycle gas turbine plants. These are the most efficient power plants in the world.
- Nuclear plants
- Peaking units (expensive power)
- Peaking units are normally conventional gas turbines. These turbines are not efficient
- Piston engines.
- Hydro. Most hydroelectric power is treated as peaking power. Hydro is dispatchable, but there is not enough of it to provide baseload power, so the power companies use hydro as peaking power because peaking power is more valuable than baseload power.
- Intermittent power (expensive but heavily subsidized power)
- Wind
- Solar
Baseload generators are expensive, but since they run all the time and are long-lived these expenses can be amortized, making baseload electricity far cheaper than power from peaking units. Before deregulation, utilities would build enough baseload plants to take care of power needs most of the year
Peaking units were run on very hot days when everyone had their AC on and the demand was very high. They can be fired up almost instantly. They provided an emergency reserve of power for unplanned outages and demands. Peaking units are cheap for their size, but that does not mean they are cheap compared to their power output. They come in small sizes and small generating units do not have the economies of scale like large baseload units. In addition, they are inefficient and natural gas is usually more expensive than coal. By their nature, peaking units provide expensive power to the system.
To give some idea of the costs involved, a baseload unit might provide electricity for between $30-50/mwh. A peaking unit provides power for $300-13,000/mwh. It is a big difference.
The preferred solution was to use coal for baseload power and bring on gas peaking units when needed. Where gas is cheap and plentiful, as is currently the case in the US, it can be substituted for coal.
What South Australia (and Germany, Denmark, etc.) has done is to first construct a large number of subsidized wind and solar (mostly wind) plants. They have also shut down their coal-fired baseload plants. They have not replaced them with other baseload plants.
As a result, South Australia no longer has enough baseload power. When the wind dies down, the grid operator tries to find enough power to prevent a blackout, so expensive peaking units are brought on. These units can be brought on instantly, so the power does not go out, but the power bill does go up.
The governments around the world following this strategy have made no provision for what happens when the wind dies down. Their new strategy seems to be imposing blackouts on less-favored, poorer people. This is known as ‘load shedding’ and will probably be the wave of the future unless they are voted out of office.
The bitter irony in all of this is that these renewables do nothing to reduce CO2 emissions, which is the ultimate reason given for them. Despite having over 30% renewable energy, Germany’s emissions have not gone down in the last 20 years; in fact, they are higher in 2017 than they were 1998. Remember, the peaking units are inefficient. They use far more fuel than a baseload unit.
This means that even though they only supply power when the wind dies down, the overall fuel consumption is higher than it was using baseload units. Put another way, if you scrapped the wind power and went back to utilizing baseload power, you would use less fuel, and hence have lower greenhouse emissions.
Only one country follows this strategy – the United States. The only country reducing its emissions – by switching from baseload coal to baseload gas – is also the United States. It also has the lowest-cost electricity. Australia is both a coal and a gas exporter, so both fuels are readily available. Unfortunately, in Australia gas is extremely expensive and not competitive with coal. If South Australia wishes to lower its electricity bills and reduce its greenhouse gas emissions, it should add efficient supercritical coal plants to its energy mix until it has sufficient baseload power.
