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Electricity cost dissections: do they reveal – or conceal?

By Geoff Carmody - posted Friday, 20 October 2017


So:

  • For generation, let's split sources into fossil fuel (coal, diesel, gas, etc), or renewables (solar, wind, hydro, pumped hydro, thermal solar, etc).
  • For transmission, let's split costs into (i) those exclusively attributable to fossil fuel generation; (ii) exclusively attributable to renewables; or (iii) those that can't be so apportioned, and must be regarded as 'joint' transmission costs (and split somehow between both).
  • For retail, we need to do the generation and transmission cost allocations to get a sensible overall split between fossil fuel energy sources and renewable energy sources (and maybe we end up with three categories here too: fossil fuels, renewables, and joint).

    My instincts suggest that, on this new (and I think more honest) basis:

  • Cost increases attributable to fossil fuel power supply will be much less important.
  • Cost increases attributable to renewable sources of power will be much more important.

But my instincts aren't important. In an evidence-based world (remember that?) what do the numbers say?

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Let's see them. And if we can't see them (because some claim it's 'too hard'?), are we rudderless in an energy policy sense?

Can we measure renewables versus fossil fuels costs in a more transparent way?

If we can't see the 'official' numbers – because the 'official family' claim the numbers are not available – what can we do?

Well, for a start, at the most aggregated level, we have a 'default' - rough justice - transmission/distribution/retail allocation mechanism that is a trivial calculation. But, I think, it's still superior to what's being done now:

§if we know the generation split between renewables and fossil fuel sources (and, roughly, we do, via website monitoring data),

§at the very least, why can't we use that same split for transmission/distribution/retail? They're joint products, after all (I recognise geographical complications, of course),

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§if we do so, given the actual need for new investment in transmission/distribution related especially to (often remote) large-scale renewables relative to fossil fuel energy sources, won't we still be understating the share of renewables in cost increases? So won't we still be 'pulling our punches' in terms of claims about the extra costs of renewables?

How much of the last decade or so's asserted 'gold plating' itself is a response to the rush to renewables (plus government hunger for dividends in some cases)?

But it's worse

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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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