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Renewable energy targets raise base-load costs, driving it out of the market

By Geoff Carmody - posted Friday, 29 June 2018

There are many ways to quantify effects of renewables on overall power costs. Assume all costs required for reliable renewables, plus cost increases as base-load power becomes intermittent, are reflected in average overall power costs. We can compile all-up power cost increases for various base-load, plus renewables, power mixes. The chart below assumes the average starting cost for power capacity is $50/MWh for 'base-load', and only 75% of that for renewables.

The chart above shows results for different RETs:

  • 25% RET: power costs up 25% (wind) or 128% (solar), including a 33% increase in base-load costs.
  • 50% RET: power costs up 132% (wind) or 412% (solar), including a 100% increase in base-load costs.
  • 75% RET: power costs up 254% (wind) or 695% (solar), including a 300% increase in base-load costs.
  • 95% RET: power costs up 352% (wind) or 922% (solar), including a 1,900% increase in base-load costs.

Using the black hole analogy, where are our base-load power cost 'event horizons'? These depend on assumed starting point power costs. Define any 'event horizon' as the RET share where base-load costs exceed total reliable renewables costs. On the starting assumptions in the chart above ($50/MWh for base-load, and $37.50/MWh for renewables):

  • For wind, a RET of 47-48% is base-load power's wind cost 'event horizon'. Power costs increase for all RETs.
  • For solar, a RET of 85-86% is base-load power's solar cost 'event horizon'. Power costs increase for all RETs.

I'm told black holes are nasty. Their gravity stretches us into 'spaghetti' as we near their 'singularities'. Best avoid RET power black holes too. They could end up 'stretching' Australian power affordability a lot. The 'good' news (?) is that, in the example used here, if we get to 100% renewables, power cost increases are 'capped' at 'only' about 277% (wind), or 878% (solar), or 577% (unweighted average of both). While very high, these increases are a lot less than infinity. At the 100% end-point of the RET policy push, the black hole/'singularity' analogy – like all analogies – breaks down.

At any RET value, including 100%, how much will our stretched energy budgets reduce global emissions, as others avoid their power black holes? As much as the volume occupied by the 'singularity' at the centre of a real black hole.

For all the cost, effort, and energy market disruption RETs entail for Australia, that's very small beer indeed.

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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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