What's the cost of CO2 emissions abatement with wind turbines?

The purpose of this recommendation is to get policy analysts and policy makers to understand the implications of CO2 abatement effectiveness with intermittent renewable energy.

If the Department of Industry, ACIL-Allen, Deloitte or Frontier Economics re-estimate the CO2 abatement cost taking the CO2 abatement cost effectiveness (e.g. from Wheatley's analysis) into account, the estimated abatement costs will be significantly higher than in the most recent estimates.

When The Treasury, Department of Finance, Department of Industry and the responsible Ministers recognise the high cost of CO2 abatement with wind power, this could be the catalyst for change. It could be the beginning of widespread recognition that the RET is a high cost way of reducing emissions and that the costs will escalate dramatically to 2020.

These cost increases will harm Australia's international competitiveness, the economy, jobs, wages and standard of living.

Below I explain the relationship between wind energy penetration, CO2 abatement effectiveness and CO2 abatement cost.

Relationship between wind energy penetration, CO2 abatement effectiveness and CO2 abatement cost

The actual CO2 abatement cost is higher than commonly estimated. In fact, the abatement cost is inversely proportional to the proportion of electricity supplied by wind power. At 80% effective the actual abatement cost would be 25% higher than the analysts' estimates if their estimates did not take effectiveness into account. At 50% effective the actual abatement cost would be twice the estimates. The chart below illustrates the relationship between effectiveness, CO2 abatement costs increase and the proportion of electricity generated by wind (80% effective is approximately correct for Australia's National Electricity Market in 2014; effectiveness at proportions of wind energy above 5% are a rough estimate for the purpose of this explanation).

Economic analyses conducted for the 2014 Renewable Energy Target (RET) Review projected that wind power will supply about 15% of Australia's electricity by 2020 if the RET legislation remains unchanged. At 15% of electricity generated by wind, international studies of other electricity grids suggests effectiveness could be nearly as low as 50%. At that rate the CO2 abatement cost would be double the estimates (if those estimates did not take effectiveness into account).