Is Snowy 2.0’s call to can coal an own-goal?

Snowy Hydro Limited has declared wind and solar are 'clearly cheaper' power options than coal. This has been reported by Ben Packham in The Australian (Friday, 18 May 2018, page 6). Snowy Hydro is reported to have said its modelling showed the following costs:

• New wind power: $70-$80/MWh, including price premiums for energy storage.
• New solar power: $77-$99/MWh, including price premiums for energy storage.
• New high efficiency, low emissions (HELE) coal generators: $78-$120/MWh.

What is the basis for these findings? One possibility is that these comparisons are between 'plate ratings' of new wind turbines, new solar panels (plus some allowance for storage in both cases) and new HELE coal plant. All new wind, solar and coal generation equipment has such a 'plate rating' or maximum generation capacity. These are expressed in MW, or some multiple or fraction of these. Similarly, batteries have rated maximum capacities, measured in MWh, or some multiple or fraction of these.

For intermittent energy, 'plate ratings' may be convenient for broad capacity comparability. Such measures avoid the need to deal with varying intermittency and uncertainty (eg, by season, latitude, weather cycle and specific location). For new HELE coal generators, this is sensible anyway because such plant can operate continuously. Over time, for all, depreciation will reduce maximum capacity as a % of 'plate rated' capacity. However, intermittency and uncertainty can't be ignored if the plan is to replace reliable fossil fuel power with intermittent renewables like wind, solar and even hydro. Continuous reliable power is needed in all cases.

Assume Snowy Hydro has allowed for intermittency and uncertainty. That means it has allowed for the multiplied generation and storage capacity needed for wind and solar to match reliability of, say, HELE coal. If so, we can estimate the cost per MWh for required wind and solar generation capacity, and the cost per MWh of required storage capacity.

Assume 2016-17 AEMO 'efficiency' (SA) of 29% capacity for wind power and 15% for solar power capacity. Assume a fixed cost of about $7.13 per MWh over a ten-year life for batteries, based on the announced cost estimates for the Victorian regional 'big battery' project. (For both, see my 17.04.18 OLO opinion piece).

Using $7.13/MWh as the battery cost, and allowing for generation and storage capacity multipliers reflecting AEMO 'efficiency' ratings for wind and solar in 2016-17, we can work back from Snowy Hydro's costs cited above to estimate costs for wind and solar generation capacity, plus storage capacity, per MWh, needed for reliable supply to offset intermittency:

• Wind: $15.24-$18.14/MWh (or $20.30-$23.20/MWh, adding storage @ 71% of generation capacity).
• Solar: $5.49-$8.79/MWh (or $11.55-$14.85/MWh, adding storage @ 85% of generation capacity).

These capacity costs look too low to be commercial. Yet they are required to ensure enough reliable generation and storage capacity is available at the $/MWh costs for wind and solar cited by Snowy Hydro. Are the Snowy Hydro wind and solar costings simply 'plate rated' capacity plus 'something' for storage?

Some might suggest Snowy Hydro is 'talking its book' by calling time on coal. Could that be an own-goal? Will 'pumped hydro' be economic, if pumping water from lower storage dams to upper dams can't rely on fossil fuel off-peak power to do the job? There are significant efficiency losses pumping water uphill to fuel the next cycle of hydro power generation. These can be 20%-30%, including pipe friction and turbine efficiency losses. These must be outweighed by bigger price differences (arbitrage) between peak power prices (when hydro power is sold) and off-peak prices (when energy is purchased to pump water uphill).

Snowy Hydro has provided an answer to this arbitrage question, according to a report by Ben Potter (Coal no match for renewables – Snowy boss) on page 9 of the Australian Financial Review for 23 May 2018. He says Snowy Hydro has modelled Snowy 2.0 on the assumption that it would pay about $50/MWh for the power it uses to pump water into the upper storages 'at times of low demand', and charge about $80-$90/MWh wholesale when it sells the energy back into the grid 'at times of high demand'. (The printed AFR version reads '$90-$90MWh', but I assume that's just poor editing, and the lower estimate should be $80/MWh.) Snowy Hydro also apparently assumes a 25% efficiency loss pumping water uphill. So Snowy Hydro is expecting an arbitrage margin of 60-80%, outweighing an efficiency loss of 25%.

Is this plausible? Maybe: