Expensive “free energy”

Blowing away money – 3

Free energy comes at a stiff price

For a free energy source wind promises to be extremely expensive to harness, but just how expensive is impossible to say with any real accuracy.

On the one hand activists can point to any number of theoretical studies that supplying 20 per cent of an electricity network’s energy from wind will increase the total wholesale cost of electricity by just 10 per cent. That works out to electricity from wind projects costing 50 per cent more than conventional power.

As wholesale power prices account for about 40 per cent of the power bill in Australia, that hopeful result should translate to 4 per cent increase on our energy bills, in return for 20 per cent of our power being sourced from clean and green power. Unfortunately, like almost everything else in alternative energy, there may be a vast difference between theoretical studies by what amount to activists, and reality. Engineers who do the same exercise calculate that wind project cost double that of fossil-fuel power, then there are the even grimmer conclusions contained in a report by the Rheinisch-Westfalisches Institut fur Wirtschaftsforschung (a leading economic research institute based in Essen) issued in October 2009.

Entitled, Economic impacts from the promotion of renewable energies: The German Experience, the report authors estimate that retail distributors of power in Germany pay wind farms three times the going wholesale rate for power (through the mechanism of “feed-in tariffs”). Despite that colossal subsidy, the report also estimates that only about 6.3 per cent of total power consumption is supplied by wind, and that addition boosts retail electricity prices by 7.5 per cent.

Like much else with wind studies it’s not clear exactly what the report authors are taking into account when calculating costs, but they do not seem to include the cost of building transmission lines out to remote areas, the costs of backing up wind with conventional power, or the additional costs that must be paid to reconfigure the network discussed in previous articles. These may easily double the costs of dealing with wind, but without detailed investigation it is difficult to be sure. Another addition to the costs of wind is that, as noted in the previous article, the realities of managing a grid means that wind generators will never replace any fossil fuel plant capacity. Grid managers must plan for hot, calm days.

Another report or critique on a real world system is by a conservative think tank in Denmark, the Center for Politiske Studier (Centre for Political Studies or CEPOS) produced in September 2009. This report estimates that Denmark produces the equivalent of about 19 per cent of its electricity demand with wind turbines, but only about half of that is used locally. The rest is exported to Sweden, Norway and Germany through connections to the national grids, and those countries use the energy to pump water uphill into their major hydroelectric dams. This is the only way to store electricity on a power station scale. As well as having lots of dams, those national grids are much larger than the Danish network and so can absorb the additional power easily.

Although wind power indirectly saves some emissions in Denmark because it can be stored in dams in other countries (again, additional reserve requirements and losses through retailoring the network are not discussed), the report estimates that the cost per tonne of CO2 is 87 Euros or $US124, or more than six times the price of carbon on the ETS at the time of the report. Danish domestic electricity prices are among the highest in the European Union, although this is not strictly the result of wind power. Commercial and industrial prices are deliberately kept down to make industry competitive with the rest of Europe.

Activists confronted with these inconvenient truths of very high prices for wind dismiss the Danish report as being from a conservative body, so what else would you expect it to say, and point out that the German report also says that the economic centre approves of wind. So what’s the problem? This sort of illogicality underlines the central premise of this series of articles that wind energy is a political movement and wind towers are political symbols. Just as the carbon tax proposed by the Gillard Government is far more about placating green groups allied with the government than it is about saving carbon, so wind generators are more about reassuring activists and some voters that their concerns are being taken seriously. Savings of carbon would be nice, if they do occur, but are not really the point.

So far the public has tolerated this political symbolism, but they are already paying a lot more for electricity, with recent price increases having little to do with alternative energy to date, and their toleration will stop short of paying vast, additional subsidies for wind energy.

A check of the figures for the consumer price index and a separate index for electricity prices compiled by the Australian Bureau of Statistics, shows that the two indices were moving almost in lock step until mid-2007, or a few months before the election of the Rudd Government. Since then they have diverged sharply with the CPI increasing by perhaps 10 per cent in three years, but in the same period the electricity sub-index increased 50 per cent.

A part of the early price hikes was due to the cost of water increasing during the drought. Conventional power stations burn fossil fuel to turn water into steam to drive turbines, so they also require a lot of water. The drought has ended, but other factors have emerged to keep pushing the price up. These factors need not concern us much here but can be identified from the reports produced by various state authorities, which are required to justify price increases in most states, and through discussions with electricity industry executives.

These include replacing aging and obsolete assets after long periods of neglect and under investment by state government controlled authorities, tougher conditions for network security and reliability and costs of expanding networks to cater for increased population. Related to those factors is the ongoing deregulation of the market, still far from complete, and the newly liberated power authorities having the ability to raise prices.

But by far the most important reason given is the need to build capacity, and strengthen the networks, to cope for peak demand – notably to keep air conditioners going on a few, very hot days each year, particularly as many more consumers have air conditioners. The Queensland Household Energy Survey 2010 released in October last year reported that 72 per cent of state electricity consumers now have air-conditioners, compared with 23 per cent in 1999. The trends in other states would be similar.

Whatever consumers may make of those reasons, there are more price increases to come. A report by the Independent Pricing and Regulatory Authority of NSW (IPART) in April of last year estimated that prices will increase a additional 20 to 46 per cent over the next three years, without any action against carbon. Variations on the same story can be told for each of the states.

Green groups and those advocating alternative power projects of one sort of another, point out that the electricity price increases to date are the equivalent of a carbon tax of $30 a tonne (there is no reason to doubt that figure), which consumers only found out about when they opened their electricity bills. So what is the problem with imposing a carbon tax of, say, $20 which may affect real changes on carbon use in industry? They may also point to a graph on page 26 of Energy in Australia 2010, compiled by the Government research agency ABARE showing that Australia’s residential and industrial electricity prices are quite cheap by world standards. The main reason for this is the presence of large reserves of easily extracted coal near the major population centres on the east coast.

So when its properly explained how lucky they have been in previous years, consumers will welcome the additional impost of green energy on top of those expected increases, right? Pigs may also fly. But to return to the question in hand, the problem of costing green electricity has been further complicated by the Government splitting the legal requirement that networks buy 20 per cent of their power from green sources by 2020 into two sections – a Small-scale Renewable Energy Scheme (SRES) and the Large-scale Renewable Energy Target (LRET).

The SRES largely involves the likes of household photovoltaics and solar powered hot water systems. Small scale PV systems have proved uniformly useless in Europe, but solar hot water services might save carbon in Australian conditions if they have been properly installed and maintained – albeit at considerable cost.

You will notice in all of this that there is no emphasis on saving carbon as such but on meeting renewable energy targets. There is no realistic calculation of just how much carbon might be saved, if any at all. As we have seen in previous articles there is real doubt on that point. Instead, a likely end result of all this activity is that the wind turbines or PV arrays will earn renewable energy certificate under the assumption that their output has been fully effective in reducing carbon. A megawatt generated by a wind farm is assumed to be a megawatt of carbon emissions saved.

Distributors will then have to buy enough of these certificates to cover 20 per cent of the power delivered to homes and businesses, or generators will have to buy them to offset their emissions – depending on how the proposed carbon tax and the existing green energy requirements will interact. Just as much carbon if not more will be produced than if the wind and alternative energy projects had not been there in the first place, but the producers and distributors have certificates stating that 20 per cent of carbon has been “saved”.

When confronted with the possibility that wind projects may be a colossal waste of time and money, activists may well brush of this trifling objection (to them) by pointing out just how many jobs will be generated by the green economy. Again like so much else in alternative energy, these hopeful pronouncements are the complete opposite to observed reality – a point to be discussed in the next article in this series.  

Mark Lawson is a senior journalist at the Australian Financial Review, who has recently launched a book, A Guide to Climate Change Lunacy – bad forecasting, terrible solutions (Connor Court). 

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See also:

Part I of “Blowing away money” is here…

Part 2 of “Blowing away money ”is here…

Part 4 of “Blowing away money” is here…