A new international example of bad energy policy.
If a country’s goal is to decrease carbon emissions by increasing reliance on renewable energy, it only makes sense to install the new equipment in the location with the best potential — both in geography and government.
For Australia, which has a national Renewable Energy Target (RET) of 33,000 gigawatt hours of electricity generated by defined renewable sources by 2020, South Australia (SA) is that place. According to SA Treasurer Tom Koutsantonis, who is also the Energy Minister, the federal government had determined that SA is where “the best conditions for wind farms” could be found. The state government was amenable, with SA Premier Jay Wetherill promising to make Adelaide, its capital city, “the first ‘carbon neutral’ city by 2050.” The state’s RET is for 50 percent renewable energy by 2025. Wetherall, in 2014, claimed: “This new target of half of the state’s power to be generated by renewable sources will create jobs and drive capital investment and advanced manufacturing industries.”
In reality, SA has now found that talk is cheap, but renewable energy isn’t.
The decision to set a 50 percent renewable target is now being called “foolish,” by Tony Wood, an analyst at think-tank Grattan Institute, and “complete naivety and foolishness” according to Lindsay Partridge, chief executive at Brickworks, one of the nation’s leading providers of building products.
Now the largest producer of wind power, SA has enough installed capacity that, under ideal conditions, it could meet 100 percent of the current electricity demand. “However, wind generation tends to be lower at times of maximum demand,” according to the Australian Energy Regulator. “In South Australia, wind typically contributes 10 percent of its registered capacity during peaks in summer demand.” In fact, on some days, Jo Nova explains, they actually “suck electricity instead of generating it.”
Last month, SA experienced an energy crisis that the Australian, the country’s largest newspaper, blamed on “an over-reliance of untrustworthy and expensive wind and solar.” The paper warned that the federal RET “will force other states down the path taken by South Australia, which has the highest and most variable energy prices in the national electricity grid.” Nova adds: “South Australia has more ‘renewable’ wind power than anywhere else in Australia. They also have the highest electricity bills, the highest unemployment, the largest number of ‘failures to pay’ and disconnections. Coincidence?”
In July, the confluence of several factors resulted in a huge spike in electricity prices — as much as 100 times the norm.
In May, pushed out of the market by subsidized wind, SA’s last coal-fueled power plant was closed. Even before then, the Australian reported electricity prices were “at least 50 percent higher than in any other state.” According to the Australian Energy Market Operator, the average daily spot price in SA was $46.82 per megawatt hour. After the power plant was turned off: $80.47. In June: $123.10 — more than double the previous year. In July: $262.97.
Fred Moore, CEO of SA components manufacturer Alfon Engineering, addressing the electricity price hikes that are smashing small and medium business, says his latest electricity contract had increased by almost 50 percent. Until the end of May, his businesses electricity bill was about $3,000 a month and is now about $4,500 a month. He says: “I don’t know how long the company is going to be able to afford it.”
As a result of the loss of coal, when there’s no wind or sun, SA is now reliant on natural gas generation and from coal-fueled electricity being imported through a single connector from neighboring Victoria.
In part, due to a calm, cold winter (weather that is not favorable to wind farms), natural gas demand is high and so are prices. Additionally, the Heywood interconnector was in the midst of being upgraded — which lowered capacity for the coal-fueled electricity on which SA relies. Because of SA’s abandoning coal-fueled electricity generation and its increased reliance on wind, the Australian reports: “The national energy market regulator has warned that South Australia is likely to face continued price volatility and ‘significantly lower’ electricity availability.”
Then came the brutal cold snap, which caused more folks to turn on their electric heaters — thus driving up demand. The left-leaning, Labour state officials were prompted to plead for more reliable fossil-fuel-generated power. With the connector constrained, the only option was to turn on a mothballed gas-fueled power station — a very expensive exercise. The gas plant had been shut down because of what amounts to dispatch priority policies — meaning if renewable energy is available, it must get used, pushing natural gas into a back-up power source. This, combined with the subsidized wind power, made the plant unprofitable. The Australian Financial Review (AFR) explains: “Energy experts say South Australia’s heavy reliance on wind energy is compounding its problems in two ways, first by forcing the remaining baseload generators to earn more revenue in shorter periods of time when the wind isn’t blowing, and secondly by forcing baseload coal and gas generators out of the market altogether.”
Big industrial users, who are the most affected by the power crisis, are “furious about the spike in higher power prices.” According to AFR, Adelaide Brighton Cement, one of the few energy-intensive manufacturing industries still operating in South Australia, said the fluctuating price was hurting business. “As a competitor in a global market, it is essential for us to have access to the availability of uninterrupted economically competitive power.” In the Australian, Jacqui McGill, BHP’s Olympic Dam asset manager, agrees: “We operate in a global market…to be competitive globally, we need globally competitive pricing for inputs, of which energy is one.” The report adds that some major businesses in SA warn of possible shutdowns due to higher power prices — the result of a rushed transition to increased renewable energy. The Adelaide Advertiser reported: “some of the state’s biggest employers were close to temporarily closing due to surging SA electricity prices making business too expensive.” Not the job creation promised by Wetherall.
“Of course, if you were some sort of contrarian eccentric,” writes Judith Sloan, contributing economics editor for the Australian, “you could argue that escalating electricity prices, at both the wholesale and retail level, have made manufacturing in Australia increasingly uncompetitive and so the RET has indirectly contributed to the meeting of the emissions reduction target — but not in a good way.”
The SA energy crisis serves as a wake-up call and a warning to the other states, as the problem is, according to Koutsantonis, “coming to New South Wales and Victoria very soon.” But it should also, as the Financial Times reports, “provide lessons to nations rapidly increasing investment in renewables.”
Malcolm Roberts, CEO at the Australian Petroleum Production and Exploration Association, called the situation in SA a “test case” for integrating large scale renewable energy generation into the electricity grid. According to Keith Orchison, former managing director of the Electricity Supply Association of Australia (from 1991 to 2003), now retired and working as a consultant and as the publisher of Coolibah Commentary newsletter and “This is Power” blog, current policy is driven by “ideology, politicking and populism.”
Roberts added: “No technology is perfect. Coal is great for base-load power, but it’s not so great for peak demand but gas is well suited for meeting peak demand. You need gas as an insurance policy for more renewables.” Even the Clean Energy Council’s chief executive, Kane Thornton, in the AFR, “conceded conventional power generation such as gas would most likely be needed as a back-up.”
Perhaps the best explanation for SA’s energy crisis came from the Australian Energy Council, formerly the Electricity Supply Association of Australia, which called it an: “accidental experiment in how far you can push technologies such as wind and solar power in to an electricity grid before something breaks.” According to Orchison: “The council says that intermittent renewables at scale reduces carbon emissions but ultimately increases end-user prices and system reliability risks.”
On August 13, the Economist, in an article titled “It’s not easy being green,” addressed the three goals of Germany’s energy transformation: “to keep energy supply reliable; to make it affordable; and to clean it up to save the environment, with a target of cutting emissions by 95% between 1990 and 2050.” All three of which, Clemens Fuest, of the Munich-based Ifo Institute think tank, says, “will be missed.” He calls Germany “an international example for bad energy policy.” Now we can add South Australia, and, perhaps, most of Australia, as another.
This is the result, Orchison says, of “pursuing a purist view at the political expense of power reliability.”
The question remains: Will America learn from these bad examples, or will we continue down the path President Obama has pushed us onto — spending billions, achieving little environmental benefit, and raising rates on households and industry? The result of November’s election will provide the answer.
Dirk Goldhahn/Creative Commons