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The NEG is bad news for South Australia: But it’s good news for everybody else

Friday, 10 November 2017

“Coal is dead, long live renewables,” South Australian Premier Jay Weatherill retweeted on Thursday as a power plant that once provided a fifth of the state’s energy came crashing to the ground.

The link between SA’s high power prices, fragile electricity grid and premature closure of every coal-fired power station is yet to sink home to the Premier and his Energy Minister, Tom Koutsantonis.

On Thursday Koutsantonis reaffirmed the SA government’s opposition to the National Energy Guarantee (NEG) - a mechanism that would make electricity retailers source their electricity load in a way that ensures they have backup power alongside wind and solar. This would effectively guard against times when the wind doesn’t blow or the sun doesn’t shine.

The NEG is bad news for renewable energy producers because it removes costly subsidies paid for by consumers, and ensures regional electricity prices with higher amounts of intermittent renewable energy sources will have to payfor gas power, or batteries, or pumped hydro, or any other source of power available when the renewables fail to deliver.

It is bad news for South Australian energy prices, because of their heavily reliance on renewables.

But it is good news everyone else, since it will guarantee energy 24/7 and reduce the risk of blackouts – even in South Australia.

The NEG will also see the true cost of renewable generation become apparent. The claim that wind and solar generation are cheaper than coal or gas will finally be put to the test.

States such as SA that want more renewables, with higher and faster targets, can have them. But the reliability costs of renewables won’t be socialised on the entire system like they are today, they will be allocated to the regions where the renewables are being rolled out.

Misleading comparisons used to boost the case for renewables usually employ a measure called the Levelised Cost of Electricity (LCOE). But LCOE is only a measure of a plant’s internal costs - its capital and operating costs. It does not account for costs incurred elsewhere in the energy system, including integrating the technology into the grid, which are considerably larger for renewables than coal, and grow even larger as the amount of renewable power generation increases.

A range of economic and engineering assumptions are used, with no two studies of levelised costs being comparable due to varying assumptions, and vast debates over the validity of assumptions used.

Further, it may not always present a firming cost for intermittency, and it fails to capture the cost of integrating the intermittent output of wind turbines and PV solar panels to a stable grid, which are not insignificant.

The cost of overcoming those difficulties make up the so-called ‘hidden’ or ‘integration’ price of renewable energy. They include:

  • Back-up or profile costs: the costs of maintaining sufficient dispatchable capacity to ensure that consumers’ demand can be met when the output of intermittent resources is low.
  • Balancing costs: the costs of the ancillary services required to balance the variable and unpredictable output of intermittent resources.
  • Network cost: the costs of the additional network infrastructure needed to enable power from wind and solar resources to be transferred to consumers.

The NEG is only part of the solution, and in itself is unlike to reduce electricity prices.

By factoring in the hidden costs, it will allow us to make rational choices between energy technologies.

And it will make the big renewable energy producers cover the cost of the inconvenience and expense caused to the rest of us when their imperfect technology fails to deliver. - Nick Cater

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