Prime minister Malcolm Turnbull has some front. On Monday, in the first Question Time of the parliamentary year, Turnbull was asked about the Greens’ proposal to buy back the grid and put a cap on returns to reduce prices.
Turnbull puffed himself up to his full importance:
“Mr Speaker, it’s got a certain retro aspect to it. I think we have all learnt that nationalisation and state intervention of that kind has not been successful. I know in the Greens Party they hanker for the good old times. They want to get back to the USSR but sadly that’s all over from their point of view. Happily for everybody else.”
This, from the head of a government that is proposing, against all advice, a taxpayer-funded new coal generator; is trying to stop a private company (AGL) from closing its ageing clunker (Liddell); and now wants to spend $8 billion building Snowy 2.0, and changing the market rules to justify its economics.
The Greens’ wish for a nationalised grid (shared at least by Labor in South Australia) may hark back to a generation past, but so does Turnbull’s own agenda.
There is a distinctive Soviet-era mentality that insists on a centralised solution and government intervention for the national electricity market. It doesn’t just fail to reflect modern thinking, it ignores technology developments and basic economics.
What’s more concerning is that Turnbull seems determined to turn this aspect of the energy debate into a battle between his own vanity project, Snowy 2.0, and battery storage.
This is not just borne out by the barbs between Turnbull and energy minister Josh Frydenberg and their South Australia’s counterparts over the Tesla big battery and the even bigger Tesla virtual power plant. It is coming out in commissioned reports too.
Last week, a report from consultant Marsden Jacob appeared on the website of Snowy Hydro, the gen-tailer owned by the federal government and the NSW and Victorian governments, and which Turnbull would like to buy outright. CEO Paul Broad is anxious to be in lockstep with the PM’s vision.
This report – you can find it here – is depressing for a number of reasons.
Firstly, it states that one of Snowy 2.0’s objectives is to “improve the economics of coal-fired generation.” As ITK analyst and RenewEconomy contributor David Leitch observes in this separate piece, that’s not necessarily what people want.
Further, the report acknowledges the worst fears of the critics of Snowy 2.0 – namely that as a result of its construction, emissions will likely rise, coal-fired power plants will be used more, and the roll-out of battery storage will be deferred and reduced.
You can see what the intention is here. To understand the thinking, you have to hop into the old school view of the power grid: one dominated by centralised generation and thermal power plants.
Wind and solar are dismissed throughout the report as “intermittents” (the word is used on 67 pages of the 150-page report), while decentralised generation, the phenomenon recognised by grid operators around the world, including Australia, as the future of grid supply, is brushed aside and ignored.
The paper is sloppy in the extreme in some places.
Graphs are repeatedly mislabeled or repeated. South Australia, for instance, does not have nearly 7,000MW of “intermittents” in its grid; the authors do not seem to be aware that the standard wind turbine is already above 3MW; they blame wind and solar for disrupting the grid; and they don’t seem to be aware that the 44MW solar thermal boosting plant at the Kogan Creek power station was never built.
Indeed, the report summarily dismisses solar thermal – despite a brief reference to the 150MW solar tower plant with storage to be built at Port Augusta – on the basis of its analysis of the Ivanpah plant in California, which has no storage.
“Given that the only other viable and potentially large-scale storage technology is battery storage,” it writes, it goes on to assess the relative merits of Snowy 2.0 and battery storage.
But it’s a bothersome comparison, because the Snowy 2.0 finances are not revealed, while the report cites improbably high battery storage costs.
It relies, for instance, on the 2015 battery storage cost estimates from Lazard, the investment bank which has since produced a 2016 and 2017 version where the cost of storage has fallen considerably.
Its estimates for battery storage installation costs – $1,800/kW (sic) – are probably nearly four times the cost of the recently installed Tesla big battery.
That may explain why it gets such ridiculously high estimates for the delivered cost of large-scale solar and storage: solar and storage would cost between $326/MWh (four hours storage), and up to $730/MWh (12 hours storage)
That is in contrast to the tenders received in the United States by one of that country’s biggest utilities that showed the median (mid-point) of bids for wind and storage and solar and storage at one-tenth of that price.
Granted, those US bids may have been using less storage, but that also recognises that you don’t need to turn “intermittents” into conventional base-load generators to maximise their benefit to the grid and the consumer.
It requires a different way of thinking about it. Michael Liebreich’s description of “base-cost renewables” shows where the smart thinking is heading.
But the authors clearly think it is “us or them” on battery storage. They assume that if Snowy 2.0 goes ahead, then the rollout of battery storage will be cut in half.
(Compare this to another graph where it expects more than 4,000MW of gas generation to be installed even with Snowy 2.0).
And yet it makes no effort to contemplate the roll-out of small-scale storage that the likes of the CSIRO, the network owners and the Australian Energy Market Operator see as inevitable, and which would surely affect the prospects of the $8 billion Snowy 2.0.
And here’s another aspect. What are the consumer benefits of Snowy 2.0? The modelling, with little explanation, suggests a cut in wholesale electricity prices (just one component of a consumer bill) of 3 to 5 per cent.
What are the benefits of the Tesla virtual power plant in South Australia, linking 50,000 homes with rooftop solar and battery storage? A cut in consumer bills for those in social housing of one-third, and a similar reduction in overall wholesale prices.
And, just like so many reports, the authors defend the project in question by retreating not just to old-fashioned energy concepts (the idea of distributed generation is largely dismissed), and some out-of-date technology and cost assumptions.
How could the Snowy 2.0 consultants get it so wrong? This is not the first time that Snowy 2.0 has waged war on battery storage – we highlighted a set of ridiculous assumptions that formed the basis of a Chanticleer article in the AFR last year.
It may be that there is a solid argument for Snowy 2.0 – and there are many who wish that there was, particularly if it was accompanied by a highly ambitious renewable target.
But this report is not it. It seems more concerned with stamping out competition. Turnbull, Snowy Hydro’s Paul Broad, and the consultants are going to have to do better than this.
There is potentially one redeeming part of the paper, however, and that is its defence of Snowy 2.0; not on its own economics (it doesn’t discuss them), but on so-called “market benefits” which it compares to the regulatory test used for network investments (RIT-T and RIT-D).
This actually might not be such a bad idea, and one that might be welcomed by the storage industry. As Leitch further notes in his analysis, the authors assume Snowy 2.0 is the only choice among pumped hydro.
But there are plenty of other projects around the country, excited by the research of the ANU’s Andrew Blakers and at Melbourne University.
A regulatory test – let’s call it a RIT-S – might encourage an independent regulator to weigh up the respective benefits of pumped hydro and battery storage, and of the various projects: the monolithic Snowy 2.0 (there is even talk of a Snowy 3.0 with more pumped storage); smaller pumped hydro projects scattered across the country; and distributed and large-scale battery storage.
Now that would be a test.
Giles Parkinson is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.