Monday, October 17, 2011

What’s holding renewables back?

This article is based on a talk I presented as part of a panel "Renewable energy: the potential and the backlash" at the Climate Change/Social Change conference in Melbourne on October 1, 2011

The barriers to renewable energy are many: it’s not just a matter of the draconian new Victorian laws against wind farms: the legacy of government support for fossil fuels also hangs heavily over the renewables sector.

The Australian conservation Foundation released a study in March which revealed that for the 2010-11 year, incentives to fossil fuels, such as the failure to index the fuel excise for a decade, total over $12 billion. By contrast, climate programs attracted just over $1 billion. And this ACF figure includes $100 million for clean coal – not a real climate expenditure in most people’s view.

The fossil fuel incentives are built into the economy in an ongoing way. They are a stable environment for investment. The climate expenditure tends to be sporadic, liable to change at the whim of government.

The other legacy hanging over renewables is the privatisation of the energy sector. Prior to privatisation of Victoria’s State Electricity Commission in the 1990s, its workshops in the Latrobe Valley began building wind turbines. The project was abandoned with privatisation.

Author Sharon Beder wrote in her 2003 book Power Play that, following privatisation,
“A report commissioned by electricity distributor Origin Energy found that … Victorian brown coal plants had, to a certain extent, displaced the cleaner NSW black coal plants and SA gas plants in electricity generation. Even outside Victoria baseload electricity tends to be generated by old coal plants rather than the newer gas-fired plants that emit less carbon dioxide. The latter tend to be used for peak loads because marginal costs are higher.”

Renewables are lowering prices
The high marginal costs of gas plants are because they have to buy gas to burn, on the market. Wind turbines may have relatively high costs to construct, but their marginal cost is negligible because they need no fuel. As a result, the spot-market for energy tends to integrate wind farms whenever the wind blows, displacing the expensive peaker gas plants.

Peak loads are growing faster than overall demand, fuelled primarily by the uptake of airconditioners. This leads to higher energy prices – partly through the use of expensive peaker plants (which may only operate for a few days of the year, but charge exorbitant spot prices) and partly through upgrading the electricity distribution network to accommodate peak loads.

It is a golden opportunity for reducing demand (by energy efficiency in buildings, for example, and installing solar panels) to reduce prices. But renewable energy is also keeping prices down.

Over the last 5 years, South Australian wind power has grown to provide 20% of that state’s electricity, largely displacing their import of dirty Victorian electricity. Over that time, carbon emissions have decreased from 9.8 to 8 million tonnes CO2 equivalent, despite an overall increase in electricity use, and wholesale prices have fallen.

Clearly, renewable energy has a valuable role. It actually works, despite the years of naysaying that it is too unreliable and too expensive. In fact, renewable energy continues to become cheaper. Solar panels have now reached cost parity with coal power in some regions of Australia.

Gas is the main rival to renewables
It is becoming harder and harder to quarantine Australia from the developments in renewable energy, which the extreme anti-wind laws in Victoria are a testament to. These restrictions won’t hold new technology out forever – but that’s not an excuse to be complacent.

The battle on now is between gas and renewable energy. In the competition to displace Old King Coal, gas is the preferred option of capital. Gas is highly profitable because it’s a commodity in its own right. The “greenhouse mafia” fossil fuel lobby will use their privileged access to the corridors of power in Canberra, and as significant investment into gas generation is made it will accumulate further political and economic inertia of its own. Gas investors will fight to retain their assets.

Yet gas, as an internationally traded commodity, is going to increase in price. Choices to move to cheap gas now will not be cheap forever. And the environmental cost will grow even further as the gas industry moves into coal-seam gas and shale gas with the attendant environmental destruction.

Put bluntly, no mineral gas extraction is environmentally safe. There is too much CO2 in the air already: renewables are the only safe ecological option, and we can’t wait for price disparity to slowly bring them to the top. We have to build the support framework for renewables now.

This is where the problem arises. Despite formally approving many wind farms, and opposing the reactionary new anti-wind laws in Victoria, Labor governments (state and federal) have not yet ensured the level of support for renewables that we need.

Getting the right support mechanisms
Currently, large-scale renewables are supported by the Renewable Energy Target (RET). Renewable energy generators are awarded Renewable Energy Certificates (RECs), which they sell to generators, who then surrender a set number each year to the government to prove they are meeting the RET.

But under the Rudd government, home solar panel and hot water installations were awarded five times the number of RECs for each unit of energy generated or saved. These extra “phantom” RECs caused a glut in the market, which has not yet passed and is keeping the REC price low enough that new wind farms can’t get finance to begin construction.

The thing that renewable energy needs is certainty and stability. Previous support schemes have been altered and withdrawn with such capriciousness that it has amounted to almost as much disruption as it has provided support.

A set feed-in tariff for large scale renewables would remove the uncertainty of a fluctuating REC market. It is what is driving the rapid expansion of large scale solar and wind energy in countries like Spain: not enough, perhaps, but light years ahead of Australia.

Under the carbon price package currently in Federal parliament, the sweeteners for the Greens and the climate movement are a promise to close 2000MW of the dirtiest coal power stations, and the establishment of the Clean Energy Finance Corporation (CEFC).

The CEFC will have $11 billion to leverage finance for renewables projects. Half of this, however, will be available for projects that are not 100% renewable, potentially giving gas a role, like in the recently approved solar thermal power station to be built in Queensland – perhaps not coincidentally, in the centre of Australia’s coal seam gas fields.

The problem with the CEFC is that on commercial principles, it is likely to support the most profitable and cheapest renewable options, not necessarily the most strategically useful. Solar panels and wind turbines are great and they are necessary, but the essential link is 24-hour solar power.

Baseload solar power: the game changing technology
The Torresol Gemasolar plant in Spain concentrates the sun onto a heat receiver and stores the heat in a great tank of molten salt. The tank, like a giant thermos, only loses around 1% heat per day, and contains enough energy to run for 15 hours after the sun goes down.

This style of concentrated solar power (CSP) with heat storage would be ideal for Australia. It is currently very expensive, but the cost reduction from building one plant to the next is steep, as it is relatively simple technology, and scaling up reduces costs rapidly.

To build CSP with storage in Australia would not only provide clean energy, but even more importantly, the power of a tangible, real-life example that could not be ignored. It would change the debate irrevocably.

Activists in South Australia are now campaigning to use these two “sweeteners” in the carbon price package to call for Port Augusta to replace its coal plants with CSP. While we battle against the conservative reaction against wind power in Victoria, South Australia is set to lead the way again!

We can’t afford to be complacent. The forces mobilised against wind power are against all renewable energy when you scratch the surface. We have to overcome their resistance, but we have to keep going beyond that.

We need to develop a viable political framework for a transition into 100% renewables, not simply adding a few wind farms into the current mix. That needs strategic planning that hasn’t been seen since the electricity grid was in public ownership. It needs serious government investment, also unseen since privatisation, and to get these we will have to mobilise serious community pressure and support for the process.

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