I have received several E-mails over the last few weeks that suggest that the economics…
Renewables now cheaper than fossil-fuel power generation
I do not have much time to write today. But this evening I am heading to a very exciting event in Newcastle run by – Sun Crowd. It is the first energy storage bulk-buy campaign in Australia and Newcastle is the first city to launch this initiative which will see hundreds of households go off the energy grid and rely on our copious supply of free solar energy. The bulk-buy campaign is a cooperative (not for profit) venture which allows many households to team up to achieve low cost purchases of storage batteries, panels (if you haven’t already got them) and receive technical advice to cut through the complexity of the technology. Our household, which already is ‘off the grid’ during daylight hours (thanks to our solar panels) will soon be able to store our excess electricity we generate during daylight hours and use it up at nights instead of exporting it into the national grid at ridiculously low prices (thanks to the power (excuse the pun) that the power companies have over state government policy. So we are off tonight to get a big mutha of a battery at discounted prices (due to the bulk buy) and free ourselves of the high charges the power companies. Our next step might be to set up a local community power company and generate free power co-operatively for all from the sun. So, pretty exciting. Today also marks the publication of Bloomberg’s – New Energy Outlook 2016 – which provides the latest data on the relative costs of solar/wind against coal fired power generation. The numbers are moving firmly in favour of renewables which should see many more households moving off coal-fired power in the next decade or so.
The conservative Australian government has an appalling record in dealing with climate change and is consistently
Our previous conservative Prime Minister, Tony Abbott who was deposed by his own party last year in a nasty coup as they became more desperate with the federal election pending and the government’s popularity at rock bottom, was a champion of coal-fired energy production.
As he was opening a contention new coal mine in Queensland in October 2014, Tony Abbott announced that (Source):
Coal is good for humanity, coal is good for prosperity, coal is an essential part of our economic future, here in Australia, and right around the world …
This is a sign of hope and confidence in the future of the coal industry – it’s a great industry, we’ve had a great partnership with Japan in the coal industry.
Coal is essential for the prosperity of the world.
Energy is what sustains our prosperity, and coal is the world’s principal energy source and it will be for many decades to come.
The government continues to sanction highly dubious mining projects, which will, clearly have long-term costs to our natural environment and economy.
Readers from abroad might not be up to date on the – Coral Bleaching – due to climate change and human agency along the coast that is ravaging the world famous Great Barrier Reef, one our tourist dollar magnets.
This report from the ABC (June 21, 2016) – Great Barrier Reef coral bleaching could cost $1b in lost tourism, research suggests – indicates the economic damage that is being caused
It is now understood that – Only 7% of the Great Barrier Reef has avoided coral bleaching
The conservative Australian government doesn’t seem to get it. The large coal mining projects along the coast adjacent to the reef involve the creation of port infrastructure, dredging near the reef which further damages the reef.
The proposed Carmichael mine and the related infrastructure developments at Abbot Point has not only lied about how many jobs will be created and the government subsidies that will be provided but will have extremely damaging environment impacts in the region of the Reef and on groundwater in the region (Central Queensland hinterland).
Many of the big investment banks have refused to fund the company’s development of this mine because of its environmental consequences and the shifting sentiment among the population with respect to coal.
There is also a Federal Court case at the moment challenging the decision by the Federal Environment Minister to approve the mine on the basis the approval was unlawful and didn’t properly consider the environmental impacts.
The Australian government is required to protect the World Heritage listed Great Barrier Reef and the approval of the Carmichael mine is in direct violation of that responsibility. That is what the case is about. We will see.
The Bloomberg New Energy Outlook 2016 certainly is relevant here.
What we have learned from this report and previous reports since 2013 is that fossil fuels are now becoming less economically attractive relative to renewable energy.
These results refute the standard line from the mainstream (particularly the coal lobby) that renewable energy is still too costly to think about and will not be viable in the foreseeable future.
Well, technology seems to have arrived that have lowered the costs of renewable energy to the point that it is now competitive with carbon-based sources.
In their 2013 summary of their Energy Outlook (published February 7, 2013) – Renewable energy now cheaper than new fossil fuels in Australia – Bloomberg New Energy Finance reports that when we compare coal-projects with renewables on a consistent basis, the latter win out on purely cost terms.
We learn that (as in 2013):
… that electricity can be supplied from a new wind farm at a cost of AUD 80/MWh (USD 83), compared to AUD 143/MWh from a new coal plant or AUD 116/MWh from a new baseload gas plant, including the cost of emissions under the Gillard government’s carbon pricing scheme. However even without a carbon price (the most efficient way to reduce economy-wide emissions) wind energy is 14% cheaper than new coal and 18% cheaper than new gas.
We should also add that the conservative government that followed the demise of the Gillard-Rudd Labour government scrapped the Carbon Tax as part of the debt it owed the coal lobby in taking office apart from their inherent and on-going climate change denial DNA.
Other reports from the US, for example, demonstrate the same tendency for solar/wind to be cheaper than coal (Source)
And I do not need to remind anyone that the cost-benefit ratios are biased towards fossil-fuels because governments do not correct the market failure that sees the environmental costs (the so-called ‘externalities’) properly priced into the production of coal-based electricity.
In 2015, the IMF published a Working Paper (WP/15/05) – How Large Are Global Energy Subsidies? – which sought to calculate the extent to which carbon-based energy production is escaping the full costs of production because either:
1. “Pre-tax consumer subsidies arise when the price paid by consumers (that is, firms and households) is below the cost of supplying energy”.
2. “Post-tax consumer subsidies arise when the price paid by consumers is below the supply cost of energy plus an appropriate “Pigouvian” (or “corrective”) tax that reflects the environmental damage associated with energy consumption and an additional consumption tax that should be applied to all consumption goods for raising revenues”.
The IMF found that:
Post-tax energy subsidies are dramatically higher than previously estimated-$4.9 trillion (6.5 percent of global GDP) in 2013, and projected to reach $5.3 trillion (6.5 percent of global GDP) in 2015 …
Among different energy products, coal accounts for the biggest subsidies, given its high environmental damage and because (unlike for road fuels) no country imposes meaningful excises on its consumption …
Most energy subsidies arise from the failure to adequately charge for the cost of domestic environmental damage-only about one-quarter of the total is from climate change-so unilateral reform of energy subsidies is mostly in countries’ own interests, although global coordination could strengthen such efforts.
The latest Bloomberg New Energy Outlook 2016 was produced in the environment of cheaper coal and cheaper gas but they conclude that these trends:
… will not derail the transformation and decarbonisation of the world’s power systems … by 2040, 60% of the global power capacity will come from zero-emission energy sources.
They predict that:
1. “Onshore wind will fall 41% by 2040 … … and solar by 60%”.
2. “This means these two technologies will be the cheapest ways of producing electricity in many countries during the 2020s and in most of the world in the 2030s.”
3. Most of the new investment will be in the Asia-Pacific region “which will add as much capacity in the next 25 years as the rest of the world combined.”
4. “…and half of that will be built in China, which despite its current slow-down will attract $2.8 trillion of new investment. Around 73% of capacity additions in China will be renewables. Coal capacity peaks in 2020 and coal generation in 2025.”
However, unfortunately (due to India and other developing countries), “fossil fuels will maintain a 44% share of generation in 2040 – down from two-thirds in 2015”. This is because “climate change policies” are “weak or yet to be implemented”.
For those who like discussions about mathematics (and there relevance to climate change), this Bloomberg article (June 20, 2016) – With Climate Change, Doing the Math Matters – is interesting.
In part, it draws on a recent article that appeared in Chaos, an Interdisciplinary Journal of Nonlinear Science – Evaluating gambles using dynamics – that reports on the research by two physics researchers on whether gambles (bets) work in additive or multiplicative ways and what the implications are of each.
The research findings basically scuttle the traditional approach still used by mainstream economists to evaluate topics such as environmental damage and climate change.
The results show that standard ‘utility theory’ which uses “Utility functions” which “aim to capture individual psychological characteristics” have no application in real world settings where ergodicity (probabilistic stability) is absent.
Essentially, they say that decision-making based on the mainstream economics framework leads to wrong decisions because multiplicity rules so that small impacts expand over time to become huge (losses or gains).
The results suggest that mainstream claims that new coal-fired power stations will be economically viable are likely to be invalid.
Bloomberg believes that the creation of “new coal-fired power stations … in Australia … are just too expensive now, compared to renewables”.
The problem remaining that renewables still cannot compete (on economic grounds) with “old assets that have already been paid off”, which means that regulative regimes have to put those old assets out of business rather than relying on the inevitable market forces which will lead to the same result but in decades to come.
That environmental damage is multiplicative tells us that we cannot wait for decades.
I am acting tonight!
MMT Interview – Valencia, May 11, 2016
The following video was recorded by Attac-TV at the Centre Cultural La Nau – Universitat de València, which was built in 1497.
The interview took place on May 11, 2016 prior to my evening presentation at the University.
The interviewer was Jorge Amar, who is the President of the Asociación Para el Pleno Empleo y la Estabilidad de Precios (APEEP), or Association for Full Employment and Price Stability in Spain.
The video was produced by Attac-TV although I altered the music (reggae instead of hard rock) and added English sub-titles to complement the Spanish introductions to each segment.
Thanks to Jorge and the Attac team for their work.
I think you’re wrong about what is needed to get (clapped out, obsolete, sunk capital cost) coal power to stop. You say ‘regulative regimes have to put those old assets out of business rather than relying on the inevitable market forces’. In a sense – but politically, and in substance, not so.
A big current subsidy to coal generation, among many, is forgoing environmental cleanup and rectification for the coal generators’ associated mines. But that subsidy is on very shaky ground. The requirement for set aside of resources is presently woefully inadequate: but it is around half of current (discounted) value of work known to be required, in several jurisdictions including for Victoria’s brown coal generators.
The requirements of present regulatory regimes are being waived. (In Peabody group cases, this was on the basis of the huge financial value of the Peabody group parent, currently in liquidation. In brown coal cases, there has never been an open justification for the waivers.)
Pull back from the waivers, and the worst coal generation (and coal production) stops immediately. But no better regulatory framework, no new laws, and no new principles are needed.
Of course the will is still lacking…
Bill, If you have the battery capacity, why go off grid? Why not instead sell the power at the times when electricity wholesale prices are highest?
Solar panels are fascinating – particularly the myths about them. In my northerly latitude I don’t have the winter capacity to go off grid even with storage and minimal usage.
My recent update has been to go to a plugin hybrid car, and I’m getting 50% of my mileage from sunshine now.
But what fascinated me most was that the best offset solar panels give you is if you have as many as possible as flat as possible and just pointing at the sky somewhere. We get a lot of cloud here in the UK, so the majority of output comes from diffuse light and refracted light.
And so contrary to popular opinion I have both a south east facing panel set and a north west facing panel set – both with optimisers – to ensure that I get maximum offset in the shoulder months and on cloudy days. You wouldn’t believe the trouble I had getting somebody who was prepared to fit panels pointing north west. (Which of course would be the same as getting south east pointing ones in Tasmania).
Dear Aidan Stanger (at 2016/06/23 at 3:33 pm)
The reason for going off the grid is simple. The price the energy companies pay us to export excess power we generate during the day (the feed-in tariff) is ridiculously low. They then on-sell that power at exorbitant prices including back to us after nightfall when our cells stop generating.
If they were forced to pay closer to a market rate for our power then things would be different.
But under the current circumstances (which will not change) it is better for us to store our excess power generated during the day, use it at night, and the ‘profit’ we make by avoiding dealing with the energy company pays off our hardware investment – not to mention reduces the coal usage.
best wishes
bill
Saudi Arabia is currently preparing for a non-oil future. The new prince, who has fired the oil minister he “inherited”, apparently sees the writing on the wall and also sees the need to at least partially educate his population as part preparation for this. SA also has a water problem, but they could deal with that given the accessibility of a deep sea volcanic vent. They could obtain as much fresh water as they needed for as long as they needed — no desalination required, though minerals would have to be filtered out.
New battery technology will soon make gas cars obsolete. It is reckoned that when appropriately scaled up, such batteries will enable a car to travel about 350 miles before recharging or replacement of the battery. It won’t go from zero to 60 as quickly, but so what. Dyson has invested heavily in this technology by buying the company. And he doesn’t intend to restirct their use to his vacuum cleaners. Yet you still have city councils thinking trolley buses are the way to go, even though they are environmentally damaging and the technology has been out of date for years.
I would be interested in how large and heavy this battery of yours will be.
Neil, bloody hell, why wouldn’t someone fit the panels the way you asked them to? Unless what you were asking them to do was incredibly stupid, which it obviously wasn’t. Was it one of those “We know best and the customer is at best not quite an idiot” scenarios?
Bill, as you know, Paul Davidson has attacked the ergodic axiom assumed by neoclassical economists for years. A corollary of this so-called axiom is that the present and the future will be like the past, which it so obviously isn’t and hasn’t been, except in exceptional circumstances. That it applies in classic physics scenarios is an argument for dropping it. This, along with their other empirically false assumptions, enables them to solve their empirically inapplicable equations, as you have pointed out so many times. Yet they have no value for assisting in policy decisions, which is what they should be constructed for. Building a career revolving around intellectual rubbish, and seemingly in some cases deliberately so. How wasteful is that.
Breaks the heart : https://m.youtube.com/watch?v=Sg22aLe6wTM
There are some conservation projects in Australia and worldwide to help the corals cope with the higher acidity and temperature. Still i hope it’s not all too little and too late.
It’s great to finally see enthusiasm building for carbon free/carbon neutral energy technologies. I am hopeful that technologies for energy conservation will gather momentum as well. It’s pretty clear now, the cheap energy carbon delivered has allowed us to dream and build in ways that are not environmentally sustainable. Our dinosaur homes, power infrastructure, transportation modes and ways we do nearly everything will have to evolve too. We certainly shouldn’t be exporting those old ideas as any sort of example for developing nations to model their economies on.
All this, restrained need, should be steering the marketplace, and it should be helping the economy grow again.
The neo liberal era has left non currency issuing levels of government saddled with debts, deregulating, and selling the taxpayer paid power infrastructure to private corporations who will always seek to maximize their profits rather than do the right thing for the consumer and the environment. Proposed trade deals would give corporations the right to sue over any form of regulatory interference perceived to interfere with profit making.
Home power systems are a good way to put the consumer back in the driver seat of the energy marketplace. As pointed out by Neil Wilson (June 23 2016 15:54) though, what works well in some places doesn’t work well in others.
The solution for parts of the world were the sun doesn’t always shine or the wind blow, is going to be a combination of better conservation and finding the way to capture and store seasonal heat which often represents enough energy for the entire year.
There are also several more affordable ways (some commercially available already) to gain efficiencies and advantage the environment by combining home gas heating with home electricity generation which allows the consumer to disconnect from the electric grid at least. Were I live this is huge because much of the electric bill comprises of distributed fixed costs due to line losses etc billed even to those homes drawing very little energy from the grid.
Great topic, Bill. Solar has been on my mind since Tesla’s announcement yesterday of their offer to purchase Solar City. I’m in a northern climate, but have 15 hours of sunlight this month, need to take advantage. With our two electric vehicles I use twice the power as our neighbors do.
Net metering is under attack everywhere. Our state has introduced legislation to buy excess power at wholesale rates. It’s going to have two effects–one, killing off the nascent solar industry in our state, two, forcing solar diehards to go off grid as you are doing. Even if this is a temporary victory for our utilities, in the long haul they will lose unless they get on board. They should be offering rooftop solar to eligible customers, instead they are giving away the business to independent startups.
Also, the coral bleaching you speak of has definitely made the news here, halfway around the planet. It saddens me to see what we are doing to our natural resources. Have not yet been to Australia but hope to make it there to see what’s left of the reef in my lifetime.
Jorge and the Attac team did a great job!
The interview was clear and the background was unobtrusive.
The interview was very clear too.
The British public have spoken. We are leaving the EU because we have seen through all the scare stories.
We’ll have somewhat higher inflation (maybe a bit above target) for a couple of years, but I think it will all be much better by the time of the next election in 2020.
Jeff,
You underestimate the economic viability of solar power. It does not and should not depend on being paid far more than the electricity it generates is worth! That’s an extremely inefficient way to fund it, and results in higher electricity costs for consumers and businesses. If we want to encourage the industry, it’s far better to do so by giving cheap credit to anyone who wants to buy and install solar panels.
Legislation to buy excess power at wholesale rates is exactly what’s needed to ensure the batteries are used efficiently (converting cheap electricity from times of high supply to higher value electricity for times of high demand) rather than for the very inefficient objective of going off grid.
I am puzzeld that CBD offices that operate at prime time for making solar energy are not the first abopters of solar for lighting.
If solar was ivabe or cost competitive it would show up here first. Office block managers are allways trying to cut costs.
Bill,
It might be worth considering the setting up of a smart system and/or a neighborhood system in your case.
(A) With a “smart system” you stay on the grid. At the same time, you should also have battery storage. The smart system inverter then “decides” what to do based on programmed and detected parameters. In most situations it will;
(a) First, use solar power, when available, directly in your residence.
(b) Second, determine final imputed values for excess solar power and then decide to either store it or export it to the grid for the best financial result.
(c) Third, determine whether it is more cost-effective to make up any power deficit from the battery or the grid at any particular time.
A really smart system would even have “look-ahead”. That is to say it could decide in the afternoon that even though it might currently look attractive to feed excess power to the grid, it should, because the battery is low because of morning rain, now feed this excess to the battery, otherwise at expected evening use, determined by your established patterns of use, you will exhaust the battery and pay grid prices in the evening. It would also be quite possible to feed cloud cover / rain forecasts into a smart inverter. Thus it would know to prioritise getting the battery to full before a rain event.
(B) In a neighbourhood system, the neighborhood as an energy generation collective could share power flows between (meaning to and from) various residences. A final cooperative, a neighborhood inverter and central battery storage system could then decide to store collective excesses or draw collective shortfalls from the grid.
Figured out logically, the whole issue is a composite stocks and flows problem (with various values on various electrical/chemical energy stocks and flows) just as in economic analysis. But I am sure you realise that.