Much has been written about the contribution that wind and solar have made to Australian energy supply, especially in the recent hot spell. About 10 per cent of electricity supply comes from renewable sources, two-thirds of this being unsubsidised hydro-electricity, with one-third from wind/solar which needs subsidies to cover more than half of its costs.
During heatwave conditions in the five days to January 18 this year, wind actually contributed 3 per cent of electricity supply across the Australian National Electricity Market. Nobody knows the contribution of rooftop solar but it could not conceivably have been more than 1 per cent.
Overall, wind facilities amount to 3300 megawatts of capacity, somewhat less than the Loy Yang brown coal power stations in Victoria or Macquarie Generation's black coal facilities in the Hunter Valley. Windmills produced at an average of 23 per cent of their capacity during the January heatwave. This was below their year-long average of about 30 per cent because the hot spell, as is often the case, was characterised by still air. Fossil fuel plants are available 95 per cent of the time. Gas plants (and hydro-electricity) can be switched on and off at very short notice to fill the peaks in demand. As a result they generally earn more than the average plant on the electricity spot market.
The below-par performance of windmills in high-demand periods means they not only require a subsidy but are also less valuable than other plants because their availability is reduced when they are most needed and when the price is highest. Accordingly, windmills actually earn less on average than other plants in the electricity spot market. Indeed, during the recent heat wave, wind power earned an average of $123 per megawatt hour in Victoria and $182 in South Australia while the average price was respectively $209 and $285 in the two states.
SUBSIDIES ARE EXPENSIVE
Investments in wind and other subsidised electricity generation, according to the renewable energy lobby group the Clean Energy Council, has been $18.5 billion. By contrast, the market value of comparable generating capacity in Macquarie Generation coal plants is said to be only $2 billion and a brand-new brown coal plant of 3300 megawatt capacity would cost less than $10 billion.
Wind aficionados claim that such costings do not take into account that wind is free whereas fossil fuel plants have to pay for their energy. But that is also untrue. Wind plant maintenance is about $12 per megawatt hour which is more than the fuel plus maintenance costs of a Victorian brown coal power station.
Subsidies to renewable energy were once touted not only as a key to reducing emissions of carbon dioxide but also as paving the way to a future source of electricity that would become competitive in price and reliability with fossil fuels. After two decades of increasing subsidies, this optimism has proven to be unfounded. Instead we have seen subsidised renewable energy sucking capital into worthless investments.
On present plans, a nominal 20 per cent of electricity is to be sourced from renewables by 2020. By that year the excessive cost burden on the economy will be $5 billion a year and rising. This entails crippling subsidies paid by consumers and businesses. The imposition has been a factor in the foreshadowed plant closures of Holden, Electrolux and the aluminium smelters at Kurri Kurri and Point Henry.
Because of our readily available coal and gas Australian electricity costs are intrinsically among the lowest in the world. This was formerly crucial to attracting highly competitive energy-intensive industries like smelting. Australia could once again benefit from low-cost electricity if deregulation freed energy supply from its renewable obligations. The benefits would be especially welcomed across all agricultural and manufacturing industries that are subject to international competition.
Subsidies on existing Australian renewable plants are planned to run for 15 years. But Spain, previously the poster child of renewable subsidy excesses, has shown the way forward by eliminating all previously promised subsidies. Australia needs to abandon its own renewable schemes and allow the energy market to operate on commercial terms.