If 'Green' is Cheaper, Why Are Electric Rates Soaring?

Peter Smith08 Apr, 2023 3 Min Read
Dream on, Oz.

The levelized costs of electricity (LCOE) from coal was quoted at between 8 and 9 cents per kWh in 2011 by Australia’s Productivity Commission. Wind was double that at about 18 cents and solar much higher at about 45 cents. Since then electricity prices have soared and, abracadabra, the facts have shifted. Now wind and solar provide the cheapest power. I know this because Anthony Albanese, Australia’s prime minister, keeps saying so. A question springs to mind.

Why, if renewable energy is cheaper, are electricity prices across numbers of countries positively correlated with the penetration of renewables in power generation? The LCOE of alternative sources of power is supposed to bring capital costs, the useful life of assets, and the relative efficiencies of the technologies being employed, to a common basis. However, the calculations are full of art; subject to the imagination of whoever is doing the calculating. In other words, you can drive a truck through them. And this is particularly the case with technologies like wind and solar which are intermittent, intrinsically unreliable, and variously distant from the grid. How do you bring into account the need for long high-voltage transmission lines, for overbuilding, and for 100 percent backup? A short answer: you don’t.

In a deception worthy of the greatest illusionists, the costs attendant on the intermittency and unreliability of renewable energy are not sheeted home to those providing such energy. When taxpayers aren’t picking up the bill, the costs find their way into electricity prices. Hence the positive correlation between electricity prices and the penetration of renewables. It’s not hard to connect the dots.

Nasty, brutish, and short is more like it.

However, connecting dots is not appealing to politicians, activists, or boondogglers when it undermines their obsessive agenda or revenue stream. So their answer to rising electricity prices is a doubling down on installing more renewal energy and demolishing more coal power stations. This, they say, against all available evidence, will bring electricity prices down. Hard to believe, yet there it is.

Are they  gaslighting us? Not really. They mostly believe it or see too much disadvantage in not believing it. They’re deluded monomaniacs or opportunists. And, be alarmed, they’re in charge. Worth mentioning, just in case you’re also deluded and think that everything will turn out fine.

Renewable energy is insidious. It creeps up on the rich estates of traditional energy generation; a subsidized wind turbine and solar panel at a time. It takes time to run down rich estates. At first, it’s not noticeable. Coal and gas are adept and filling gaps. Decades can go by and have. Then it starts kicking in. The variable costs of wind and sun on sunny windy days fall very low. Coal, providing the cheapest energy in normal times, can’t compete. Can’t be switched on and off according to the vagaries of the weather. Eventually coal power is put out of business. Then the fun begins.

If a country is lucky enough to have lots of hydro and nuclear power (the latter banned by law in Australia, ironically, the third biggest producer and exporter of uranium) then the denouement is delayed. But there is a critical degree of penetration of wind and solar – which will differ country by country – which guarantees the onset of blackouts and, perforce, authoritarian responses by governments. Enforced power rationing will become commonplace. How long before Justin Trudeau and his ilk (to shift focus to Trudeau because he has form) will see cutting power as the way to deter dissent?

Blackout at Energy/Australia Stadium. Expect many more.

Australia is very close to the critical point of serial blackouts. The federal government intends bringing the contribution of renewables to a staggering 82 percent of electricity generation by 2030. Accordingly, wind and solar must replace 75 percent of the electricity now generated by coal and gas. Though utterly infeasible, this exercise in self-ruin, will wreck the reliability of power generation long before 2030. Gas supplies are running down and new developments are stymied. Since 2016, 2.8 GW of coal power has been shut down. Liddell (1.5 GW currently) will shut at the end of April. Eraring (2.9 GW), the largest of Australia’s coal power stations, is due for early closure in 2025. More closures are on the way.

Blackouts are coming, warns the Australian Energy Market Operator. And way before governments in Australia are in position to ration power to nearly the extent that will inevitably be required. Smart meters take time to force on folk. Blackouts first before desperate measures kick in. Such fun.

After a career in economics, banking and payment-systems management, Peter Smith now blogs on the topics of the day. He writes for Quadrant, Australia’s leading conservative online site and magazine. He has written Bad Economics, of which, he notes, there is much.


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2 comments on “If 'Green' is Cheaper, Why Are Electric Rates Soaring?”

  1. It is a shame not to mention the Iron Triangle of Power Supply which proves that no amount of wind and solar power capacity will be any good on windless nights and the grid will go black unless there is an adequate supply of conventional power.
    This is a simple demonstration that wind power will not work due to the need for continuous input the grid, the interruption of wind power by wind droughts, and the lack of storage at the scale required to bridge the gaps.

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