23 February 2018

Renewables have brought rising costs, unreliability and puny results


At a February 2000 press conference, the first man to walk on the moon announced the National Academy of Engineering’s twenty most significant engineering achievements of the twentieth century. The aeroplane took third place; the automobile second; in first, the vast networks of electricity that power the developed world. None of the other nineteen would have been possible without electricity, Neil Armstrong declared. “If anything shines as an example of how engineering changed the world during the twentieth century,” he said, “it is certainly the power we use in our homes and businesses.”

The twentieth century’s bequest of cheap, reliable electrical energy is now being undone. For the past decade or so, Australia and other industrialised countries have been conducting a vast experiment on their electrical grids. Tried, tested and refined technologies — predominantly based on coal-fired generation — are being replaced by weather-dependent wind and solar farms. Western societies are moving from industrial means of generating their electricity, with the precision, reliability and economies of scale that implies, to intermittent sources that, like agriculture, depend on the weather, with all that implies for cost and reliability.

The green energy revolution – counter-revolution would be more accurate – did not come about because wind and solar are superior generating technologies. If they were, they wouldn’t have needed the plethora of costly political interventions. These have turned the electricity market into an Aladdin’s cave for rent-seekers while destroying the market’s function to allocate capital sensibly and serve customers efficiently. Instead, the origins of the renewable experiment lie in a deeply ideological reaction against the Industrial Revolution, which, in one of the most important developments of our age, almost imperceptibly became the boilerplate of elite opinion.

Now the results of that experiment are in and they’re not looking good. Australians formerly enjoyed one of the world’s lowest-cost energy markets. Not anymore. In nine years, retail prices in the National Electricity Market (NEM) are up 80-90 per cent. In just two years, business electricity costs doubled, even tripled, resulting in staff lay-offs, relocations and industry closures. ‘The requirement is for efficient prices and affordability for “a healthy NEM,” the Energy Security Board states in its first annual report.

What are Australians getting for these cost increases? Last year saw an unprecedented increase in the number of tight supply/demand notices. The constraints now required for system security are estimated to be costing ‘tens of millions of dollars,’ according to the Energy Security Board. Even this is likely to be a serious underestimate. Comparing average electricity prices with those during January’s two-day heat wave – a by no means abnormal occurrence – suggests total extra electricity cost of $400m in Victoria and South Australia.

The regulatory economist Alan Moran has graphed the cost of the renewables counter-revolution. It shows that after inflation, retail electricity prices were steadily falling for 25 years from 1955 to 1980. Then, with some bumps up and down, prices flat-lined until around 2005, when the rapid growth of wind and solar sees the near doubling of electricity prices in a little over a decade, more than reversing the post-1955 decline.

You don’t have to be a Thomas Edison or a Nikola Tesla to see that putting large amounts of intermittent capacity into the grid while keeping the lights on will result in higher costs. Wind and solar suffer the obvious shortcoming that they respond to the weather and not to customer demand, something that should have killed off the experiment right at the start.

It gets worse. The Energy Security Board points out that the ability of the grid to cope with sudden supply/demand imbalances is determined by the inertia in the power system, which in the twentieth century was provided by big, heavy turbines spinning at near constant speeds. Before they were taken off the grid, coal fired power stations provided grid stability at no extra cost. Coal turbines are 600 tons and spin at 3,000 rpm. Wind and solar photovoltaics (PV) are non-synchronous and have low or zero physical inertia. As South Australians are finding out, taking coal offline while putting more wind and solar online makes for a fragile grid.

There is now more than enough evidence to show that renewables do not work. We’re at the stage of the revolution where rationalisations for failure have to be found to explain why it’s not working as advertised. It’s a familiar pattern. Apologists for the Communist experiments of the last century used to argue that the idea was noble; the problem was the way the revolution was implemented. Similarly, evidence that the renewable energy experiment isn’t working indicates, we’re told, that the experiment hasn’t been implemented properly. A tweak here, a stronger policy commitment there, and somehow it will all come right — the revolution able to proceed as even more wind and solar is added to the grid.

Policymakers never interpret the ample available evidence as demonstrating the renewable-energy experiment’s failure, nor that it needs to be halted before further damage is done. Oligopolistic market structures, illiquid wholesale and hedging markets, consumer confusion, incoherent policy design – all the factors that have been variously held responsible for high electricity prices and a fragile grid – could be solved, and the outcome would still be much the same.

It’s true that power companies, such as AGL, have perfected the art of price-gouging. Prematurely closing coal-fired power stations squeezes supply and gives incumbents more market power. Although AGL’s accounts are opaque – UK energy companies aren’t allowed to get away with the lack of detail in AGL’s segmental reporting – there is enough in its five-year summary to demonstrate how AGL can make money by selling less electricity at higher prices.

Between 2013 and 2017, AGL’s electricity volumes rose by 20.0 per cent, but its revenue rose 50 per cent faster, with a 29.5 per cent increase, and its underlying profits climbed by 32.7 per cent, whilst its total assets only rose by 8.2 per cent. Green energy policies have gifted AGL with a remarkable money-making machine at the expense of the Australian economy. Such market abuses could be cured and an optimal policy design adopted, but it wouldn’t overcome the destructive impact of having too much wind and solar on the grid. This is because their impact on electricity costs and grid reliability are inherent in wind and solar as generating technologies.

Cracking the storage problem — the horse to the wind and solar cart — is essential if intermittent generation is to be economically viable. Like the cavalry in Hollywood Westerns, low cost battery storage is always spruiked as being poised  to come to the rescue of wind and solar’s intermittency. But as Steven Chu, Barack Obama’s first energy secretary, recently observed, the lithium-ion batteries Elon Musk is selling South Australia and Victoria cost around forty times as much as the equivalent reserve capacity of hydro-electric installations. Hydropower remains the only renewable energy source that has been successfully integrated into the grid at scale — in 1895 generating the first electricity used for long-distance transmission. Even if the cost of battery storage were to halve, Chu says, it would still not be cheap enough to accommodate the big seasonable shifts in renewable power production.

Germany, the country that did more than any other to promote the renewables experiment saw it turn thoroughly sour in 2017. Although wind and solar output exceeded nuclear and hard coal in Germany’s energy mix for the first time, greenhouse gas emissions were flat for the third year running. Despite its cherished climate leadership, Germany is on course to miss by ten percentage points its 2020 target of a 40 per cent cut in its greenhouse gas emissions.

But the most interesting of the pro-renewables think tank Agora Energiewende’s findings are on public attitudes. Reflecting the effect of wall-to-wall pro-renewable PR and compliant media coverage, an opinion survey found 75 per cent supporting the statement that energy transition is a collective responsibility that everyone should do their part to help succeed. Only 3 per cent considered the energy transition a mistake. Instead the high costs of the energy transition are blamed on implementation. Over two-thirds of those surveyed were “very” dissatisfied (31 per cent) or “somewhat” dissatisfied (37 per cent) with the energy transition policies of the federal government, with only five percent being very or somewhat satisfied.

When first launched, the ex-Communist Green energy minister Jürgen Trittin claimed that supporting renewables would only add the equivalent of a scoop of icecream to monthly electricity bills. Nine years on, his CDU successor, Peter Altmaier, was saying Germany’s energy reforms could amount to one trillion euros (A$1.57 trillion) by the end of the 2030s.

There is no rational explanation for Germany’s addiction to renewable energy. Lying closer to the North Pole than the Equator and subject to North Atlantic weather systems, Germany is hardly a natural for solar power, yet it installed more solar capacity than any other country. Rather, it is the product of ideology, of German culture and philosophy.

Coal and steel propelled Germany’s European ascendancy, but antagonism to industrialisation is a recurrent and irresolvable contradiction of German culture. Hermann Scheer, the German MP and renewable lobbyist behind Germany’s disastrous 2000 renewable energy law, liked to cite the 1909 Nobel Prize-winning chemist Wilhelm Ostwald to the effect that a sustainable economy should be based exclusively on the regular utilisation of the amount of energy sent each year by the sun. Environmentalism was a prominent feature in Nazi ideology, and the Nazis were the first party anywhere in the world to have a wind power programme. See if what the Nazi daily paper Volkischer Beobachter reported on February 24 1932 sounds familiar, from talking up hydrogen production to falling prices and more jobs:

In a sensational speech by the constructor of the biggest steel towers (right) in Germany, the well known engineer Hermann Honnef from the Rhineland, at the Institute of Physics of the Technical University in Berlin, mentioned that in the height between 70 to 90 meters [230 to 300 ft], a high wind zone can deliver energy…

… The surplus electricity from the windmills, situated along the sea coast, will be used for the production of very inexpensive hydrogen.  This will make many products less expensive.  Fertilizers will fall in price.  The hydration of coal to liquids will be cost-effective.  The cost can be reduced from 17 pfennig per litre [64 pfennig per gallon] to 7-8 pfennig per litre [26-30 pfennig per gallon].  In this way about one billion Reichsmark can be saved, which today goes abroad (for importing oil).  The 300,000 workers in the coal mining industry can keep their jobs, 200,000 in the mines and 100,000 for the liquefaction of coal.  The cost savings will make it possible that an additional 400,000 workers can be paid in the transforming process of the industry

The Nazi dalliance with wind shows that we are barely any closer to solving the intermittency problem of renewable energy than the German engineers who advocated wind power in the 1930s. The solution, as noted above, was to convert wind energy into hydrogen and then store it. Dismissing battery storage nine decades later, Obama-era energy secretary Steven Chu remarked that other technologies are needed to convert renewable energy into chemical fuel when the sun isn’t shining and the wind won’t blow. “If you make really cheap hydrogen from renewables and store it underground, then you have something very different.”

As the world’s second-largest exporter of manufactured goods, Germany cannot subsist on wind and solar energy. This is not a dilemma for the German Greens, as they want to reverse the Industrial Revolution. For them, the transition to a post-hydrocarbon world constitutes the third of mankind’s revolutions, the first being the Neolithic Revolution – the transition from nomadic hunter-gatherers to settled societies based on agriculture – and the second, the Industrial Revolution. Thus environmentalism in the 21st century is as much a radical ideological project to transform society as Communism was in the last. The difference is that Marxism only triumphed in pre-industrial societies whereas environmentalism is embraced by the elites of the West.

In the 1940s, the Austrian economist Joseph Schumpeter saw that the values and sociology of capitalism would bring about its own demise. He could not have foreseen that environmentalism would unlock capitalism’s fortresses, its doors flung open and the enemies of capitalism invited in. Already in the late 1960s and early 1970s, business leaders and the people who do their thinking for them were debating how industrialisation was going to destroy the planet. In 1970, a two-day seminar of opinion leaders at the Aspen Institute concluded that modern technology, greedy men and complacent governments were threatening the future of a decent and civilised world. “All insist that the human family is approaching an historic crisis which will require fundamental revisions in the organisation of society,” the New York Times reported. That they were wrong then hasn’t stopped their more modern successors preaching the same doomsday creed of imminent planetary catastrophe.

As it had been in Christianity and communism, the French philosopher Pascal Bruckner writes in The Fanaticism of the Apocalypse, the future has once again become “the great category of blackmail.” This helps explain why sensible politicians have, with varying degrees of enthusiasm – or rather, lack of it – acquiesced in policies that, despite their manifest unsuitability, to put renewables on to the grid. The carbon blackmail worked.

Although the ransom Australia paid is steep, the carbon savings are puny. Carbon dioxide emitted by the NEM fell by 20 million tonnes over the last decade, all of it in the five years from 2009. At the same time, China’s carbon dioxide emissions rose by 2,293 million tonnes, an average increase of 38 million tonnes a month. In other words, the painful savings made by the NEM are equivalent to less than 16 days of the increase in China’s carbon dioxide emissions – with more pain to come as more wind and solar is put on the grid and if AGL gets its way and closes more coal-fired power stations.

Germany’s manufacturers are partially insulated from the full effects of the renewable transition as they benefit from a cross-subsidy from consumers. Nonetheless by 2013, they were paying 26 per cent more for electricity than the EU average. In 15 out of the previous 17 years, domestic investment by energy-intensive industries was less than depreciation, a situation Deutsche Bank described as a wake-up call to Germany’s political class on the economic harm caused by Germany’s pursuit of unilateral policies on energy and climate.

If anything, these are even more problematic for Australia. As the world’s largest exporter of iron and coal, it powered through the GFC thanks to the commodities boom. At a very basic level of logic, if Australia maintains and grows current volumes of iron ore and coal exports, worth $117.7bn this year, then the carbon dioxide emitted from the smelters and power stations of China, Japan, South Korea and India will swamp any domestic reductions Australia makes. Seen in this context, pro-renewable, anti-coal policies simply make no sense. But they will continue until national politicians shift from saying renewable energy policy is a good idea badly implemented to saying simply accurately that it is a bad idea and calling time on the disastrous renewable energy experiment.

That takes courage, but then that’s what political leadership is supposed to be about.

This article first appeared in Quadrant.

Rupert Darwall is the author of 'Green Tyranny: Exposing the Totalitarian Roots of the Climate Industrial Complex'.