The Energy Security Board is to use vastly inflated costs of wind and solar PV in its modelling for the proposed National Energy Guarantee, in a move that is likely to deliberately hide the benefits of having more variable renewable energy in the system.

The cost assumptions were circulated in documents put together by the ESB earlier this week, and continue a long tradition in Australia of using grossly inflated cost estimates for wind and solar.

Most of these reports have been used to argue that policies that encourage large amounts of wind and solar do not achieve significant cost reductions. It seems that this modelling for the NEG is designed to reach the same outcome.

Frontier Economics, which has been commissioned to do the modelling that will be presented to the COAG energy ministers later this month, is factoring in costs of wind of $78-$90/MWh, and costs of solar of $90/MWh.

This is between 30 to 40 per cent above the costs of contracts for wind and solar this year, and what the industry says it is achieving. Frontier’s modelling assumes that solar and wind costs will not reach their actual current levels until 2030, in the case of solar, and 2040 in the case of wind.

(ARENA deputy CEO Ian Kaye told a conference earlier this year that, according to ARENA data, the cost of wind in Australia was averaging in the $50-$60/MWh range, while large-scale solar was averaging $70-$75/MWh.

This is borne out by publicly announced contracts for the last three big wind farms in Australia – Stockyard Hill in Victoria, Silverton in NSW, and Cooper’s Gap in Queensland. All three have costs of below $60/MWh.

ARENA should know the prices for large-scale solar, as it was responsible for the auction that underpinned many of these projects. Project developers put the costs of large-scale solar at around $70/MWh).

This, of course, is not the first time that grossly inflated wind and solar costs have been used to push a certain ideological line.

The Australian Energy Markets Commission, which is driving this process, and Frontier teamed up to use similarly inflated costs to argue against the renewable energy target, and again last year in a report on consumer prices. (Australia’s energy rule-maker hasn’t a clue about renewable energy).

And even the Finkel Review and modelling for emissions intensity schemes have fallen into the same trap.

See our stories Finkel modelling ignores new technologies, cheaper renewables; a potted history Modelling wars; moulding data to kill renewables; and what happens when more realistic cost assumptions are dialled in: Modelling from government advisor shows high RET may be cheapest option.

“Yet again it looks like the AEMC, and via them the ESB, are relying on badly out of date assumptions about the costs of solar PV and wind power,” says Tristan Edis, a senior analyst from Green Energy Markets.

30 October 2017 - ESB Modelling Assumptions for NEG



“We highlighted problems with the modelling assumptions in the AEMC’s 2016 analysis and they’ve thankfully been improved, but the market has advanced further down the cost-curve.

“We’ve got publicly announced information from both Origin and AGL of PPAs for wind signed below $60 per MWh.

“While they most likely represent the bottom-end of what’s possible, the market is capable of delivering far better than the range of $78-$90 assumed. In terms of their projections into the future for 2030 they really need to get out and talk to the wind turbine manufacturers about what they’re capable of doing with low wind speed sites.

“With Solar PV, they seemed to have caught up with where the market was at around mid 2016, but their 2030 cost projection is about where the market is at now.”

The modelling for the NEG appears to be further distorted by assuming an extra 3 per cent to the cost of capital for new projects. At least in its “base case”.

This is being attributed to the policy uncertainty – caused by the government itself – but it favours incumbent gas and coal assets over new wind and solar projects, and it also means that modelling for a NEG – with policy certainty – will deliver a cheaper outcome.

Another assumption is that the Snowy 2.0 pumped hydro scheme will also be built and in place by 2024. Not only is this an ambitious completion date, the modelling does not appear to factor in the cost of the taxpayer-funded scheme. Apparently we are to assume it will come for free.

So what happens when you use inflated costs of wind and solar?

Basically, it hides the fact that using more wind and solar would actually reduce costs to consumers.

Combined with the other assumptions – a minimal emissions reduction target and no reliability issues (thanks to Snowy 2.0, the low level of wind and solar and the presence of solar thermal) it would justify a minimal increase in new wind and solar plants over the next decade.

Now, this might be a convenient ruse to fool the right wing of the Coalition, who appear to have the final word on any policy, but if the NEG is designed in a way that prevents new wind and solar, and is not scaleable to meet more ambitious emissions reduction targets, then it will be a significant danger to the wind and solar industry.

Already, new analysis shows Australia drifting behind even its own modest near term climate goals and well below the cuts needed to meet the long term Paris climate targets. The ESB has been instructed to assume no further cuts in emissions beyond 2030.

“These out of date assumptions are likely to misinform the government and general public about the cost and optimum pace of emission reductions,” Edis says.

“Given how badly the AEMC got their assumptions wrong in their 2016 modelling exercise about alternative emission reduction policy options I would thought they might have learnt something about the need to engage in a broad and open consultation with market participants that actually have some experience in wind and solar power projects. ”

RenewEconomy talked with several renewable energy and battery storage developers who were similarly dismayed by the modelling assumptions. “Looks like we are going to have to make yet another submission,” said one. “It’s just another merry-go-round of false assumptions.”

It’s not the only attempt to fool consumers about the true cost of energy. The Murdoch media this week published a story claiming a previously hidden analysis for the Queensland government had shown that a new coal-fired generator would be viable in north Queensland.

This, of course, is the main policy of the state LNP, and is supported by the likes of ex MP Barnaby Joyce and Resources minister Matt Canavan, who insist new coal will reduce prices.

But the Queensland Labor government released that modelling this week, showing that a new coal plant would not be viable unless the cost of electricity remained high, and that it would not be viable at all with a carbon price.

Fairfax reports that the coal-fired power plant is viable if wholesale electricity prices stayed at 2017’s average wholesale price of $93.12/MWh, but it is not viable if the wholesale electricity price drops to last year’s average of $59.99/MWh. So much for cheap coal.