To know where you’re going, it helps to know where you’ve been. So what better time to do a quick review of electricity generation in Australia and see what it might tell us about the future.
Electricity first came to Australia in the ultra-optimistic years of the 1880s. This was the time when it was believed Australia would become the next USA with a huge population and thriving economy. It was before the economic crises of the 1890s and the subsequent return to British imperialist fervour that characterised the couple of decades leading into the wars.
At that time, Australia was working towards the federal constitution that came into effect in 1901. But the constitution had no provision for electricity supply. Neither were the State governments on the ball enough to see the potential for electricity. And so the early electricity generation took place at the local municipal level and was mostly privately funded.
One of the earliest power stations was the hydroelectric project in Launceston in 1895. The first large scale deployment of electricity in the form of street lights occurred not in the big cities, however, but in the towns of Tamworth and Young in 1888 and 1889 respectively. More such installations were rolled out in the following decades. The State governments eventually took control of the electricity supply with the rollout of high voltage transmission lines, a task that was overseen by the various state electricity commissions created for the purpose. It was these same commissions which oversaw the much larger build out of the grid in the post war years and all the way into the 1990s.
That build out was based almost exclusively on coal power with the Tasmanian and Snowy hydro schemes also in the mix. Australia had, and still has, enormous coal reserves with NSW and Queensland having predominantly black coal and Victoria having brown. To this day, coal is a huge export earner for the country as well as providing about 75% of our baseload electricity generation (with gas a further 16% on average).
Here in Victoria, the Latrobe Valley coal deposits have an estimated 35 billion (yep, that’s billion with a ‘B’) tonnes of economically retrievable brown coal. At current generation rates, that coal would provide electricity to the state for 500 years. Moreover, the power plants in the valley were built right next to the coal mines and so the transportation of the coal to the power plant is essentially free. It’s hard to imagine a more secure electricity generating system in a geologically, meteorologically and politically stable region. Nevertheless, we’re in the process of shutting it all down.
The build out of mostly coal and gas fired electricity happened around Australia all the way up until the 1990s . At that time, Australia enjoyed about the lowest electricity generation costs in the developed world coming in at about half the price of German electricity and a third the price of Japanese. We also still had a viable manufacturing industry back then; a not unrelated fact.
Despite having enormous reserves of coal and gas which provided dirt cheap electricity, the federal government’s “competition policy” saw the privatisation of almost all of Australia’s generation and transmission infrastructure in the 1990s all in the name of cutting prices. The result was quite brutal, especially in places like the Latrobe Valley where thousands of workers were sacrificed on the altar of neoliberal economics. Fast forward to today and foreign companies own most of Australia’s electricity grid in one form of another and the country is left open to the whims of international finance and “the free market” who have decided that coal and gas must be phased out in favour of renewables. (Ironically, it’s the same people who think capitalism is evil who are most likely to trust that these bankers have the planet’s best interests at heart and not their own bottom line when they decide to invest in renewables).
A key feature of our electricity grid is that it was designed to have 99.9% uptime. In other words, the power should always be on. Without knowing any of the details, we can deduce from this fact that the grid had enormous redundancy built into it. That’s the only way you can get 99.9% uptime. This redundancy was easy to achieve with coal as the baseload power because the system was simple and the storage and transport costs minimal. What we have proceeded to do, starting in the 90s all the way up to til today, was make the system more complex and less redundant.
Firstly, the privatisation of the system increased its complexity in terms of ownership and governance. Some of the new owners took advantage of ambiguity in the system to start gold plating their transmission network. Basically, they were building power lines that didn’t need to be built because the rules allowed them to pass more than the cost price onto the consumer thereby making a profit by spending on unnecessary infrastructure. A charming example of the free market at work.
But the real complexity started to come into the system with the renewables push. There are two primary problems with renewables. Firstly, they are not baseload power, meaning they cannot be relied upon to provide electricity 24 hours a day 7 days a week. Secondly, the power they generate cannot be economically stored for use when the sun is not shining and the wind not blowing. The best we can do is battery but that is very expensive. If you swap out let’s say 5k MW of coal generation for solar generation, the maximum generation capacity of the system is the same. But it’s the minimum generation of the system that is more important because that is a proxy for redundancy. When the sun doesn’t shine, your minimum capacity has fallen by 5k MW. Swapping coal for solar reduces the redundancy in the system directly and also by adding complexity.
It’s only because our electricity grid already had such a huge amount of redundancy built-in that we have been able to get away with adding solar and wind and shutting down coal plants while pretending that everything is fine. But, just like in a trading market, the crunch always comes at the margins. The system breaks at its weakest link: at night in the middle of winter when a couple of baseload generators go down. Essentially, what we saw a couple of weeks ago on the eastern seaboard of Australia.
Now that the problems of the new system are starting to bite, one of the chief designers of it, Alan Finkel, was in the media this week assuring us that the transition to renewables was never meant to be easy but we can still do it. His statements are very revealing.
Finkel acknowledges that the system breaks at the weakest link and the weakest link in relation to renewables is storage. More interesting is Finkel’s admission that the current market provides no payment for storage, only for generation. His solution is to have the system pay for storage but he admits there currently are no viable storage options for renewables. The only “storage” options, he says, are coal and gas. He rules coal out as a matter of course and suggests we should do gas only because we will later be able to transition the gas-fired plants to hydrogen (his big assumption is that hydrogen will one day become technically and financially viable, something that seems to me very unlikely).
One of the things which made coal and gas so attractive for electricity generation in the first place is that you get the storage for free. Coal will happily sit there in the ground forever and wait for you to come and get it. Same with gas. With renewables, you have to spin up whole new sub-systems to create the storage. This makes an already more complex system even more complex and that has a cost in terms of energy and money.
If you have two energy systems and one is twice as complex as the other, the more complex system will need to generate more gross power to match the less complex system assuming the levels of redundancy are the same. It’s in this way that even if wind and solar are cheaper per kilowatt to generate, they may end up being more expensive than coal because of the system-level complexity costs.
This is pretty obvious when you consider that here in Victoria the plan is to swap a simple system of a few coal plants running on locally-mined coal for Finkel’s new system that is a mix of solar, wind and hydrogen. The solar panels and wind turbines must get shipped in from China as presumably would all the transmission lines. The generating capacity would likely be off in the desert somewhere meaning you’ll need heaps of extra transmission lines to bring it back to the cities. You’ll need a facility to convert the solar to hydrogen. That facility will need its own infrastructure and maintenance spending. It will have its own inputs including the chemicals used to convert the electricity to hydrogen. Then you’d have to transport the hydrogen back to the re-jigged gas generation plants. That’s just the start of the extra complexity, and therefore fragility, in the system that Mr Finkel wants us to move towards.
Note that all this complexity now has an extra geopolitical risk factor built in. Can we actually rely on China to provide the solar panels and other things needed to even run such a complex system? What happens if covid part 2 happens? What happens if a war breaks out over Taiwan? We’d be up hydrogen creek without a turbine.
Are our leaders dumb or reckless enough to take us down that path? Maybe. But reading between the lines of Finkel’s argument, I think I can see another way things may go from here. Without any viable storage options, we will simply label gas and maybe even coal as “storage” in our brand new “net zero” market. We’ll be promised that these “storage” options will be swapped out for hydrogen or nuclear just as soon as that’s possible. That will allow the political charade to continue while having a technically viable system.
But here’s the kicker: the costs of that “storage” have not been factored into the current market. That means the current price does not reflect the actual price once “storage” is included. In other words, we can expect the price of electricity to go up in the years ahead as we must pay for storage in the system. How much it will go up depends entirely on what the “complexity surcharge” for our new super complex electricity system is. Whatever it is, it’s going to be painful.
But there will be another bitter pill to swallow.
We have run down the redundancy of the system over the last two decades while making the system far more complex. Nobody is going to want to pay the price to put that redundancy back into the system. Thus, we can expect the 99.9% uptime figure to start falling. Where it ends up is anybody’s guess. The good news is that the cost curve is exponential and thus dropping back even to something like 99% would be a big saving. But even at that figure, blackouts will become a regular thing.
In short, we’re going to be paying more for a lower quality service. That’s the price of complexity.
Finally, there’s the business of all that coal in the Latrobe Valley and other places around Australia. Will things get bad enough that we build another coal plant? Will we have the money to do so even if we wanted to? It may be that that coal stays in the ground. Depending on what happens with sea levels, it might be there for a million years just waiting for some future civilisation to fire up a power plant and party like it’s 1993.