The debate between the Coalition and the Labor Party has long had an
ethereal dimension. They are in furious contention, though both are
promoting a wind/solar future. Labor says it wants to see wind, solar,
hydro, and batteries supplying all but 2 per cent of the market, while the
Coalition – as per Frontier Economics – says it wants to see a similar profile
but with nuclear providing 29 per cent of supply.

After Tony Abbott’s Prime Ministership, the Coalition adopted a Labor-lite
electricity policy. Like Labor, it has paid obeisance to the Western world’s
prime energy goal of reducing carbon dioxide emissions, though at a
reduced pace to that of Labor. It is unclear whether the Coalition actually
accepts the ALP view that wind and solar, suitably firmed with controllable
power (termed ‘dispatchable’ in the electricity market) is the cheapest
form of electricity.

If it does, it is badly advised.

Frontier Economics recognises that nuclear, in most of Australia, cannot
meet the costs that are readily achievable with black or brown coal. It
justifies its preference for nuclear by asserting that coal stations would
need to incorporate carbon capture and storage to receive a social licence,
thereby doubling their costs.

In the era of Donald Trump, the credibility of that position is fast
disappearing. Trump will dismantle the coal phobia from January 20 next
year, the result of which will see Australia and other OECD countries
joining China, India, and other successful ‘third world’ countries in
adopting the cheapest form of power. For most of Australia that is coal
(nuclear facilities might be competitive in South and Western Australia),
for most of Europe and Japan it is nuclear, while for the US it is gas.
Frontier Economics puts Australia’s nuclear costs at $10 billion per 1,000
MW generator with an operation and fuel cost of $30 per MWh. Capital
comprises some 74 per cent of nuclear costs and hence a price of $115 per
MWh is expected.

The last major official study on costs for Australia, the highly
credentialed Switkowski report on uranium, was issued in 2006 and put
the costs of coal-generated electricity without carbon capture and storage
at $63 per MWh (in 2024 dollars). This cost is consistent with that of
GHD/Solstice, which, in research conducted for the Minerals Council, put
the capital cost of coal generators at less than one-third that which Frontier
Economics estimates for nuclear power. The Solstice study assessed the
costs for coal-generated electricity (in today’s dollars) at between $49 and
$95 per MWh (where stations run 90 per cent of the time).

At $63 per MWh, a coal-based system, in Australia would deliver electricity
at about half the price of the nuclear, wind, solar, and battery system
modelled by Frontier Economics. Not only is this important for the
economy as a whole but without such cost savings, it would not be possible
to ensure the survival of the energy-intensive smelting industries. That
means closure of aluminium and nickel smelters that are competing against
oil and gas-rich nations and coal-based electricity in Indonesia.

It needs to be understood that renewables can only be built if they are
subsidised. The subsidies come in two main forms, one is as renewable
energy certificates that provide revenues to wind and solar whenever they
run. This puts them in the black as long as the electricity spot price is
above minus $31 per megawatt hour. Unsubsidised sources cannot operate
at such a loss. A more recent subsidy mechanism is in the form of the
Orwellian named Capacity Investment Scheme. Under this, the taxpayer has
guaranteed a premium price (which the government refuses to reveal) for
contracted wind and solar facilities, whenever they run.

A coal-based electricity system not only means a halving of the costs of the
electricity supply system favoured by the government but the
fundamentally intermittent system is impossible to provide reliability
except at horrendous costs involving the totally untried technology of long-
term battery storage.

Nor could a renewables-dominated system coexist with the high capital
cost electricity supply sources that are coal and nuclear. Those generators
can only be economic if they operate at around 90 per cent. Spreading the
capital cost over lower outputs wrecks their economics. Coal and nuclear,
unlike hydro (which has limited fuel supply) and gas (which has lower
capital costs), do not complement wind and solar. Or, at least they do not
do so if they are obliged to back-off when there is ample wind and solar.
I believe it is wrong to claim, as others have, that ‘nuclear can provide the
steady baseload power needed to complement intermittent sources like
wind and solar’. Frontier Economics recognises this and its modelling
implicitly forces renewable energy supplies to back-off when nuclear is
available. This, together with the constricted increased transmission
building that Frontier Economics proposes, is recognised by the chorus of
opposition to Frontier Economics’s proposal from the renewable industry’s
subsidy-seekers.

Finally, forecasts 30 years ahead in the electricity market have been
markedly inaccurate. The aforementioned Switkowski report pictured the
2029/30 electricity supply to be 69 per cent coal and 22 per cent gas; wind
and solar were seen as contributing 2 per cent. For 2024, wind and solar
have 28 per cent, coal 46 per cent and gas 19 per cent.

****

More information about the author, Alan Moran, at LinkedIn.

This article is republished from Regulation Economics and The Spectator Australia, more information: https://www.regulationeconomics.com/_files/ugd/b6987c_fbfc8e7c36754271b753ff50d90ac715.pdf

The feature image is of me, Jennifer Marohasy, in the UK where the King gets a royalty from every wind farm.