“Cheap” renewables pushing fossil fuels out of the market

Last weekend, I watched a short Youtube video about the claim that cheap renewables is forcing out fossil fuels. A new report came out finding that 5 of the 16 Australian coal plants could close earlier due to cheap renewables.

Screenshot from The Agenda: Australian coal plants unviable by 2025

The lead analyst of the report made the claim that the future closures of those plants are due to a flood of “cheap” renewables. This claim was mentioned in the title, the description ánd the interview itself. They really wanted to thoroughly rub that message in…

Most members of the public would probably understand from this claim that the cost of producing electricity by renewables is so low that it makes coal fired power plants unprofitable, but it is my experience that when an energy expert claims that solar and/or wind are “cheap” that it generally means something really different from what members of the public thinks it means…

Time to look into that report and find out what is exactly meant by “cheap” renewables and how they push coal out of the market.

The report “Fast Erosion of Coal Plant Profits in the National Electricity Market” was easily found. The first thing I did was searching for the word “cheap”. Searching through the (61 page) report resulted in finding exactly zero (0) occurrences of the word “cheap”, as expected.

I heard this exact same message (cheap renewables driving fossil fuel out of the market) before. I once followed a lecture on “Sustainable Energy for Belgium” in which roughly the same claim was made. Luckily at that time, the previous speaker had already explained exactly how intermittent power sources push out other power sources. Unfortunately, those who watched this video didn’t have the same advantage.

The same definition of “cheap” that was used in that lecture is also used in this report: the term “cheap” doesn’t mean “low cost”, as most viewers would understand it, but “low bids on the wholesale spot market”. There is a difference between the two. The “low cost” definition takes all costs into account, the “low bids” definition operational costs.

According to the report, solar and wind are able to bid lower on the sport market due to their lower operational cost than coal. This not only undercuts those generators that have higher operational costs, it also means that intermittent energy sources reduce the amount of highly priced peak electricity for the dispatchable electricity providers. Before the arrival of intermittent power sources, coal power plants made their buck by producing baseload electricity. They were online most of the time and could produce vast amounts of (cheap) electricity, also during demand peaks when they could earn the most. Intermittent sources delivering electricity to the grid means a double whammy. They can’t bid as low as intermittent power sources can and they also will be able to generate less electricity overall, therefor making much less sense economically. Throw in some subsidies, feed-in tariffs,… for the intermittent power sources and those dispatchable sources will not be able to compete anymore.

That is an understandable process. The choice was made for intermittent power sources, so generators that can’t adapt to this new situation are pushed out. But this doesn’t mean that electricity produced by those intermittent power sources will be “cheap(er)”, at least not in the way the general public would understand it.

Also according to the report, solar and wind have a lower operational cost because they don’t have fuel costs, contrary to gas and coal which do have fuel costs. This is however only part of the costs involved. Solar and wind also have costs that are not accounted for when looking at it from the angle of fuel costs. These costs mostly originate from two properties of solar and wind energy: intermittency and the density of the energy they harvest.

Solar and wind energy are low density power sources and this requires large installations in order to concentrate this low density energy. Sun and wind on their own are free for sure, but the large installations to capture that energy are not. This lead to some easily overlooked costs like large space requirements, which in turn means more power infrastructure (power lines, converters,…), more road infrastructure to build to reach those installations and more difficult/costly maintenance.

Intermittency is another can of worms. Solar energy is generated when the sun is shining and wind energy is generated when the wind is blowing. This does not necessarily coincide with electricity demand. It is possible that there is lots of sun and also lots of wind, but hardly any demand. Or vice versa, not much sun and wind, yet a high electricity demand. In the former case, some of that power may need to be curtailed. In the latter case, there is a need for dispatchable backup capacity. Currently this role is taken by gas, but that will not fly anymore in the 100% renewables scenario the legislators, activists and media dream about and other dispatchable power sources need to take over.

This balancing act between curtailment and the need for backup will get more difficult when the share of these intermittent power sources increases. The difference between low and high production will get increasingly bigger: on the one hand, production lows will only grow very slowly, while on the other hand, production highs will grow rapidly. For example, suppose a system with a low current production of 5 MWh and a high production of 5,000 MWh (dynamic range: 4,950). Doubling the capacity will now get a production low of just 10 MWh and a whopping production high of 10,000 MWh (dynamic range: 9,990). This means that the need for dispatchable backup will not lower that easily, but the risk of overproduction will steeply increase at times with lots of sun and wind.

It would be possible to skim off overproduction into for example batteries (this seems to be the favorite of the policy makers), but this will require an insane amount of batteries. This because all energy that has to be discharged needs to be loaded into the battery before the need arises and as long as it needed. An insane amount of batteries means an insane amount of raw materials to build these batteries and they need to be replaces every 10 – 15 years. The same with the installations of solar and wind, they last 15 to 25 years (compared to 40 – 60 years for conventional power plants, meaning those intermittent installations will have to be build twice compared to once for conventional technologies).

The need for backup will also increase when seasonal backup is required. Not sure (yet) how that plays out in Australia, but for example in my country, electricity demand is highest in winter (during peak hours on working days), yet at that moment solar energy is insignificant to zero and intermittent electricity generation solely depends on wind energy. When there is not much wind during this peak, dispatchable energy sources will need to take over (almost) completely. This means that the capacity of those dispatchable sources needs to be roughly as high as the expected maximum demand, but since this capacity will not be used frequently it will make those installations economically unviable and requiring subsidies too…

If you only account for operational costs (no fuel), then yes, solar and wind are dirt cheap. Account for all the costs and I doubt that they will be cheap, maybe even more expensive than conventional power sources.


6 thoughts on ““Cheap” renewables pushing fossil fuels out of the market

  1. oiltranslator

    Australia and Brazil both force people to vote in fake elections (from which Libertarian parties are carefully excluded). The result is rule by people on the wrong side of any bell curve charting the ability to solve problems–especially to solve problems without resorting to the initiation of force or even naked deadly aggression. Any foreign totalitarian dictator would be a fool not to exploit such a flaw to wreck the nation’s economy and stability. The few other countries that rely on such a system are dismal, and worsened by the inevitable brain drain such policies engender.


  2. Linley

    Writing about Australia again. I learn from someone on the other side of the world. I will see renewables as cheap when those places with a high level of renewables have cheap prices to the consumer. Everything else is just noise.

    Just thought I would mention a few things about electricity and energy in Australia that you may not be aware of.

    Like almost everywhere, our high use time is the early evening 5 – 9 pm, more so in summer than winter.

    To my knowledge, due to our climate it is not that common to have gas or oil based central heating. Reverse cycle air con, and plug in electric heaters are more common, so electricity already provides a lot of our space heating. I guess this means that if we move everyone off gas to the home, the impact on electricity requirements won’t be as high as other countries.

    The coldest place, Tasmania, has a lot of hydro.

    We have very little hydro opportunity in the rest of Australia, other than the Snowy Mountain scheme, which I think you have written about in the past. In terms of electricity storage, I think this is a drop in a bucket.

    Liked by 1 person

  3. Chris Morris

    They are cheap because they don’t have to bid into the 2 hour ahead market with guaranteed generation. Make them follow the same rules as thermal plant and the results would be markedly different.


  4. Pingback: “Cheap” batteries to the rescue? – Climate- Science.press

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