Why is energy so expensive?

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Mark _australia said..
Not sure of the use of the word green attached to the word hydrogen about 30x in that article.

Anyone wanna do the math on the amount of rare earths needed to build 25mil solar panels and the mass resources to build a windfarm of that size? Whats the lifespan on the stuff? Do we spend 10yrs destroying the environment to build the generating capacity to get 10yrs of 'free' and 'green' hydrogen?

Its a nice big BP advertisement but I'd like to hear the net effect, not grandiose statements about how we make green hydrogen for free renewable renewable free green renewable free blah blah

Mark is right. There is nothing green about thousands of windmills and millions of solar panels.
Let UK make this BP hydrogen scam on their tiny Island and leave us alone.
Beside hydrogen is even more potent warming agent then co2 in atmosphere. Hydrogen naturally leaks even trough steel walls of container due to smaller molecule size then iron.

I was listening to the tv earlier and they mentioned Snowy Hydro 2.0 and the status of the project. They mentioned it won't be ready until 2028 at the earliest (plus the budget blowouts).
How is this going to pan out if our earliest-started huge storage project is already 7 years behind the forecasted finish date? How are we going to get renewables viable if the storage is going to not be there at the time?

I suspect NSW/Qld/Vic are going to have to pre-pay for some of that gas, as they are going to need it.

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Carantoc said..

FormulaNova said..
How is this going to pan out if our earliest-started huge storage project is already 7 years behind the forecasted finish date?

But there are 22,000 sites. So won't the other 21,999 pumped hydro projects pick up the sl

The Tallowa dam project is being expanded, as it was designed to do, doubling capacity from 250MW to 500MW.

Just on a tangent, it occurred to me that silt in dam water must corrode turbines on the way through and Dr Google said I'm right.
Does anybody know how often the Snowy or Tassie turbines have to be replaced? Do they outlast steam turbines or windmills?

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TonyAbbott said..

Ahh, the memes are back. About time we had some quality posts

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Harrow said..
Fortunately, the competitive National Electricity Market was introduced in 2000 to ensure an affordable electricity supply for all. See how inefficient the public sector had been at keeping the price of electricity in step with inflation prior to that. That was further remedied with the privatisation of NSW electricity assets from 2010 onwards....an obvious success story.

Okay, so what is this graph telling us? I can't figure it out.

I can't tell if you are being sincere or sarcastic (which is my default mode of conversation).

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FormulaNova said..
Okay, so what is this graph telling us? I can't figure it out.

I can't tell if you are being sincere or sarcastic (which is my default mode of conversation).

So, that means you do understand it? (If scarcasm is your default conversation mode)

Yes, sarcasm.

The red line is the consumer price index, while the blue line is the cost of electricity. The graph shows that the price of electricity was rising slower than CPI from 1985 to 2000 (i.e. the real price of electricity was dropping that entire time) while operating as a public service.

Then, when the NEM started in 2000, the price started to increase in step with inflation for a little while before taking off way faster than inflation. Privatisation in 2010 didn't do anything to curb the continuing price hike. So, a competitive market and privatisation would seem to have delivered nothing positive for the consumer.

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Harrow said..

FormulaNova said..
Okay, so what is this graph telling us? I can't figure it out.

I can't tell if you are being sincere or sarcastic (which is my default mode of conversation).

So, that means you do understand it? (If scarcasm is your default conversation mode)

Yes, sarcasm.

The red line is the consumer price index, while the blue line is the cost of electricity. The graph shows that the price of electricity was rising slower than CPI from 1985 to 2000 (i.e. the real price of electricity was dropping that entire time) while operating as a public service.

Then, when the NEM started in 2000, the price started to increase in step with inflation for a little while before taking off way faster than inflation. Privatisation in 2010 didn't do anything to curb the continuing price hike. So, a competitive market and privatisation would seem to have delivered nothing positive for the consumer.

Thanks. That's what I sort of expected. People go on about 'a free market' but don't realise that the market doesn't necessarily have the same aims as them or even a social agenda.

It's like health care. People go on about how they think hospitals are somehow inefficient, but hand them over to health insurance companies, and you will see what 'market forces' will do to the price of health care. Or even education if you want to see how the USA approach has worked.

I worry that with this drive to renewable energy, if done without storage solutions, we will all end up with market driven prices or no power at all outside of the hours where the sun is shining and the wind is blowing. The costs will stack up differently if your renewable energy needs to be provided at the same level 24x7 or if you have to commit to providing that same power level all through the year.

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Harrow said..

Then, when the NEM started in 2000, the price started to increase in step with inflation for a little while before taking off way faster than inflation. Privatisation in 2010 didn't do anything to curb the continuing price hike. So, a competitive market and privatisation would seem to have delivered nothing positive for the consumer.

One trap to avoid is to simply think correllation equals causation. Correllation is an indicator that causation may be in play. The graph below may be a better one to use as an indicator of correlation....

That said, I do think the NEM had a role, but it is the government regulation and policy within the rules of that market that are to blame.

The uptake of intermittant generators (renewables) in a market increases end user costs in every case. Every single market in the world has increased its retail electricity price in direct correllation with the % of intermittant generation it produces.

This is a paper explaining that in Australia we have close to 40% higher electricity directly due to renewables and "green" policies and regulations.
www.regulationeconomics.com/_files/ugd/b6987c_afd260bfd8284f9db5d97d73fe52cedb.pdf

This is a very good US paper on the real levelised cost of generation sources
www.instituteforenergyresearch.org/wp-content/uploads/2019/06/IER_LCOE2019Final-.pdf

Part of all this is the NEM and AEMO who have boldly stated they will prioritise a transition to renewables even if it means higher power prices and less reliability. Any free market needs to be set up to deliver the customers needs. In the case of power our power requirements are known very accurately days in advance. As such a forward contract of 24 to 48 hours guaranteed supply would best suit the market and reward the generators that can supply that power.

Instead we have a NEM set up to have 5min settlements. This favours intermittant generators who can dump massive power loads one minute and nothing the next with no penalty. Not only this, but intermittant renewables have guaranteed purchase agreements through the RET and other direct means, meaning thier power is forced onto the market first. Meanwhile reliable generators sit on the sidelines waiting for the scraps.

Our energy network is a mess. Regulation rewards generators that poorly fit the market needs and punishes those that can supply the needs. The result is huge increases in prices and a significant drop in reliability as reliable generators are retired because they can't compete.

You can't blame the free market for driving up prices when it is the government regulation and policy that is doing it. It is not actually a free market at all.

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Paradox said..
One trap to avoid is to simply think correllation equals causation. Correllation is an indicator that causation may be in play. The graph below may be a better one to use as an indicator of correlation....

You can't blame the free market for driving up prices when it is the government regulation and policy that is doing it. It is not actually a free market at all.

Except my view isn't based on that graph. It's based on having worked in the industry prior to the market and after the market, being at the centre of the planning and regulation process and having close friends that work for generators and retailers in energy trading. I know how things worked before and how they work now. I just don't believe an electricity market can produce an optimal outcome and there are a bunch of fundamental practical reasons why that is, no matter what the market design is. If I wasn't packing my bags to go on holiday tomorrow, I might explain why. Maybe when I get back.

IGA shop owner was shocked to find his annual electricity costs are set to increase from 58 to 218 K.


A Queensland supermarket owner has been left reeling by an "impossible" electricity price increase that would nearly quadruple his annual bill from around $58,000 to $218,000.

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Paradox said..

Every time there is a seeming problem with a private or free market system, look deeper and it will be the layers of insane government regulation that is to blame, not the free market. Humans will make a truly free market work every time.

I remember the 'pink batts' disaster. A market was left to run itself and then there were cries that there wasn't enough government oversight. Given its own reins, the scheme resulted in people installing the cheapest stuff they could with the least safety standards. Yet the government got to wear the responsibility. They didn't even deploy the installations, they just funded the scheme.

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FormulaNova said..

Where do you get your information on hospitals being inefficient and wasteful?

Direct experience and talking to those employed in the system. But all you have to do is look at QLD, 2014 the health budget was $13billion. It had just been overhauled and the fat cut out of it by a very agressive Premier. Ambulance ramping which was a massive problem was fixed, and hospital services were the best for years and much better than they are now. Still was not perfect, but it is a benchmark to show what can be done by someone who is business and efficiency orientated while at the same time cutting a budget, not increasing it.

This years budget is $23billion. It is a mess, ambulance ramping the worst we have seen ever. Hospitals are overcrowded and we apparently have a shortage of front line staff. So where is the money going? people I talk to mention huge amounts of administrative staff, very peed off front line staff leaving in droves and spending on areas that contribute little and regulations that stifle efficiency and productivity.

My direct experiences are a system with a huge amount of administration, but none of it talks to each other, resulting in either massive double ups or complete oversights and gaps. The response by this current government is they need more funds..... It is not a funding issue, it is a management issue.

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Paradox said..
I find it interesting that people who criticise the free market find examples that always end up actually being a failure of government policy.

The Pink Batts fiasco was a government policy disaster, not a free market one. A government dumping huge amounts of money into a very specfic market, increasing the funds and market by ten fold and then sitting back and expecting things not to get out of control is not a natural free market. It was always going to generate a massive shortage of workers and capable personnel and the obvious fast and loose cowboys that came in to fill the gaps.

From the ABC:"It was this design that made the program "an accident waiting to happen". The HIP created a $2.8 billion frenzy of unsafe and unsupervised work by young, untrained workers. Just as it was designed to do, virtually overnight the HIP created a surge of market activity. Where prior to the scheme there were roughly 70,000 houses retrofitted with insulation every year, at the height of the HIP the number reached 180,000 in one month. As his father recounted in the Commission on Friday, the first worker killed in the HIP, 25-year-old Matthew Fuller, was employed by a telemarketing company run by two bankrupts and an Irish guy "in from off the street".Matthew's employers were one of 10,000 companies that sprang up to take advantage of the HIP. Qualifying as a "registered installer" under the HIP meant you were able to "supervise" an unlimited number of subcontractors and employees."

How was that not a free market? Funding was available from the government for installers to install insulation. There was no requirement to use a particular installer or even get it at all. The installers that led to injuries and deaths were not good business owners and were surely cutting corners.

The 'red tape' that people often complain about could have been the checks and balances that would have stopped these sorts of problems happening. You can't have it both ways. Either 'red tape' and the rules get followed with the responsibility on the rule-makers, or no red-tape and the responsibility goes to the individuals.

I know nothing about your example about Qld hospitals, but its quite conceivable that a short term approach could milk budgets and resources to achieve an outcome that is not sustainable. Proper reform does not disappear overnight, so it makes me think that maybe the approach was a short term one if what you say about it returning to poor performance is true. How else do you justify the change and then change back?

Big business works in pretty much the same way as big government organisations. For the same reasons. They become top-heavy with management, and the goals become distorted. If you privatise them, you just introduce the need to run at a profit and the only way to realistically do that is to cut services. Surely there are better ways to do it, but I doubt many places public or private actually change their practices.

I am not a champion of 'free-market' as almost nothing is. It is just a different set of rules to play by. Therefore I find it strange that the catch cry by some seems to be 'let the market decide', but the market is never unbiased.

There has to be an incentive to do things right. Big business just wants to make a buck. Obviously this can just go out of control, especially when they manage to create a monopoly by driving competitors out of the market.
The problems in America right now is the result of the free market out of control.

Smaller local businesses with a smaller market, don't do very well if they get a bad reputation. I think this is the best case for a free market.

Government run institutions rely on commitment and belief of the workers believing in what they do. It can be fantastic, but that can be easily spoiled by management alienating the workforce.

The labour gov't was certainly naive thinking that throwing money at something with no controls would have a good outcome. Yes it was good idea, but there should have been some sort of incentive to make sure the job was done properly.
Private enterprise, will just make as much money as possible, unless a remarkably principled person is at the helm.

When it comes to major services, the records of both Gov't and private can be good and bad. But in the main I think after selling off Gov't services, things have gone downhill. Assets sold off, prices rise, and just the most profitable aspects looked after.

Yes I don't like economic rationalism, but I'm also driven made by Gov't bureaucracy.
There has to be a middle road.
Have the Scandinavians got it right?