Energy Planning for a Changed World

The speed of change in the costs of renewable energy technologies puts government energy planners under considerable strain. If the planners overestimate the current costs of technologies, they will overestimate future costs and skew the rationale behind energy policy strategy. But speed of change may not be the only factor. Planners may need a vision of a new energy landscape.

The Australian Government’s Energy White Paper, published in December 2011, says it examines factors that will shape the country’s energy future and its potential development paths. But that claim is being contested by people in the PV industry, in the media and in academia.

The government seems to have been caught out by the speed of change in the renewable energy industries. According to Kobad Bhavnagri from Bloomberg New Energy Finance, the Australian government’s figures may overestimate by three times the capital costs per MW of large-scale PV installations. Solar PV prices have fallen by 34% since 2009, Bloomberg points out. Using data points that are even a year out-of-date can result in cost assumptions that are too high.

Some of the figures relied on by the government in its December White Paper had already been criticized as out-of-date in a report published by the Melbourne Energy Institute at the University of Melbourne in May 2011.

The Melbourne Institute compared data from a range of international and Australia-specific studies of current and future costs of three renewable energy technologies (wind power, PV and Concentrated Solar Power).

For the photovoltaics comparison, they used international data from publications by the International Energy Agency and the European Photovoltaic Association. The Australian-specific datasets were the 'Australian Energy Generation Technology Costs - Reference Case 2010’ report by the Electric Power Research Institute and a dataset from the Australian Energy Market Operator (AEMO), largely based on the EPRI analysis. It is data widely used by the Australian energy industry and by the Australian government.

Cost gap

The differences between the Australian and international current costs and projected future costs were considerable. The Australian EPRI analysis predicted the 2015 costs of PV will be over $8000/kW for a non-tracking system, with capital costs reducing to $5500 / kW in 2030. The IEA reported the 2010 capital cost for utility scale PV facilities as $4060/kW and projected reductions in capital cost of 40% by 2015, and 50% by 2020. The EPIA reported the 2010 capital cost as being $3600/kW. They expected a capital cost reduction of 50% by 2020.

That the data being used by a government machine has gotten stale is not that surprising, says Roger Dargaville, a contributor to the Melbourne Energy Institute study. It is easy for government estimates on the cost of renewable technologies to become out of date because the changes in the technology happen so quickly. Dargaville describes the government’s use of the old numbers in its latest White Paper as “frustrating”. But, when it comes to PV, he can understand the government’s struggle to keep up. “I think that it is surprising how quickly photovoltaics have become very inexpensive.”

There may be very good reasons for the differences between global estimates and Australia-specific figures, adds Dargaville. “Different labor costs in countries are going to have a significant impact on the levelized cost of energy,” he points out. Engineering costs may be substantially higher in Australia, as well as planning and administration costs. Australia requires very high safety standards that may not be expected in other parts of the world.

Policies rely on projections

Even if the government’s current estimates of costs were correct, there would still be a problem, according to Patrick Hearps, a co-author of the Melbourne Energy Institute’s paper. “The real problem is when you project costs ten or 15 years into the future.” The argument for greater policy support for renewable energy sources is considerably weakened when renewables such as PV look totally uncompetitive far into the future. The Australian government is still expecting coal and gas to be the dominant technologies for power production for the next 20 years.

The White Paper’s modeling projects that small-scale PV will cease to grow after 2030. “Remarkably, it seems large-scale PV was not considered as a generation option in some white paper scenarios, despite the fact it is already widely used across the world,” Bhavnagri has written.

“In fact, where there is good solar resource in Australia, PV is rapidly heading for grid parity when you take into account transmission costs,” says Dargaville. “Australia has an aging distribution network and increasing peak demand.” That is putting a lot of strain on the network. “Most of the price increases we have seen recently have been because of distribution cost increases.”

Picturing tomorrow

It would be easy to see shadowy figures from Australia’s oil and gas lobbies behind the downgrading of the potential of PV in the strategic planning of the Australian government. The failure may be more one of imagination than intent.

“In Australia we have a very nice, efficient, energy market. It is relatively transparent, says Roger Dargaville. “Moving away from centralized generation would result in a general shake-up of the whole system – the way we generate power, distribute it and price it. It would require a complete overhaul of the markets and our energy policy. Increasing input from distributed technologies like PV would introduce market anomalies that make it very difficult to ensure the right investment signals in the market. You would have different entities owning distribution networks, different entities owning the grid, different entities owning the generation.

“Setting up the right policies so that all the components in the system provide the right incentives to cope with an increase in PV would be a major challenge,” says Dargaville. “I’m not sure government departments are ready for that at the moment.”