Electricity supply part 4 - Costs

In Part 1 of this series, we saw how electricity demand changes on an hourly basis, and that if we want to power the electricity grid using renewable energy sources, we are going to need energy storage.

Part 2 showed a way of estimating how much storage we would need, if we just  nicely meet our average energy demand using renewables without wasting any. (It was a lot).

In Part 3 we started working with the idea that if we're prepared to build more renewable energy generation than is strictly necessary, we could get by with a less storage - a lot less.

Let's have a go at costing this up.

Assumptions

In 2021, the electricity price paid by consumers is about 2/3 network, environmental and retailing costs; and about 1/3 generation costs [1].  What we spend through our electricity bill has to cover not only the construction costs for solar and wind farms, the cost of coal and gas; but also all of the office costs,  advertising, insurance,  network maintenance and management. And a gazillion other things you've probably never thought of.

I'm going to assume that the non-generation components of residential electricity price remain constant at about 20c / kWh ($200 / MWh). This is unlikely, because wiring a whole lot more renewable generation and storage into the grid will almost certainly require network  upgrades. So this assumption will result in an underestimate of the costs. I'm also assuming that this residential value applies to every user over the network.

I'm going to assume that the currently installed generation capacity in NSW is, on average, neither insanely profitable, nor loss making. Electricity generation companies don't pay fantastic dividends. They make a small profit. It's a competitive industry. 

If assumption this is true, the income earned by the different generation types in NSW is what's required to make those generators acceptably profitable. 

Making this assumption, in 2021 in NSW, black coal earned $80 per MWh produced, gas earned $185, wind earned $64 and solar $45 per MWh produced. Note that at any given  moment in the grid, all generators earn the same price for the electricity they're producing. The reason why the average price earned is different between the different fuel types is because price varies during the day, and the generators produce at different times of the day. Solar generates power in the middle of the day when the price is low (when the electricity is least useful). Gas generators operate during the evening peak when the price is high. So the price is not only a measure of the cost of generating the electricity, it's also a measure of the economic value of the electricity which is produced by that technology.

The lifetime cost of renewable energy projects don't depend on how much electricity they produce. ie, the "wear and tear" factor isn't significant. I'm assuming that a wind farm that sits idle for its 25 year service life costs about the same to build and maintain, compared to one that generates power whenever the wind blows. That allows me to use the 2021 generation costs to estimate future costs with different levels of excess generation. Suppose that the capacity factor for wind in  2021 was about 20%, and that had resulted in the reasonably profitable generation cost of $64 per MWh. If we build so much wind power that it has an average capacity factor of 10%, it would need an average selling price of $128 per MWh produced to stay profitable. At 5%, it would be $256, and so on. The more we over build renewable generation infrastructure, the more expensive the renewable electricity becomes.

Storage needs are fulfilled by lithium batteries. I know this is not realistic, but "batteries!" is one of the stock responses you get whenever the variability of renewable energy is mentioned so I thought it would be interesting as a case study. Also, batteries are the most popular storage technology that is going into the grid right now and cost data is becoming more reliable.

Mongird et al. (2019) [2] put the cost of lithium battery grid energy storage at US$469/kWh, falling by 25% by 2025. We'll just use their 2025 estimates, converted to Australian dollars at 1.0AUD = 0.70USD. This gives us AUD$517 per kWh of installed capacity including power conversion system, buildings and engineering, with a battery life of 10 years [2., table ES.1].

Costing up some systems

In previous posts in this series, we just scaled "renewables", keeping the same ratio of solar to wind that's currently installed in NSW, in order to work out how much storage is needed to just barely prevent a blackout.

In 2021, utility scale solar was about 40% of (solar plus wind) generation, so let's call the cost of generation 0.4 x $45 /MWh + 0.6 x $64 /MWh = $56.4 /MWh. We'll assume that this is constant up until the point we start spilling renewable generation, because having storage allows us to soak up generation whenever the resource is available, more or less giving us the same cost structure as now. We can scale up  the price by the spill fraction we calculated in previous posts. For example, if we spill 50% of potential renewable generation, the price per MWh will have to be twice as high because the remaining 50% of actual generation has to cover all of the costs and generate that same acceptable profit.

The quoted cost of battery storage needs to be expended every 10 years because of the limited lifetime of lithium cells. Dividing the total storage cost by the total electricity generated over 10 years gives us a storage cost spread over each MWh used in the state. Both figures presented in Figure 1 below.

Figure 1 - estimated costs for storage and generation, corresponding to the Figure 4 of Part 3.

A couple of things to notice here. I've had to use a log axis to be able to sensibly show both costs on the same graph. The optimum point is not, as I had supposed, somewhere around the 30-40% spill point. It's far to the right of that because even at 60% spill (corresponding to more than twice the generation capacity that we nominally need), the storage costs per MWh used are still nearly 10 times as high as the generation costs.

What does this mean?

Taking the best case scenario I've got so far, at the right hand side of Figure 1, this means:

• Building 20 times the solar and wind generation that we currently have installed in NSW. The wasted generation opportunity (because of the times when the energy has nowhere to go) means that the renewables cost $160 per MWh (similar to current gas fired power costs, more expensive than coal)
• Building and replacing every 10 years, about 162,000 MWh of batteries at an ongoing cost of about $8.5 billion per year (just in NSW). For context that's about 1.5% of NSW GDP, ballpark the same as we spend on the military. Just for batteries.
• Retail energy costs ($160 /MWh generation, $1363 storage, $200 network + other) = $1723 /MWh or about 172 c /kW. Expect your electricity bill to rise by a factor of at least six

Bear in mind the limitations I outlined with the assumptions made, plus we're ignoring anything like limits on resources or manufacturing (or international supply chains or inflation, for that matter). You can see it's not as simple as just installing batteries. Using some gas for peaking power generation on a few occasions through the year would greatly reduce the costs involved.

For a future post, perhaps.

References cited

1. AEMC, Residential Electricity Price Trends 2021, Final report, 25 November 2021

2. Mongird, K., Viswanathan, V., Balducci, P., Alam, J., Fotedar, V., and Hadjerioua, B., Energy Storage Technology and Cost Characterization Report, PNNL28866, US Department of Energy, July 2019

An integrated energy and security plan for Australia

Where to start? The lack of systems thinking from from our leaders is mind-boggling. 

Ok, let's start with the submarines.  Nuclear submarines, I mean - really?

The whole point of nuclear submarines is that they carry nuclear weapons, can travel anywhere in the world without refuelling, and can stay submerged for months at a time. So your enemy never  knows where they are, and hence isn't willing to risk a direct confrontation. Our brand new AUKUS (awkwas?) nuclear subs won't have a nuclear weapon deterrent, and as a medium sized regional power I don't see the strategic usefulness of the long range capability. Also, nuclear subs are not particularly stealthy - pumps need to run at all times to keep the reactor core cool, and they leave a waste heat signature in their wake. Then there's the fact that we don't have a nuclear industry - we have neither the expertise nor the systems in place to be able to operate, maintain or refuel these things. 

A much better option would be to develop smaller and more numerous home-grown subs to take out enemy shipping and submarines. Powered by hydrogen fuel cells. Those things have no moving parts and are completely silent. Hydrogen and oxygen would be carried onboard, possibly as liquids, allowing extended operation underwater. A very effective deterrent in our region.

As a medium sized regional power, we are not the lion on the Serengeti. Our strategy should be that of the porcupine - not trying to throw our weight around, but make ourselves a really unattractive prospect  for larger powers. 

The core of a hydrogen industry

This constitutes a way to jump start large scale hydrogen production in Australia.

The need to decarbonise the energy sector is urgent, but global warming is by no means the whole story. At least as serious, and certainly more urgent, is fossil fuel depletion. Especially crude oil which when refined fuels effectively all of our transport and military (including our current submarines).

We are horribly exposed on this. Australia  imports about 2/3 of its transport fuel and now has only two domestic refineries remaining. Our "strategic" petroleum reserve is only 21 days worth of consumption, far less than the minimum of 90 days recommended by the International Energy Agency. Not only that, but a large part of our reserve is held on our behalf in the US where it won't be of much use in the event of something like a disruption to shipping. It's no exaggeration to say that if anything were to happen to international trade in crude oil, Australia would be in serious trouble (martial law, rationing) within a few weeks.

Not that a hydrogen industry is going to fix this, it's needed for other reasons:

• to power the submarine fleet
• liquefied (or possibly stored as ammonia) as a large scale energy storage for the grid. See for example this post on the need for storage in the grid. 
• as an export (liquid or as ammonia)

Electrolysis of water and storage of the hydrogen and oxygen as liquids is a good way to soak up the vast quantities of excess renewable energy that we'll have during summer months. And a good way of keeping submarine fuel on hand.

What about transport then?

This is an urgent problem, and should be a pressing national security concern. The critical thing in the short term is to be able to continue to power the transport fleet to ship goods (especially food) around the country.

Short term - start building up the rail network. Dual rail lines all the way between the capital cities and regional centres. Not high speed rail, just normal speed, with dual lines (and maybe even passing bays!) would be nice. Build infrastructure to ship liquefied natural gas from the west to the east. Convert diesel locos to run on LNG, and some of the long distance trucking fleet to run on either LNG or CNG (compressed natural gas). There's no down side to this - it'll be cheaper than diesel, cleaner both in greenhouse emissions and in sulfur, and reduces risk from international supply chains.

Medium term - electrify the whole rail network and start converting locomotives to run as hybrids with liquid hydrogen (or ammonia). It might make sense to build synthetic fuel plants to convert gas to methanol and then dimethyl ether as a diesel substitute for smaller trucks and cars, or to synthetic gasoline for cars (most importantly for emergency service vehicles).

Longer term - battery electric trucking for short distances to and from the rail head to warehouses and retailing.

A few words about nuclear power

In my view this is unwise, for the following reasons:

• We don't have a nuclear industry and we would have to build one almost from scratch, including developing expertise and setting up the training capabilities in universities. The same is true for hydrogen liquefaction and storage, although it's less technically challenging and we already have some of the skills needed. Investing in developing a nuclear industry represents a big opportunity cost to develop a more durable alternative though.
• We have other choices. Australia has shedloads of every energy source except crude oil. We might be much better placed exporting our uranium to other countries that have already made the decision to go down the nuclear path. As a source of export income and also a source of soft political power.
• Despite the required investment, it's not really a long term prospect. There's actually not that much uranium available globally. If everyone in the world were to try to generate their electricity using current nuclear technology, the global supply of U235 would last about 10 years. Yes, breeder reactors and yes, molten salt thorium reactors, but the former hasn't yet been made commercially viable and the latter is not much more than a research prospect. Decades away, at best. We can't wait that long, for something that might not work out.
• Spent nuclear fuel disposal. We (humans) have been generating power from uranium for 70 years, and we still haven't implemented permanent storage for the spent nuclear fuel.  The Onkalo repository is the  first in the world. They applied for a license to start storing waste from 2024. All of the spent nuclear fuel ever produced is sitting around on the surface and requires active systems (laws, management regimes, fences, surveillance, men with guns) to keep it secure. Now ask yourself this: what happens to all of that spent fuel that isn't safely disposed of, when those active management systems go away? It doesn't even have to be as dramatic as social collapse: war would be enough. 
• Inability to adequately model risk. Chernobyl was caused by a combination of bad design and human stupidity. Fukushima was a combination of poor design choices and failure to anticipate an earthquake and tsunami of that magnitude. The point is, that neither of those scenarios were part of the risk analysis that was done in setting those plants up. Far from being one-in-a-million events, we have a lived history of two catastrophic failures in seventy years of nuclear power. We really don't have a good way of modelling these very low probability but very high consequence events. The clean-up at Chernobyl and Fukushima is ongoing, with no end in sight and at  probably unknowable cost. 

Not impossible, but doesn't seem like the best option to me. Solar and wind are much more known and knowable quantities, and have the potential to be truly long term solutions. The difficulty there is the need for large amounts of storage to offset their inherent variability. 

Unfortunately, we are now out of good options.

Electricity supply part 3 - balancing storage capacity with generation capacity

This is part 3 of a short series of posts thinking about energy storage needs for a renewable electricity grid in NSW Australia.

In part 1, we saw that electricity demand and renewable electricity generation both fluctuate over time. To generate enough renewable power on average for the first week of April 2022, we need about 4.7 times the currently installed renewable generation. There's a big problem though, because the electricity grid must be balanced at all times, not just on average. At 5:30am on 5th April 2022 the sun hadn't yet risen and there was almost no wind blowing in the state. We would have needed more than 120 times the currently installed wind farms to avoid a blackout!

Clearly, there is a need for energy storage to avoid over-building renewable generation equipment to the point where most of it is doing nothing, most of the time. We had a look at this in part 2, where we worked out the minimum amount of storage required for that first week in April - assuming that we had just exactly enough renewables to meet the average demand. We needed a minimium 96,000 MWh, or about 14 hours at average state power consumption. 

There's still an obvious problem here though - we don't necessarily need so much storage if we're happy to waste  (not generate) some of the renewable electricity. So far we've only considered two extreme cases - no storage and massive over generation (in part 1) and maximal storage with no over generation (in part 2). Both of these extremes will be very expensive. Likely a cheaper solution will be to have some level of over generation - which would require less storage to avoid a blackout. The right balance would be the combination with the lowest overall cost.

Working out storage needs with some over-generation

We're going to need a slightly different approach than what we used previously. As in part 2, we'll start the storage number at zero, at the start of the week. When we withdraw energy from storage it goes down, and when we store electricity it goes up. However, when the storage reaches the full state, any additional generation has nowhere to go and gets wasted ("spilled" - which in  practice means not generated in the first place, although it could have been if there was somewhere for it to go).

Then, we once again adjust the generation high enough such that the energy storage ends the week at about the same place it started - "zero". We end up with a pair of numbers - a required energy storage value in MWh, and an energy generation value - some of which is used and some of which is spilled. 

Let's further suppose that "zero" on the energy storage graph corresponds to half full (this isn't quite right but probably minimises the error in guessing how much energy we might have remaining on any given midnight in April).

Figure 1 below shows what happens with the storage level. Storage fills from sunrise on day 1, reaching the maximum level shown as 30,000 MWh on the chart. The storage minimum of -45,912 MWh occurs in that early morning of the 5th of April.

Figure 1 - Electricity storage level for NSW in the first week of April 2021, with 7 times currently installed renewable power generation (solar and wind). Renewable generation is curtailed when the storage is full, which happens in the middle of each day. Total storage required to avoid a blackout is the  maximum storage level minus the minimum (30,000MWh - -45,912MWh = 75,912MWh)

This has resulted in 31% of renewable generation being curtailed, mainly solar power in the middle of the day that has nowhere to go because the storage is full and generation exceeds demand. 

As we generate more renewable energy, we expect a smaller required storage. Although we see that here, the effect is not very strong because of that night of 4th - 5th of April when there was not much wind generation. The size of the storage, just looking at this week, is that required to get the state through that particular night.

Widen the lens to a whole year of data

One week looks nice on a graph. Although we've captured an interesting event on the 5th of April, we don't know much about those other types of variability. Let's consider how this looks for the whole year of 2021, applying exactly the same ideas but probably without the graphs now because they'll look like cat fur.

I've had trouble locating the data for rooftop PV, so I'll leave that out for now (that actually helps a bit because it  means we have  proportionally less solar and more wind, which helps us get through the nights). I'll repeat the analysis at the end if I can  find the data again.

Figure 2, below, shows how this looks for the whole of 2021, now showing "End of Month" on the abscissa, instead of "End of Day". I've scaled up the generation up enough to just meet demand over the year (7.05 times the currently installed wind and utility solar plant). There's no energy spill, but we need at least 4.88 million MWh of energy storage (equivalent to meeting the state's entire energy demand for a 29 days running with no generation). We'll get to costing that out in a future post.

Figure 2 - 100% renewable power, no excess generation over the year (no spill) - requiring 4.88 million MWh of energy storage. That's 4,880 GWh, or 29 days of storage at state average power consumption.

You can see the problem here. Most of the draw down happens in winter from the end of April to the end of July. Most of the storage capacity is only used once per year, for that big winter dip. Figure 3 shows how the situation looks if we go to 20 times currently installed solar and wind. Now we waste 65% of the renewable energy we could potentially generate, but we only need 162,000 MWh of storage (equating to about 1 day of energy storage, instead of about a month).

Figure 3 - 20x current renewable generation. Only 162,000 MWh of storage are needed, and the storage is charged and discharged more frequently (that's good). However, we waste about 65% of the renewable energy that we could potentially have generated because there isn't anywhere to use it.

Figure 4 shows how the required storage varies as a function of overgeneration. The left hand side corresponds to just barely enough generation (no wastage) but large amounts of storage required, with just over 7 times currently installed renewable generation. The right hand side corresponds to 20 times currently installed renewables, 65% of which is wasted (curtailed, or spilled), but much less storage is needed.

Figure 4 - Storage requirement vs overgeneration (presented as % of generation which is wasted). High levels of overgeneration are wasteful in terms of renewable generation infrastructure, but efficient in terms of storage infrastructure, and vice-versa.

A trade-off is required

Hopefully this makes it clear that a trade-off is required. Efficient use of renewable generation infrastructure requires excessive and inefficient storage. Minimising the amount of required storage requires over-building of renewable infrastructure and wasting of the potential to generate energy, particularly during the summer.

The best trade-off is the one that minimises overall system cost - probably at between 20 and 40% energy wastage,  going from the shape of the curve in Figure 4, but we'll try to put some dollar figures on that next time.