Baseload power era over

Traditionally, electricity has been generated by giant baseload power stations--most often coal, but also sometimes nuclear.  There was some limited ability to scale production up and down slowly, but at peak demand, baseload had to be supplemented by peaking gas generators or, conversely, when there wasn't enough demand (between midnight and 5 a.m., for example) generators had to be disconnected from the grid and the power "spilled".  That was why in the old days, heating your hot water cylinder after midnight was encouraged.  At least that way some of the surplus power was used.

When renewables came along, they added a new complexity to managing the grid.  Initially, grid operators were afraid that even 5% of generation from renewable resources would cause the grid to crash.  In fact, thanks to good forecasting (we have a pretty good idea of wind speeds tomorrow or the day after, hourly, though not minute by minute) and growing experience and expertise, countries with 20, 30 or even 50% renewables in the mix have managed to maintain grid stability.  It remains true, though, that getting renewables to 70, 80, or 90% will require "firming".  This is where the variable supply from renewables is moved closer to the supply from baseload, using gas or storage--hydro, pumped hydro, batteries, and molten salt storage associated with concentrated solar power (CSP).  Actually, "firming" is better than baseload, because demand fluctuates during the day, and while baseload struggles to deal with that, gas can produce and storage can release electricity when it is needed.

The critical component is cost.  If renewables are cheap enough, utilities have a strong incentive to use them, provided the cost of firming isn't too much.  Typically, to date, most firming has been accomplished using gas peaker plants, but already, batteries are getting cheap enough that they are starting to compete head to head with gas. 

[Australia’s] Origin Energy says the cost of wind and solar farms has fallen so far it is now cheaper than the marginal cost of coal generation, and the company is moving on from the concept of “24/7 base-load”.  The assessment was made by Greg Jarvis, the company’s head of energy trading and operations.

“I have been in this game for so long … the one thing I have seen is just the cost of renewables really change the game,” Jarvis says. “It is amazing what we have been seeing. Renewables are cheaper than the marginal cost of black coal at the moment. They are very cheap.”

Jarvis puts the cost of solar in the mid $40s/MWh and the cost of wind at the low $50s/MWh. That cost of solar is around half the average price of wholesale electricity in most states this year. And with the falling cost of storage – this is likely to enable “firm” renewables to emerge as a serious contender to existing fossil fuel plants.

Jarvis also made it clear that Origin Energy has moved on from thinking about new generation in terms of “base-load”, which stands in sharp contrast to current government thinking and the conservative commentariat. Asked if Origin Energy had moved beyond the idea – promoted by the federal government and many in mainstream media – that reliability depended on 24/7 base-load power, Jarvis said: “Oh, a long time ago. The idea of base-load power stations is well and truly gone.”

He cited Origin’s recent investment in its last coal fire generator Eraring, and its efforts to make it more flexible so it can power down in the middle of the day so Origin can focus on cheap renewables, before turning up the power at peak times.

[Read more here]

When Jarvis talks about "marginal cost" I think he means "operating cost", i.e., the cost of running the plant ignoring depreciation and debt repayments.  He may also be excluding maintenance and repairs.  Total long-run cost is higher than operating cost.  But if operating cost of coal is below the total cost of renewables, then it's hard to justify continuing to use coal, even on a fully depreciated power station, let alone a brand new one.  Notice how Origin is trying to reduce power output over midday, when electricity from solar panels is pouring into the grid, but not in the mornings and afternoons.  But this is only financially feasible with an already-built power coal-fired power station.  With a new one, you'd want to run it to as close as full capacity as you can so that the constructions costs and depreciation can be spread over as much output as possible. 

The costs of wind and solar (new wind and solar) Jarvis quotes are also significant.  A year ago, Origin quoted average costs for new solar/wind as A$67.5.  Now, solar is in the "mid-40s" and wind in the "low 50s"--an average of below $50/MWh, which means that costs have fallen another 25% over the last year.

I've updated Origin's original chart below--the blue dot shows where costs/prices are now:

To everybody except those still living inside their right-wing echo chamber, it's very obvious that coal's days are numbered.  Origin is only making Eraring (which is fully depreciated and paid off)  more flexible as a temporary measure.  In 5 years, batteries will be cheap enough to make even varying coal power station output by as much as Origin plans to do, too costly.  So even existing coal power stations will be shuttered.  An increasing level of renewables in the grid will drive down wholesales prices until coal is unprofitable.

This is a pattern being repeated round the world.  It does mean that any new coal power stations built are likely to be "stranded assets".  Once the operating cost of coal exceeds the cost of renewables, keeping even new coal power stations going will just mean that the owners are digging an ever deeper hole for themselves.