After months of very silly debate about clean energy, one thing is abundantly clear: the electricity market is evolving much faster than most politicians and commentators can understand it.
To be fair, highly technical issues aren't a good fit with politics in general. The detail is dead boring, so the media focuses on the warring political tribes, and it quickly becomes a breathless commentary about 'which side will win', devoid of crucial context.
So we have outrage-bait like federal MP Craig Kelly saying 'people will die' this winter because of renewable energy. Or shock jock Alan Jones saying the new head of the Australian Energy Market Operator, Audrey Zibelman, is 'ideologically constipated' and should be 'run out of town'.
As I explained last month, the story underneath all this distraction is that wind and solar have already changed the game. As that big Finkel report no one read made clear, 'there is no going back from the massive industrial, technological and economic changes facing our electricity system'.
Ultimately, it's a story about how the whole paradigm of the energy market is transforming.
The old paradigm, the one still lodged in the heads of most politicians, rests on 'baseload' power. The graph below, from a 2016 UNSW study (PDF), illustrates the concept. Coal generators operate 24/7, represented by that slab of blue at the bottom. When we need more electricity, other generators turn on, such as 'intermediate' or 'peaking' gas plants. Those are represented by the yellow part of the graph, rising and falling as required to meet fluctuating electricity demand.
Figure 1: J. Riesz, B. Elliston, P. Vithayasrichareon, I. MacGill (March 2016) '100% Renewables in Australia: A Research Summary'. CEEM Working Paper.
This is the paradigm that existed before large amounts of 'variable' renewable energy, like wind and solar power, entered the picture. It's Grid 1.0 — old, centralised and based around dirty fossil fuels.
Now let's look at Grid 2.0 — a cleaner, decentralised and more flexible system. Although wind has a variable output, it doesn't displace the yellow 'peaking' part of the graph. It displaces baseload. That gives us a new paradigm, an energy market of the future:
Now here's the shift together:
Why do variable renewables replace 'baseload' coal? It has to do with how our electricity market works. Each generator offers electricity to the market, and the cheapest is used first. This is called the 'merit order' dispatch process.
When the wind is blowing, wind power is virtually free because it doesn't have to pay for fuel. So wind farms can bid practically zero. In a market where there's lots of wind farms, coal power stations will be called on less and less. Gas can be ramped up and down quickly in response, but coal power stations are classic 'baseload'. They were designed to run all the time and they're not very flexible.
This means wind plays havoc with coal's business model. The chief executive of the Australian Energy Council, the lobby group for large electricity generators, has written that the Northern Power Station in South Australia closed because 'it couldn't operate commercially given the amount of renewables in the grid'.
A recent report from leading energy analysts RepuTex explains the effect in more detail. As wind is now the cheapest power source, 'large amounts of low-cost wind generation are displacing competing generation, causing such plants to generate less energy, recover revenue less frequency, and eventually exit the market once it is no longer profitable to operate'.
Plus there's another factor at play that squeezes out coal — rooftop solar. When the sun is shining people get electricity from their roof instead of from the poles and wires leading to their homes. So rather than increasing supply, as wind does, home solar panels actually reduce demand on the grid during daylight hours. In fact, they've already shifted the peak to a later time.
If we return to that 'merit order' bidding process, we can imagine the two effects working together. Wind power pushes coal further down the order of generators that will be dispatched. Rooftop solar reduces the amount of electricity needed during the day, which again leaves less room for coal. And the variable nature of both requires a more flexible approach that older coal power stations just weren't built for.
Here's a graph from a Deloitte report that sums it up:
What does all this mean? That coal will increasingly struggle to maintain its position.
Analysing the national electricity market to 2030, RepuTex found: 'With a premium placed on flexible generation that can ramp up or down, "baseload only" generation — irrespective of how clean or dirty it is — is likely to be too inflexible to compete in Australia's future electricity system.'
There's one other thing not explained often enough in this debate — the role of gas in setting electricity prices.
Remember that the electricity generators get used in order from cheapest to most expensive. But here's the catch — the most expensive sets the price for all the bids.
Giles Parkinson, editor at industry news site RenewEconomy, explains it using a folksy analogy even Barnaby Joyce would understand: 'Imagine going into a supermarket and buying five apples for 50c each, and then deciding you want to buy one more. The vendor says that the price of the sixth apple is $10. And you have to pay a total of $60 for all six apples if you want it. That's kind of how the electricity market works.'
In Australia, that sixth vendor asking for an outrageous $10 an apple is a 'peaking' plant that burns gas to create electricity. That means, as Dr Hugh Saddler demonstrated in a recent report, the chief culprit of rising power prices is the rising gas price. And the reason for that is the opening of massive gas export hubs in Queensland, sending Australian gas overseas instead of supplying it to the domestic market.
All of this isn't sexy or inflammatory, but it's the real story of what's going on. Wind and solar are disruptive technologies, upending the status quo. They're cheaper and more attractive to investors, so they'll keep getting built. Meanwhile, the financial incentive for big, slow, inflexible 'baseload' power has dropped away. And gas, not renewables, is what's driving higher wholesale power prices.
All this was hard to imagine five years ago. The energy market is evolving, fast. If only politics kept pace.
Greg Foyster is a Melbourne writer and the author of the book Changing Gears.