Weaknesses of solar and wind - Myths and Questions that require an answer Rob Jeffrey June 5, 2020
It is claimed that wind and solar are the cheapest sources of electricity and these sources should dominate the future electricity supply. This paper focuses on known additional costs and subsidies which are not taken into account in the costs of wind and solar put forward by their advocates. Advocates of wind and solar claim a cost of 62cents/kWh. This is, however, the price at the gate of the supplier. It does not include all the costs of supply necessary to convert this electricity from non-dispatchable electricity supply at the gate to dispatchable electricity supply at the point of supply to the customer. These are in effect direct subsidies to solar and wind suppliers, whereas they should be added as a cost to the renewable energy suppliers Renewables, such as hydro, biomass and thermal, have different qualities and are not considered in this paper. In any event, hydro and thermal are not options as they are not available in quantity domestically in South Africa. Gas is another fossil fuel which at this stage is not found in significant economic amounts in South Africa. The critical issues are that solar and wind have very low load factors and are variable intermittent and unpredictable. In other words, they are not dispatchable. In the case of wind, the load factor is an average of 35% or less and solar 26% or less. Their supply is weather dependent, and therefore backup must be available at 100% of the time 24/7. Coal has a load factor on average of approximately 80% and nuclear an average of 90%. Their load factors are affected by predictable maintenance requirements and generally to a lesser extent by unpredictable repair requirements. A reserve margin (or backup) of 20% has traditionally been considered sufficient to cover for both these events. Methodologies and more realistic estimates of the real costs of solar and wind, including back up, can be calculated using A simple approach using the load factor alone. This gives the cost of wind at R1.77/kWh and the cost of solar at R2.38/kWh. These costs must be compared to a coal cost of R1.31/kWh and nuclear at R1.44/kWh. More complex methodologies taking risk and uncertainty of outages into account and using variance or standard deviation as the estimate of risk put the costs of wind at R2.52/kWh, solar at R3.83, coal R1.10/kWh and nuclear R1.33/kWh. To the claimed costs of 62cents/kWh for solar and wind the additional costs that should be added include the items that follow in this list. Additional grid costs: Not only do transmission lines have to be built, but they will only be used less than 35% of the time. This low usage suggests that at minimum grid 1
costs of wind must be at least approximately 3x the grid costs of dispatchable power units if not more. The capital cost per kWh and the running cost per kWh must be approximately 3X that of reliable dispatchable power supply. Efficiency loss of backup and alternative electricity supply: Due to low utilisation, backup facilities would typically be running approximately 40% below their optimal efficiency. Their efficiency loss is in effect a direct subsidy of the solar and wind> Excess supply of electricity: Because electricity supply from solar and wind is variable, there will be periods where a surplus of electricity will be generated. In terms of the power purchase agreements (PPA), Eskom must pay the renewable producers for the excess power being produced. All these are additional costs that at present are passed on to the utility (Eskom) or other electricity producers or consumers. Insufficient electricity supply as a result of technology being unable to close the gap between supply and demand immediately: Because electricity supply from solar and wind is variable, unreliable, unpredictable and intermittent there will be periods where a shortage of electricity supply will exist. The economy will suffer as a result of the Cost of Unserved Energy (COUE). High Economic Cost of Unserved Energy: The IRP estimates the COUE at R87.85/kWh. This is as per the National Energy Regulator of South Africa (NERSA) study. A senior energy expert estimated that load shedding had cost South Africa over R1.0 trillion over the previous decade or about 1.5% GDP growth per annum. Insufficient electricity supply as a result of extended periods of weather-related conditions: The Higher the penetration of low load, high variable intermittent technologies, the higher the Cost of Unserved Energy: Models invariable are only as good as the assumptions used. Most models assume the certainty of output and do not take into account risk and uncertainty. The fact is that the real world is subject to risk and uncertainty. Reduction in sales by Eskom as a result of artificially low prices offered by renewable suppliers: Installation of renewable power direct at customers or potential customers premises of Eskom reflect finally as a lost demand or sales at Eskom Cost of backup for installation directly supplied by solar and wind: If there is a reduction in such customers electricity supply, Eskom is expected to provide immediate backup supply. Eskom must have the necessary substantial backup readily available. This is extremely costly. Cost of purchasing electricity from customers who have their own renewable installations: The trend is that customers can sell their surplus electricity supply to Eskom. Invariable, there is a commitment to purchase, which in return reduces the perceived backup required. However, this is not true as backup is still necessary for regular backup requirements but also the full installation of the renewable supply at 2
the customer’s premises. Either way, customers are paying for the additional costs involved. Destruction of industries and political, social-economic impacts: The move to solar and wind as set out in the IRP would result in South Africa’s coal industry shrinking by 46%. Coal mining accounted for 26.7% of the total value of mining production in 2015, making it the most valuable in terms of sales of the 14 primary mining commodities. Several previously prosperous communities in Gauteng and South Africa would become ghost towns with rising unemployment and increasing poverty levels. Social benefits would increase dramatically. Lack of permanent job creation: Renewable energy sources do not give rise to permanent jobs being created. Most jobs created by solar and wind relate only to the construction phase. Most jobs, mainly skilled jobs, are generated overseas in countries supplying equipment. These countries would primarily be Germany in the case of wind-related equipment and China in the case of solar equipment. Export of jobs and Loss of energy sovereignty: The move towards solar and wind will mean that South Africa loses it energy sovereignty, primarily to Germany for imports of technology and equipment related to wind and China for equipment related to solar. South Africa will effectively export its skilled jobs overseas and suffer a loss of skills. Instead of South Africa being an energy exporter, it will become an energy importer as a result of losing coal exports and becoming dependent on gas imports. Any current account deficit caused should be factored into the cost of solar and wind. Creation of a current account deficit and not utilising valuable natural assets: Coal is one of South Africa’s most significant commodity products and the country’s largest export. The importation of gas and loss of coal exports will result in an increasing and substantial current account deficit. Coal mining accounted for approximately 26% of the total value of mining production in 2015, making it the most valuable in terms of sales. Potential uranium reserves are also substantial. The drive for wind would deprive South African citizens of these benefits. Levelised Cost of Electricity (LCOE) is not a sound methodology to compare highly variable and interruptible electricity technologies with electricity supplied by reliable dispatchable electricity-generating technologies: A report entitled ‘Critical Review of The Levelised Cost of Energy (LCOE) Metric’, by M.D. Sklar-Chik et al., South African Journal of Industrial Engineering December 2016 concludes that “LCOE neglects certain key terms such as inflation, integration costs, and system costs.” The work of Paul Joskow et al. of the Massachusetts Institute of Technology published in February 2011 wrote a paper entitled Comparing The Costs of Intermittent and Dispatchable Electricity Generating Technologies. They note “Many international reports prove that such electricity supply is costly due to its variability, interruptibility, inefficiency and its requirement of 100% backup”. The test of global reality: There is nothing like the test of global reality. In 2016, the prices paid by industry in Germany were approximately 52% higher than France 3
(nuclear) and 86% higher than Poland (coal). The average estimates discussed above result in costs that are close to this global reality. The above costs are absorbed by Eskom or other suppliers or directly by customers. They can be measured in R billions /annum and should be added to the costs of solar and wind. Emerging economies need to focus on those technologies which are efficient and effective. In South Africa, mining, manufacturing and industry need security of supply of electricity at competitive prices. The only two electricity generation sources of Energy available in South Africa that can achieve these objectives in this country are High-Efficiency Low-Emissions (HELE) coal, otherwise called ‘clean’ coal and nuclear. The country must focus on raising its economic growth rate by ensuring it has a sustainable, secure supply of electricity at the lowest economic and financial cost. Any decision must be accompanied by the necessary supporting condition fostering domestic and foreign investment into its economy. The arguments above show clearly that solar and wind in the form of solar and wind in particular, almost certainly have substantial additional costs which are not fully accounted for in the current costs being utilised by their advocates. This also means that the so-called least cost optimum mix recommended by them is wrong. As a result, this methodology, as currently defined and used is severely flawed. The technique and methodology recommended uses statistical calculations based on variable estimates utilising the variance and mean of each technology to calculate the COUE. Current models do not utilise any such statistical and analytical technique. The above arguments and estimates lend force to the evidence that solar and wind, in particular, are unaffordable in the current economic situation in the country. The estimates strongly suggest that the least cost methodology is severely flawed and that going forward the renewable technologies of solar and wind should play a marginal role in any future technology mix for the country. The final nail in the coffin for South Africa is that increased penetration of wind will lead to a rapidly rising import bill for gas imports and the demise of its coal mining industry if not the entire mining industries. These are catastrophes which could ensure that the future of South Africa will move towards rising unemployment, increasing poverty and increasing social and political instability. South Africa needs to focus its energy plans on HELE or ‘clean’ coal, nuclear, domestic solar and limited gas.
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Rob Jeffrey is an independent economic risk consultant. He is the former MD of Econometrix and continues to consult for them. Areas of specialisation and expertise include global and domestic economic trends and strategies to foster economic growth, the development of several vital sectors of the economy, including industry, mining, agriculture, credit and financial services. One of Rob’s significant areas of expertise is the South African electricity and energy requirements of the South African economy. He has been the author or co-author of numerous reports, papers, presentations and articles on matters related to national industrial, Energy-related, economic policy and the carbon tax. He co-authored submitted and presented reports on the economic consequences of introducing the carbon tax to the Davis Tax Committee. Rob has broad practical experience and expertise in the industrial, construction, and engineering sectors. He was MD of Dorbyl Structural Engineering, Chairperson of the Constructional Engineers Association (CEA), the CEA representative on the Steel and Engineering Industries Federation of South Africa (SEIFSA), and an executive member of the Association of Steel Merchant Stockholders. He has sat on numerous councils and advisory panels. Rob graduated with a B.Sc. in Mathematical Statistics and Applied Mathematics at the University of the Witwatersrand and has Masters Degrees in Economics from Cambridge University and Business Leadership from the University of South Africa.
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Appendix Additional Notes that the Costs of solar and wind are higher than for coal and nuclear Additional costs highlight the myth of solar and wind which is accompanied by loads of misinformation. Operating costs are low for Solar and wind and far higher for coal and nuclear. The argument then becomes one of comparing Levelised Costs of Electricity (LCOE). The apparent low LCOE of solar and wind is another flaw and myth that leads to much public misinformation championed by idealists, vested financial and business interests and overseas experts. None of them appears to have any interest in the long term sustainable economic development of the South African economy. The CSIR estimates that the LCOE, which takes capital cost and all the above factors into account, for wind and solar is 62c/kWh, coal is R1.05/kWh and nuclear R1.30/kWh. Solar and wind apparently now becomes the clear winner. However, solar and wind need full backup, plus all the additional costs set out in this paper. The fact remains that, using wind as an example, solar and wind need 100% backup. Despite technological improvements, this leads to substantial grid and integration problems, which markedly increase the real costs of solar and wind. The reports avoid the issue that the renewable industry then effectively receives hidden subsidies from more reliable energy sources to cover these weaknesses as set out in this paper. In summary, the rankings are quite clear. Wind again becomes the most expensive option, Solar and wind, despite the protestations of many so-called environmentalists, are not capable of driving reindustrialisation and creating conditions suitable for high economic growth in a country such as South Africa. This paper has not touched on the vast land area required for windfarms and their grids. They have a devastating impact on the environment that goes with this. The following notes on each point raised previously are in addition to and should be read in conjunction with the points raised in the previous sections. 1. Additional grid costs: This suggests that at minimum grid costs of wind must be at least approximately 3x (100/35) the grid costs of dispatchable power units if not far more. The capital cost per kWh and the running cost per kWh must also be approximately 3X that of reliable dispatchable power supply. 2. Backup costs: This suggests that backup capital costs of wind could be approximately 5X higher per kWh [100/20] than say coal with running costs could be about 3.25X [65/20] that of reliable dispatchable power supply such as coal. 3. Efficiency loss of backup and alternative electricity supply: This would suggest the efficiency loss could be approximately 54% [(100-65)/65]. There would need to be a price increase of the backup or alternative electricity supplier of the same amount, namely 54%. This estimate is based on all solar and wind require 100% backup, which is used only 65% of the time, i.e. it is running at only 65% efficiency. 4. Excess supply of electricity: This would suggest that such events increase with increased use and penetration of solar and wind. Based on usage where for coal the load factor is said to be 80% (currently less) of the time, nuclear say 90%
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and only 35% for wind suggests that surplus electricity occurs at least about 2.3X [80/35] more frequently using wind energy. 5. Insufficient electricity supply as a result of technology being unable to close the gap between supply and demand immediately: Such supply shortages will often occur despite having a spinning reserve. These shortages arise more frequently when such changes are unplanned and occur more often in a random or unpredictable way. Renewable technologies, particularly wind and solar, are prone to this. There is a statistical risk of non-supply, which would increase with lower load factors combined with a higher variability arising out of low load factors and high variability and intermittency. A statistical calculation based on load factors and standard deviations of each technology can be used to estimate the extent of the likely shortfalls. The lower the load factor, the higher the standard deviation and the higher would be the resulting COUE. Equally, the higher the penetration of low load factors and high variability solar and wind automatically increases the economic COUE. 6. High Economic Cost Of Unserved Energy: The impact of Eskom’s latest stage 2 load shedding of 2,000MW is set to cost South Africa’s productive economy R2 billion in 13 hours daily according to some energy analysts. Together with corruption, these are frightening figures. No wonder there is insufficient domestic and foreign investments. Investors have lost confidence in South Africa managing itself. 7. Insufficient electricity supply as a result of extended periods of weatherrelated conditions: This would suggest that risk parameters would rise rapidly with increasing penetration of low load factor solar and wind with unreliable, high variability, high intermittency and low predictability. This is a statistical calculation based on load factors and standard deviations of each technology. As far as is known this is not sufficiently taken into account at present in the models. 8. The Higher the penetration of low load, high variable intermittent technologies, the higher the Cost of Unserved Energy: The extent to which these occur increases the risk of electricity supply shortages. The shortfalls remain true whether these be due to multiple short period inadequate supplies or as a result of the extended period shortages. Both cases result in economic costs to the area region or country, resulting in an increasing economic COUE. 9. Reduction in sales by Eskom as a result of artificially low prices offered by renewable suppliers: This results in a loss of revenue for Eskom. However, Eskom must still provide full backup for these facilities. 10. Cost of backup for installation directly supplied by solar and wind: Eskom must have a substantial backup readily available which is costly. This backup cost is, therefore, a direct subsidy to solar and wind. These additional costs should be added to the renewable cost. 11. Cost of purchasing electricity from customers who have their own renewable installations: The actual cost to Eskom will depend on the terms arranged. A calculation based on the current arrangements would almost certainly reveal that as a system, it would be cheaper to have permanent supplies from Eskom. For the customer as long as the customer continues to have cheap backup electricity available from Eskom the perception that the customer has achieved 7
lower-cost electricity is a reality. In effect, the customer is receiving a subsidy. The outcome for the country and the entire system is negative even though for the customer, it appears to be positive. 12. Destruction of industries and political, social-economic impacts: A report by Econometrix prepared in 2018 indicates that the countries coal industry would be adversely affected. The report found that the negative effect on the coal industry would reduce the GDP of South Africa by over 2.5% or R75.2. billion. Compensation of employees would be reduced by R25.1 billion. The investment would be expected to be R3.8 billion lower per year. Government tax income would be reduced by R16.2 billion. There would be a loss in employment of 29000 jobs in the coal mining industry alone and almost 162000 jobs in the economy. Approximately 1 million dependents would be adversely affected. 13. Lack of permanent job creation: It is interesting to note that Energiewende or the movement towards solar and wind in Germany is considered by many to be a total failure. Germany has closed its solar-related production facilities. China has expanded its manufacturing of solar-related equipment, and its production is mainly for export. Chinas primary major energy thrust is focussed on HighEfficiency Low-Emission (HELE) “clean” coal and nuclear. This is also the case in other high growth ASEAN countries and India. 14. Export of jobs and Loss of energy sovereignty: In Germany, the Energiewende programme has resulted in the country becoming dependent on energy trade with other countries and remains heavily reliant on its coal-generated electricity. This involves both the export of surplus electricity and the import of electricity when faced with electricity deficits. South Africa is not in the fortunate position to trade Energy with other countries on any scale. This trade happens more frequently than generally recognised. In fact, during the winter of 2016, Germany had an extended period with a chronic shortage of electricity. Many people suffered as a result. Germany and much of Europe has become dependent on gas from Eastern Europe and Russia. International energy experts and strategist consider that Germany has lost its energy sovereignty to Russia. There is real concern about this situation. 15. Creation of a current account deficit and not utilising valuable natural assets: South Africa has 55 billion tons of coal left which would last over 100 years. The discounted value of coal reserves is more than ten trillion Rand. The value of Uranium reserves is probably equal to this. South Africa cannot afford to leave these valuable assets, and their value-added buried in the ground. They represent to each South African of working age a value of over R500000 per working person (R0.5 million/per working person). 16. Levelised Cost of Electricity (LCOE) is not a sound methodology to compare highly variable and interruptible electricity technologies with electricity supplied by reliable and virtually continuous energy generating technologies. A study entitled “Nuclear Energy and Solar and wind: System Effects in Lowcarbon Electricity Systems investigated” 2012 by the Nuclear Energy Agency (NEA) and Organisation for Economic Co-Operation and Development (OECD) estimated the additional grid costs alone would amount to more than R0.3/kWh. A similar result and other observations can be found in the study entitled The Full Costs of Electricity Provision 2018 by the NEA and the OECD. 8
Various in-depth studies by experts around the world substantiate this fact. Such papers and reports include a recent Australian Research study by GHD and Solstice Development Services entitled “HELE Power Station Cost and Efficiency Report.” Another survey by B.P. Heard et al. entitled a ‘Burden of proof: A comprehensive review of the feasibility of 100% renewable-electricity systems’ concluded that “there is no empirical or historical evidence that demonstrates that such systems are feasible”. They also reviewed the CSIR proposals. The study found, “both the use of the terms ‘technically feasible’ and the attempted costing of the proposed system is inappropriate and premature”. A research report by D. Weißbach et al. (2013) on Energy Returned from Energy Invested (EROI) in Germany showed that solar and wind are uneconomic and will lead to economic stagnation. Another scholar, Tim Mount et al. in his paper entitled “The Hidden System Costs of Wind Generation in Deregulated Electricity Markets”, brings an interesting angle to this discourse. In his article of January 2011, he deals with the hidden system costs of wind generation. These hidden costs appear to be ignored entirely in current models. 17. Methodologies and more realistic estimates of the actual costs of solar and wind: A “simplistic” method using the load factor alone uses modest logic. The argument is that each technology should be able to support its own electricity supply. The calculations are that the cost of wind is R1.77/kWh (100/35XR0.62)). The cost of solar is R2.38/kWh (100/26X62) cents. These costs compare to coal which is estimated R1.31/kWh (100/80XR1.05) and nuclear at R1.44/kWh (100/90XR1.30). These are purely guideline estimates and do not take into account the additional grid costs and other costs set out previously. The more complex methodologies taking risk and uncertainty of outages into account and using variance or standard deviation as the estimate of risk need to be discussed separately. 18. The test of global reality: If any further proof is required, it is a reality that there is no country in the world with high penetration solar and wind, where electricity prices are lower than coal or nuclear-powered electricity where available. These facts include results from countries such as Denmark, Germany, Ireland, and states within countries such as Australia like South Australia and the USA such as California. Many such countries and states are experiencing energy poverty and deindustrialisation. High growth emerging economies such as China, India, the ASEAN countries are focussing on using fossil fuels and nuclear. This is also true of Russia and countries in Eastern Europe, including countries such as Poland.
Other Factors Many other factors need to be taken into account, including environmental economic political and social aspects. Such other factors that need to be taken into account include:
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Reduction of sales by Eskom from economic policies: The poor economic policies of government have effectively reduced economic growth. In particular, they have reduced the development of industry, mining and generally the goods-producing sectors. This has led to a structural change in the economy where the service sectors particularly government with low electricity intensivity and public sectors, have experienced high growth. In contrast, goods-producing sectors with high electricity intensivity have experienced low growth. The growth in the service sector is has led to relatively low electricity demand growth. In the long-term, this is an unsustainable economic growth model for a country such as South Africa which requires as set out in the National Development Plan NDP high growth in its good producing sectors. This would suggest that the below-average electricity growth of Eskom has been as a result of factors partially beyond Eskom’s control. If correct economic policies are followed electricity growth should increase. Planning must take this into account. Fundamentally the economy requires an increase in reliable baseload power.
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