Grieg,

I was wrong the average price of wholesale energy in 2008 from NEMMCO website was 5 cents per kwh in NSW not 6 cents. It doesn't matter what the cost is as long as the running costs of 1 cent per kwh is less than selling price be it 5 or 6 cents. It means it takes longer to repay the money.

Your capital costs include the cost of finance. My capital cost doesn't.

I have taken the capital cost of "per continuous kw" over a period of years which takes into account downtime or times when the sun does not shine. All power plants are down for periods of time and the per continuous kw takes that into account. I used a lifetime of 30 years for these plants which is an underestimate. To get the capital cost per kwh get the cost per installed "continuous kw" and divide by (years times hours) and it gives you repayment cost per kwh. It has been difficult to find the costs because these are typically commercial in confidence. However, it doesn't matter the exact figure because we know that as we build more so the cost will come down 20% each time we double capacity while the price of energy will not go down. My estimate is that we will have to double our renewable capacity at least 12 times (or 4000 increase) to replace all fossil fuels. Even if the current cost per kw is 20000 by the time we have replaced all fossil plants the cost will be 2000 per installed kw.

Investing in renewables is a reasonable investment now with a payback of 15 to 20 years and will only get better.

Fickle Pickle,

As I have said, you clearly do not know how to do a levelised cost analysis for a capital intensive project. And that is why you arrive at the incorrect conclusion that investing in renewable is profitable.

[FP] “Your capital costs include the cost of finance. My capital cost doesn't.”

And that is why your calculation is wrong from the outset. It isn’t possible to build a power plant without incurring the cost of financing the project. It is silly to assume that capital can be raised for free, that investors are willing to part with money for no return. Why would anyone do that? Power plants are not appreciating assets, they are depreciating assets … they have a limited life of around 30-40 years, and then they have zero value. Therefore, investment in power plants require a return on investment. And the cost of solar power is determined nearly entirely by the relatively high capital outlay for plant construction. When you take this into account, solar thermal electricity with storage costs around 25-35 cents/kWh.

[FP ] “I have taken the capital cost of "per continuous kw" over a period of years which takes into account downtime or times when the sun does not shine”

Actually, you are NOT taking intermittency into account. You don't factor in the significant cost of storage and/or redundant standby power which is required when the sun doesn’t shine.

[FP ] “we know that as we build more so the cost will come down 20% each time we double capacity”

Nonsense. Economy of scale is relevant, but your figure of 20% is completely wrong.

[FP ] “My estimate is that we will have to double our renewable capacity at least 12 times ... to replace all fossil fuels”

Did you read Tom Quick’s article? It explains in detail why it is technically impossible for renewable energy to replace all fossil fuels.

[FP ] “Investing in renewables is a reasonable investment now with a payback of 15 to 20 years and will only get better.”

[groan] From the sublime to ridiculous.

Greig The Intellectual,

I have not said that renewables can realistically replace all fossil fuel power at least in the short to medium term.

Gas is obviously the answer in the shorter term and nuclear should not be completely discounted either (if the plants didn’t take so long to build) but with nuclear you are swapping a dangerous waste problem (GHG's) with an even more dangerous one and run the risk of misuse of the nuclear fuel as well. There are other disadvantages to nuclear too but I'll leave that aside for now.

As to externalities and the investment in renewable energy, there is at present no financial incentive for private investors to support renewables which are a more expensive means of power generation than are coal and gas fired generators. Unless subsidies on coal powered energy are removed and externalities recognized on all fossil fuel power I don’t believe a viable renewable industry will establish itself.

Just because the externalities in the coal and nuclear industries are not easy to incorporate into their costs does not mean they are not present. The scientific evidence of human induced global warning and its likely effects is now overwhelming (but obviously not unanimous). Why would we not act on that evidence even if it will cost us something? Cap and trade schemes are a means to incorporate these externalities and have successfully been employed to tackle sulphur dioxide pollution in the past albeit on a much less global level than is now required for GHG.

Even if renewables prove incapable of solving all or most of our energy needs they should be given every chance to take up as much of the demand as possible. Taxpayers should certainly not be forced to subsidize the fossil fuel or nuclear industries in any way.

Further it would be a mistake to sit back and rely on some future technology, nuclear or otherwise, (certainly not that furphy of all furphies a clean coal miracle) to come to the rescue.

For the benefit of readers, Greig's levelised cost analysis, is a discounted cash flow analysis to bring all costs and benefits back to zero time. The idea is that a dollar today is worth more than a dollar tomorrow. The problem is that it biases projects towards short term projects that give financial returns rather than total wealth returns. It assumes that profits from investments are reinvested immediately to make more profits.

If you can get your money for zero interest and you take the long term view a more realistic method of predicting the future is to use the total undiscounted cash flow to decide between projects.

Levelised cost analysis as a means of predicting the future requires that the cost of coal and oil remains stable and interest costs are fixed. My undiscounted calculations will hold up if energy sources like geothermal and the sun have a constant output.

Grieg, and many others, do not include technology learning in their costings. Every time a technology doubles its installed capacity the cost of creating the next unit of capacity has dropped by some percentage. Moore's Law for semi conductors is an example. For the past four decades semi conductors have halved in size and price every eighteen months. This is a different phenomena than economies of scale.

The so called "Masters of the Universe" have a lot to answer for. Their methods of analysing projects to emphasise financial gains versus wealth gains have caused the financial crisis, the over emphasis on consumption and absurdities where we measure a country's wealth by how much it consumes - not by its productive assets.

We must change our sources of energy to keep the planet habitable for humans. I have shown that the total undiscounted cash flow of existing renewable energy technologies is positive.

To see how to get the money for investments at zero interest and to solve the financial crisis visit http://www.abc.net.au/rn/perspective/stories/2008/2448111.htm#transcript

Spindoc says:

"As I understand it only 40% of carbon emissions are related to power generation, much of the balance is from transport. So how does renewable energy help?"

The thing is that there is anticipated a move from petroleum-fuelled to electric powered vehicles in response to, if nothing else, the rising price of oil. These new vehicles may be hybrids or straight out electric powered. Either way, it would have to be anticipated that the equivalent of a refill of liquid or gas fuel would be a recharge either at home base, or at recharging stations connected either to the grid or a stand-alone remote area power supply (RAPS).

Some of the demand for oil required for transportation purposes would thus be effectively transferred to the 'stationary' energy usage sector, characteristically using (much cheaper, in relation to present transportation fuels) electric power. Just one of the consequences of such a shift will be an increase in demand for electricity. It is only because the mass production of electric vehicles concomittantly with a nation-wide roll-out of the necessary recharging infrastructure has not yet made available the economies of scale, that this changeover has not already happened in the absence of governmental intervention or subsidy.

To the extent that the changeover occurs, there will be massive consequences for government revenue, for instance, as it would lose the excise on the oil no longer being used. Likewise, the contribution presently made by Australian motorists and road transportation enterprises to the cost-structure and profit-line of the overseas suppliers of our liquid fuels will be similarly reduced.

But wait, there's more!

Should it be that renewable energy generated electricity can exceed the targets set , and should it be that existing coal-fired generating plants face a future actual drop in power required from them, it is not impossible that coal reserves presently dedicated to electricity generation could be progressively applied to a coal-to-liquid fuels conversion of the like of the South African enterprise SASOL.

If renewables are cost-effectively achievable, opportunity for Australia is huge.

Kulu, why should taxpayers subsidise renewables, yet not subsidise gas or nuclear? You are picking a winner, apparently because you have faith in solar and wind power being a superior energy source. You already acknowledge that renewables are not THE ANSWER. Why place so much emphasis on renewables when they simply cannot provide reliable power? Gas and nuclear are appropriate considerations and can provide all our needs, cost effectively.

You argue that nuclear takes a long time to build, yet renewables cannot be built fast either because the plants are relatively small and geographically dispersed. If we were to decide to build 10 medium sized nuclear plants today, we could have 5 GW of capacity producing reliable power by 2025. To build the equivalent in wind turbines, we would need 100 wind farms, and need to be installing at least 2-3 wind turbine per day, which is not achievable.

I have no objection to including environmental externalities in the cost of fossil or nuclear fuelled electricity. For nuclear this would simply be a 5% levy on the price of electricity, as applied in the USA and shown to be adequate to cover the cost of waste disposal and decommissioning. But for fossil fuels, how do we know the cost of GHG emissions, when we do not even know whether global warming will have a net negative impact on humans? We assume change is bad, but is it really? The IPCC scientists certainly do not conclude that climate change will necessarily be bad.

Why remove subsidies from coal? when they contribute to the well-being of Australians, building infrastructure for transporting coal to export markets, reducing emissions of toxic particulate pollution, etc. If the subsidies are removed, it would only harm people.

[Kulu] “ Further it would be a mistake to sit back and rely on some future technology … to come to the rescue.”

Yes, and since renewables can’t provide more than a fraction of our energy needs, we must start building nuclear fast breeder reactors, they are already proven and can provide the world’s energy needs for 50,000 years.