Price has no meaning without a measure of the quality being purchased.
W Edwards Deming
If we look at energy provision for a modern industrial society as a system, more than simple accounting arithmetic is needed. Over and above the the price, there are many externalities, which economists take to be third party costs – but they are still part of the price of providing the whole system. As more variable renewable energy (VRE) is added, the number and value of those externalities increases exponentially.
Consider that you want to purchase a leaf blower, and there is one for $100 and another for $350. But you know that the $100 model will last you 1 year, but the $350 model will last 10 years, but with a $150 service after 5 years. If we add up the numbers in today’s dollars, the first model will be $1,000, the second, $500, considering both over the next 10 years.
That is the kind of choice that must be made in a VRE vs nuclear power plant (npp) option. Yes, economists will argue that it’s $350 outlay in today’s money vs $100 and so the time value of money should be considered. But Discounted Cash Flow (DCF) is based on a model, a prediction, that will depend on parameters assumed at the time of running the model.
DCF can only be relied upon if the proponents want some kind of reassurance that they will make a quick return. In reality we are talking about a VRE only system that lasts 15 -20 years and a nuclear system that lasts 40-80 years and maybe longer. DCF is not a reasonable means of comparison. There will be variations from the prevailing reality assumed in the model and growing potential for errors compounding as the years tick by.
In considering this and the many externalities that are part of the energy system we must compare like with like. In this case the same amount of electricity output for each option. It is not sufficient to look at the nominal peak output. A 100MW solar farm does not produce the same output as a 100MW npp. We must compare the time that each is available to produce its nominal output. A solar farm has an availability at which it can produce its rated power of about 22% (the sun goes down at night and the hours of bright sunshine vary each day). As an approximation, therefore, we will need to compare, say, a 400MW solar farm with a 100MW npp. (A very conservative approximation is that a nnp has at least 4 times the availability of a solar farm).
Next, there are many externalities to be evaluated that are part of the energy system, like:
Land area. Because of their low energy density, the area required for VRE is around 400 times that of the npp. That may be arable land that a farmer decides to cash in for his superannuation, or it could be pristine rain forest in, say, Far North Queensland. How do we value the area of pristine forest and its destruction that will play a part in taking care of atmospheric CO2 and human health? Or, taking the arable land out of service when agricultural productivity for a growing population is coming more to the top of agriculturalists minds?
Asset life. A VRE farm will need to be replaced 2-4 times in the life of a npp. Those replacement costs are never considered when making a price comparison of VRE vs a npp.
National security. Energy security = national security. Almost all of the essential components for the VRE build come from one country. What value do we put on energy security and shielding our country against geopolitical disruptions? Likewise, what value do we put on providing our energy from within our own backyard, being independent of geopolitics and its potential effect on market price movements?
Economic drivers. Energy is the economic driver of any nation. It is impossible to run an industrial economy on “renewables” alone. The Germans have tried it – and failed – and their manufacturing economy is shrinking rapidly. Try doing it on a remote off-grid mine site that runs 24/7. It is impossible; no matter how much some would like to try to defy the laws of physics. The current “renewables” build out is struggling to replace the generating capacity that we already have, without allowing for data centre and AI demands as well as increasing our industrial capability.
Materials of construction. “Renewables” farms producing the same energy output as a npp require 2-5 times the materials of construction. Those materials include things like concrete, steel, glass and aluminium. Neither the additional CO2 emitted for the construction of the “renewables” farm, nor the cost of those extra materials compared to a npp appear in the discussions on cost comparisons of energy sources.
These are just some of the things that we need to consider with respect to their value to the nation over the next several decades, not just the price. Beyond what is deemed to be the price of VRE, within the system of providing energy there are costs associated with those externalities that are ignored during political discussion. Think about the value that we get from conserving natural forests, energy efficiency, national security, reliability of our energy supply, economic development driving jobs for our kids over decades and not just for the life of our parliament.
These are just some of the things of value to the nation for our energy system in the decades to come. The cost of not doing them is just too great.
