A few days ago Angus Taylor (Rhodes Scholar, former McKinsey Partner and billed as a future prime minister by Liberal MP Alby Shultz) was on the front page of the Australian Financial Review calling for the Renewable Energy Target to essentially be neutered (existing projects would be compensated, but there would be no ongoing incentive for new projects).
It turns out that Taylor has been distributing a ‘discussion document’ around the Liberal Party in support of his campaign prepared by Port Jackson Partners, a consulting firm in which he’s a partner.
This document, which Climate Spectator managed to obtain, turned out to be so enlightening that one of its charts was worthy of making it into Climate Spectator’s charts of the week.
Based on the chart below it looks like Port Jackson Partners may not be all that on-top of developments in the energy sector, and maybe might want to hire Rod Sims (a former partner who used to handle energy market issues) back from the ACCC.
Source: Port Jackson Partners
To explain, firstly Port Jackson Partners might need to have a talk to David Knox, CEO of Santos, one of the biggest suppliers of gas to the Australian domestic market.
Knox was reported this week stating to investors that Santos is now signing gas contracts with east-coast customers at the "higher end" of a $6-$9 a gigajoule(GJ) range and was now basing its reserves estimates on a gas price close to $9/GJ.
Now on top of that would be a transmission transport charge to deliver to a power station, but to make things simple let’s just assume a new combined cycle gas plant is paying a price of $8.50/GJ.
Assuming a 50 per cent efficiency of the CCGT plant, that works out to a fuel cost alone of $61.20 per MWh. Then, assuming an 85 per cent capacity factor for the plant and using ACIL Tasman data prepared for AEMO you’d be looking at further costs for the capital and operations and maintenance of about $20 per MWh, making a total cost of $81.20/MWh for gas.
In addition, it seems Port Jackson Partners seems to have got its cost estimates for wind from sources that are about three years out of date. Around 2008 and 2009, wind turbine construction costs reached a peak of about $3000 to as high as $3500 per kW. This led to levelised costs at the $120/MWh mark and higher. However they have since dramatically dropped to about $2000 to $2500 per kW.
Some recent reports of power purchase agreements such as Snowtown II have suggested a price in the realm of $85 per MWh. Now, based on informal feedback from wind developers, such prices are very difficult to replicate and $90 to $100 per MWh is more likely on future projects – so let’s take a mid-point of $95.
So because Port Jackson Partners are working off hopelessly out-of-date data, its analysts have overestimated the cost difference between wind and gas by 400 per cent ($13.80 instead of $55). Furthermore there is less risk associated with the wind projects because they don’t have a major fuel cost to manage that is increasingly linked to global oil prices with the rise of LNG.