How to hide $100b storage, transmission lines, battery costs in a dodgy accounting trick
The cost for our whole national $100 billion dollar energy transition apparently rests on a CSIRO report that assumes we’ve already spent the infrastructure money “therefore” future costs after 2030 are almost nothing. It’s like a Nigerian email scam… except that it has fooled our Minister for Energy.
You have been selected to win a new national electricity grid, just give us your economy…
Chris Bowen, said Minister, thinks wind and solar will reduce the cost of electricity, despite them doing the opposite so far.
The CSIRO GenCost report says that renewables are cheap if we pretend we have already spent the money on the transmissions lines, the pumped storage, the “firming” of the grid. It’s like a used car salesman that says the second hand electric car will be cheap to run while hiding the twenty grand you have to spend on a new battery before it can move out the door…
There is a circular reasoning here that says we assume it’s worth spending bezillions now because renewables will be cheap after we have spent bezillions. But that’s only true if we assume the bezillions are a sunk cost we’ve already spent. See how this scam works? The bill never comes in. Somewhere someone lost $100 billion dollars and no one at our once hallowed Commonwealth Scientific and Industrial Research Organisation (CSIRO) even noticed. It’s like living in an Escher puzzle where you walk up the endless stairs to renewable heaven but never get there.
Why our energy transition needs a price tag
Claire Lehmann, The Australian
Writing in the Fresh Economic Thinking publication, Aidan Morrison points out that the CSIRO’s claim that renewables are the “cheapest” form of energy rests almost entirely on a misapplication of the “sunk cost” assumption.
In many situations, it makes sense to account for sunk costs. But the concept should always apply to money spent in the past, not in the future. By definition, costs that have not been incurred yet are avoidable, and are not yet sunk
“By use of a bizarre ‘sunk-cost’ assumption in their modelling, CSIRO cleaves the cost of infrastructure built prior to 2030 (when we would supposedly already have reached over 50 per cent renewable penetration) from any solar and wind generators built thereafter that might depend on that infrastructure,” Morrison writes in Fresh Economic Thinking. The CSIRO lists the projects that are written off as sunk: “Snowy 2.0 and the battery of the nation pumped hydro projects … various transmission expansion projects … New South Wales gas peaking plants at Kurri Kurri and Illawarra … The NSW target for an additional 2GW of at least eight hours duration storage is assumed to be met by 2030.” In response to this list, Morrison quips: “I’m losing count of the billions.”
“Every economist, politician, and policymaker relying on this report simply must hear about this,”
“Business as usual” for the CSIRO is a plan where billions of dollars was already deployed and the projects are finished (and we have even paid them off too).
Assume renewables are cheap, assume infrastructure is free, isn’t this fun?
This is the quote from the CSIRO where they blithely magic all the infrastructure into existence “for free”, just in case anyone wonders whether they really could do something so absurd.
“Snowy 2.0 and battery of the nation pumped hydro projects are assumed to be constructed before 2030 in the BAU as well as various transmission expansion projects already flagged by the ISP process to be necessary before 2030. New South Wales (NSW) gas peaking plants at Kurri Kurri and Illawarra are assumed to have been constructed. The NSW target for an additional 2 GW of at least 8 hours duration storage is also assumed to be met by 2030.”
Aiden Morrison is scathing, staggered, aghast — the CSIRO is assuming all the infrastructure was a private investment and therefore we don’t have to pay:
The ‘sunk cost’ trickery that makes renewables seem cheaper than they are”
How CSIRO justifies the exclusions: “Sunk Cost”
…But wait, this deception is so brazen and transparent, surely someone else would have raised this in an earlier draft or something? Oh, but they have. CSIRO devotes several pages to exactly such an objection. (Page 94, Appendix D, Section 2.3)
What the authors of CSIRO’s GenCost said in response, is simply staggering. Every economist, politician, and policymaker relying on this report simply must hear about this. They explicitly and clearly defend the idea that all the prior investment must be treated as ‘sunk’. They’re adamant that these investments are like risky private investments and therefore there must be a penalty for bad investments made by people who didn’t adequately study what would most likely be required in the future.
Perhaps most incredibly, they explicitly make this claim:
““The market does not owe the owner a reasonable return on their investment.” “
In reality all these monster infrastructure builds were only justified in the first place on the basis that they will enable lots of future unreliable solar and wind power, and the costs will be added to what we call the “regulated asset base” which guarantees a return to the investors and is quietly added to electricity bills.
The whole renewables case is a crooked card game from scientific start to economic end.
Black cards Image by Felix Wolf | Poker hand adapted from PDPics