Frontier’s modelling exposes flaws of Labor’s renewables policy

Amid the political fight over the Coalition’s nuclear plan, the flaws in the federal government’s own renewables-driven energy models – and the huge hidden costs to consumers – are being exposed.

The first Frontier Economics report did a service to the debate by unwinding an accounting trick. It revealed the real cost of the Integrated System Plan (ISP) – which has become de-facto policy for Labor – is around $600 billion. This figure towers over the discounted “present value” $121 billion figure touted by Energy Minister Chris Bowen.

But the second report – modelling the Coalition’s nuclear policy – was more revealing. It showed that adopting nuclear would save more than $100 billion compared to a renewables-driven plan — sending critics diving into the details. What they end up surfacing may do more damage to Labor’s plan than the Coalition’s.

Bowen and his allies were quick to attack Frontier’s modelling, accusing the report’s authors of being silent on bill impacts for consumers.

This overlooks the fact that Frontier’s analysis simply followed the ISP – the government’s energy transition roadmap – which also doesn’t project power bill impacts.

The ISP can’t project power bills because its modelling depends on a host of heroic assumptions, and arbitrary exclusions and inclusions. These range from speculative reliance on hydrogen and uncosted batteries, to a rigid commitment to government targets.

For example, some critics have claimed that the 90 per cent capacity factor assigned to nuclear – the amount of electricity a plant generates relative to its maximum potential – is unrealistic. With wind and solar providing half the energy, the argument goes, nuclear’s remaining 38 per cent share of generation would not be able to operate in a continuous state.

If Frontier’s model was built from the ground up to reflect reality, this critique might be valid. However, Frontier has anchored its analysis to the ISP, which supports implausibly low levels of spillage for wind and solar through a combination of acrobatic modelling and unrealistic assumptions.

The average capacity factors in the ISP model – 25 per cent for large-scale solar and 35 per cent for onshore wind – are extremely optimistic. Even today, averages are closer to 20 per cent and 30 per cent. This will inevitably get worse as the share of wind and solar in the system more than triples, and the new generators cannibalise their own output.

The ISP makes this appear possible because it contains so much unrealistic, uncosted “spongy filling” to support a high penetration of weather-dependent generators – whose mismatch with demand is far worse than nuclear. The same fudge factors that make a 90 per cent weather-dependent system physically possible could easily allow a large nuclear fleet to run at 90 per cent.

The spongy filling in the ISP’s Step Change scenario includes around 15 GW of ultra-flexible hydrogen electrolyser loads designed to perfectly soak up oversupply of solar – a pipe dream that’s quickly unravelling as industry players pull out.

The plan also calls for a staggering 157 gigawatt-hours of home and electric vehicle batteries by 2050 – that’s more than 11 million new Tesla Powerwalls – with 90 per cent of these batteries controlled by grid operators to manage surplus wind and solar.

Under the government’s plan, EV owners are increasingly expected to charge during the day and discharge in the evening – exactly the opposite of what they want. Surprisingly, none of these “consumer energy resources” are included as a cost in the ISP.

On top of that, the ISP assumes batteries can accurately predict the weather to optimise charging and discharging.

These crutches that keep the ISP from collapsing under its own weight are known to be unreasonable. Mr Bowen’s own department commissioned a review – kept from the public for 11 months – that described this reliance on fully submissive consumer energy resources as “problematic” and a “limitation of the current ISP”.

If the crutches were kicked away, the estimated costs of the renewables-only energy system would skyrocket, almost certainly exposing even greater benefits from nuclear.

The reality dawning on Australians is that we don’t have any energy plan remotely close to giving us an honest picture of our future power prices. Because Frontier has anchored its analysis to the ISP, it has made a transparent comparison that is almost certainly directionally correct: a system with nuclear will cost much less.

But because the baseline is so far out to sea, the dollar figures presented for either system are close to meaningless. Australians are still none the wiser about whether or when prices will actually come down.

This uncertainty about eventual prices was laid bare during a Senate inquiry, when the market operator’s CEO was asked whether following the ISP would lower power bills. His response? “I can’t guarantee that, no.”

The energy transition is too important and too costly to rely on models riddled with biases and fantastic assumptions. If Frontier’s model has flaws, they’re mostly inherited from the government’s own fatally flawed plan.

Michael Wu and Zoe Hilton are senior policy analysts at the Centre for Independent Studies.