Nick Xenophon says: Time to Can the Fans

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South Australia’s favourite Greek, Senator Nick Xenophon is on an all out assault on the wind industry – and fair enough.  During the last election he was the target of a pernicious attack launched by the Greens and paid for by Vestas & Co – Nick was less than impressed with the lies and dirty tricks tossed up by Bob Brown and Sarah Hanson-Young on behalf of their wind industry clients (see our post here).

Make no mistake – just like STT – Nick Xenophon is all in favour of renewable energy – provided that it is available on demand (see our post here).

Nick is highly likely to hold the balance of power in the Senate – along with John “Marshall” Madigan – come July.

STT hears that both Nick and John have been working very closely with Environment Minister, Greg Hunt over the last few weeks to ensure Australia’s energy policy is put back on track.

But don’t take our word for it – here’s the STT Champion letting drive in the Chamber last week.

THE SENATE
Wednesday, 12 February 2014

Senator Xenophon (South Australia) (10:29): I can indicate that I have reservations about supporting this bill at this stage. I cannot support this bill, but I come to that position from a different place than some of my colleagues on the other side of the chamber. My view is this: I do believe that climate change is real and that we need to – as Rupert Murdoch once famously said – give the planet the benefit of the doubt. I think that the science is incredibly strong and that there are issues that need to be dealt with. We need to play our part and be regional leaders in relation to this.

I also believe that it was fundamentally wrong for former Prime Minister Gillard to say, just prior to the 2010 election, that there would be no carbon tax. I think that, if anything, the former government had a reverse mandate not to introduce a carbon tax given the promise that was made. I believe it would –

Senator Whish-Wilson: It was not.

Senator XENOPHON: Senator Whish-Wilson said it was not. I do not believe that the former Prime Minister lied, but I think that the electorate was misled.

What we are debating here is the role of the Climate Change Authority. We know that the role of the authority is to monitor Australia’s emissions mitigation processes, including reviewing the functions of the Renewable Energy Target, the Carbon Farming Initiative, and the National Greenhouse and Energy Reporting Scheme. It also advises the government on the carbon pricing mechanism and it reports on Australia’s progress in emitting the national emissions reduction target.

I note that the government’s rationale is that the repeal of the carbon tax makes many of the authority’s functions redundant. I think that there is a flaw in the government’s rationale in respect to this, for a number of reasons. Firstly, the coalition says that it has a bipartisan commitment to the same level of reduction as the former Labor government of a five per cent reduction of greenhouse gases by 2020 on 2000 levels. I may have got my dates wrong in terms of 2000, but I think that basically it is clear that there is a bipartisan commitment in respect to that. There is another debate whether that five per cent is adequate or not. I suggest that it is not, but at least it is a start to reversing an increase in emissions. That is a good thing.

Because the government is proposing a Direct Action Plan – I will get to that shortly — and other mechanisms in respect to dealing with greenhouse gases, I think that the role of the authority is not redundant in terms of having an independent, robust look at whether targets are being met and whether it is the most efficient way regarding how these matters are dealt with. What needs to be done is this: we need to have an independent mechanism. I am concerned that what the government is proposing to put in place is not independent at all.

I do not think that the functions of the authority are redundant in the absence of an alternative robust mechanism to look at them. I note that the government is proposing that some of the functions will be shifted to the Department of the Environment. I think there needs to be an independent oversight of emissions reduction.

The authority’s remaining functions should not be handed over simply to the department. There needs to be that level of independence. I do not know whether what the government is proposing to do is necessarily the best approach, given that they too are making a commitment to spend billions of dollars of taxpayers’ funds in terms of reducing emissions.

I think it is fair to say that the way the carbon reduction policy was dealt with by the previous government was less than satisfactory. I note the comments of Danny Price from Frontier Economics. I disclose that he is a person who has given me advice over many years. When the Liberals were in power in South Australia, he advised me about the privatisation of the electricity assets back then – another case of a reverse mandate by the Olsen Liberal government. The advice that Mr Price gave about the disastrous way that the electricity assets were privatised and the impact on consumers was met with a lot of derision from the Liberal side of politics and, I think, a lot of unnecessary abuse directed against him and me at the time. But he was right; his predictions of price rises were pretty much spot-on. That privatisation simply shifted public debt to private households, in terms of higher electricity prices.

Back in 2009, together with then opposition leader Malcolm Turnbull, we both commissioned Frontier Economics – Mr Price in particular and Matt Harris from his office – to look at an alternative emissions trading scheme. The scheme that was the subject of debate in this place and the subject of debate in the coalition party room was one of an intensity-based scheme, where you actually could have less revenue churn and a better outcome in terms of emissions reductions. That is because you would not have the enormous revenue churn or price effects that you would have with what was being proposed by the government, even in its first and second forms.

The point that Danny Price made in an opinion piece in The Australian in September 2012 was that the former government was backflipping, there was a lot of waste in that scheme and there were different pricings being given all the time. He said that, with those backflips in terms of removing the price floor, private brown-coal generators in Victoria and South Australia would end up getting a massive windfall of funds in terms of compensation. I think he has been proved right in respect of that.

I note that Mr Price is now the chairman of the government’s reference group on its direct action policy. I have great confidence in him. I believe that he is robustly independent. He has said that we still need to have a Renewable Energy Target and a renewable energy scheme. I think it is good that the government is getting sensible, measured advice from someone with his expertise in respect of this.

They are the sorts of concerns I have. I think that the current carbon-pricing mechanism is deeply flawed. It has given coal generators – particularly brown-coal generators – windfall gains, which seems to me to be perverse. It has not been good for investment in terms of the uncertainty. Tying it to the European scheme, as was proposed by the former government, is not a good thing in that that price is subject to political manipulation, to regulatory failures, and to fraud and corruption in terms of the European scheme. We have seen that previously. I think we can do better.

Whether Direct Action is the way to do that is something that needs to be subject to intense scrutiny, but I think it is important at this stage—unless the government has an alternative independent mechanism to determine the extent of greenhouse emissions reductions – that we ought not to throw the baby out with the bathwater by repealing the Climate Change Authority.

I will keep an open mind on this if the government comes up with other mechanisms to independently assess greenhouse gas reductions; you need to get independent advice. I agree with the former Reserve Bank governor, Bernie Fraser, now the authority’s chairman, who said, ‘On a subject as complex as climate change, I would have thought every government – whatever its complexion – would want to get good independent advice.’ I think that is a pretty wise thing to say.

There is a lot of talk about the Renewable Energy Target. I make no apology for the fact that I am very concerned about the price effects of wind energy in my home state. I think we have more wind turbines than the rest of the country combined. It is something that the former Rann government pushed very hard in South Australia.

There are issues about the impact on nearby individuals. Leaving aside issues of low-frequency noise and easy-to-measure decibel counts, people are being kept awake and their health is suffering. Also, I think it is legitimate to look at the way that renewable energy certificates are issued for wind energy compared to other forms of renewable energy. In other countries – for instance, in the UK – my understanding is that wind energy does not get the same loading of renewable energy certificates as other forms of renewable energy, because it is not as reliable, it is intermittent and, as we know, particularly on hot days, when the demand for power is greatest, it has to be switched off.

A couple of weeks ago following some terrible fires in the Barossa Valley in South Australia, I met with a number of local residents who were concerned that, but for the aerial firefighters, they would have lost their homes. The Henschke winery is one of the great wineries not only in this country but also in the world, with their Hill of Grace wine. I have never tried it – I am sure some of my colleagues have – but it is a rare commodity that is up there with Grange. Stephen and Prue Henschke spoke out about this situation. These winemakers are concerned about climate change; they are passionate about the environment and about looking after the land. If it were not for those aerial firefighters, their property, including their historic 140-year-old vineyard, would not have survived. There is a real concern that fighting fires around wind turbines, which are up to 165 metres high, will not be practical.

I would urge the government to look very closely at strengthening baseload renewables, including solar thermal, which is much more reliable than wind, depending where it is. Geothermal has a lot of potential, along with tidal power. If we tweak the scheme to have the same end objectives but also to give that funding, the impetus for baseload renewables – more reliable renewables than wind – will be an unambiguously good thing. You are not going to get rid of coal fired power stations if you have unreliable forms of renewable energy. I think that is part of the debate.

What is being proposed by the government is somewhat premature. The government needs to come up with a plan B for a robust independent mechanism to measure greenhouse emissions. The government’s reasoning, in saying that we do not need this authority because there is no longer a carbon tax, is flawed. If the carbon tax is abolished – I have said I support it, with various caveats, and we will discuss that later – you still need to measure greenhouse emissions, given the government’s commitment to reduce them. Not to do so, not to have that robust independent mechanism, would be a grave mistake.

I do not think most Australians would think that would be a good thing. Most people are still concerned about climate change, as they should be. The government has made a mistake to prematurely seek the abolition of this authority in the absence of a robust, alternative independent mechanism to measure greenhouse gas reductions.
Senator Xenophon

STT says: “hats off, Nick”.

One notable feature of that telling little speech was the mention of Frontier Economics’ crack energy market economist, Danny Price.

 

Danny has been advising Nick Xenophon on energy market issues for years.  In our dealings with Danny we’ve found him to be a no-nonsense, straight-shooter – gifted with a head for facts and figures, who knows Australia’s energy market inside out.

STT is delighted to hear that Danny is now heading up the team advising the Coalition on the implementation of its Direct Action policy.  You see, Danny Price rightly considers wind power to be an insanely expensive and utterly ineffective method of trying to reduce CO2 emissions in the electricity sector.

STT hears that Danny has made quite an impression on young Gregory Hunt – and is providing young Greg with a crash course in energy market economics and the importance of using on-demand renewables – if you’re looking for actual CO2 abatement, that is.

Proving that you can never keep a good Greek down – Nick was back the following day slamming the wind power fraud, yet again.

This time Nick tipped a bucket on the ludicrous decision by SA Labor to approve plans to spear 197 giant fans into SA’s agricultural Heartland on Yorke Peninsula (see our post here).

Perversely the project is named after “Ceres” (the Roman goddess of agriculture) – it has potential to destroy the viability of thousands of hectares of some of the best cropping country in Australia.  And – as Nick points out – if it were ever built – it would guarantee that South Australians will pay the highest power prices in the world for generations to come.

THE SENATE
Thursday, 13 February 2014

Senator Xenophon (South Australia)(16:57): ….
Let us talk about other cost inputs like the carbon tax. I think the way the carbon tax was implemented by the former government was a disaster. The current government says that the cost of electricity would be reduced by nine per cent if the carbon tax is repealed. That is true, but the concern is that that is a superficial approach, because there are many other things that can be done to reduce power prices far more than the repeal of the carbon tax that need to be looked at.

We need to look at the National Electricity Rules. They need to be reformed as part of an overhaul of our energy policies.

The political debate over the past few years has been narrow and simplistic. To suggest or imply that the carbon tax is the primary cause of electricity price rises ignores the fact that changes to electricity transmission and distribution account for about half of electricity bills, that we have gold plated our electricity networks and that we need to give more power to the Australian Energy Regulator.

The rules governing how networks are regulated oblige the AER to provide network businesses with a guaranteed return on their investment, regardless of whether the investment was necessary or worthwhile and regardless of whether the investment is later found to be unnecessary or premature. They are the sorts of reforms that we need to tackle. That is what this government needs to tackle, and I hope it can be done with bipartisan support.

In my home state of South Australia, the announcement was made this morning in the Adelaide Advertiser that the largest wind farm in the state is set for the Yorke Peninsula. The Ceres Project is worth $1.5 billion and will have 197 wind turbines. Guess what: that will guarantee the highest electricity prices for South Australian consumers and businesses. Why? Because the problem with wind power is that it is intermittent and unreliable.

You have to switch it off on hot days. If you put too many eggs in the wind farm basket, it will distort the electricity market and choke off investment in baseload renewables such as geothermal, solar thermal and tidal power. Allowing those 197 additional wind turbines to be built in the state is actually a very bad decision. We have more wind turbines in South Australia than the rest of the country combined. Unfortunately, that is a legacy of some very bad and ill-thought-out policy decisions of the government of Mike Rann in South Australia.

That is something that we need to tackle, and that is why I welcome the role that Danny Price from Frontier Economics has played in pointing out the difficulties with wind energy and that it makes it more difficult for baseload renewables to get onto the market, let alone the impact it will have on prime agricultural land on the Yorke Peninsula and the impact it will have on the ability of aerial firefighters to fight fires if there are fires on the Yorke Peninsula.
Senator Xenophon

That’s 2 from 2 for Nick – keep at it – we know the Coalition are listening very carefully to every word you say.

The good news is that the chances of the Ceres Project ever being built are slimmer than a German supermodel.

The outfit behind it are backed by struggling Indian fan maker, Suzlon (using the tag REPower – in deference to their German partner).

Suzlon is on the brink of insolvency – it has nothing firm in its order book – it was hoping to do big business in Spain, but the Spaniards have just pulled the plug on their previously massive wind power subsidies (see this story here); and it has just booked a $40 million loss on a wind farm in Illinois in the US, where it is still chasing $208 million from Big Sky (an outfit that went bust) for fans sold way back in 2009 (see this story here).

No surprises then that Suzlon’s share price has plummeted to more-or-less “junk” value – once worth over $460 – Suzlon shares crashed to less than $6 last year and are struggling to top $9 at the minute.  Nor is there much confidence in the project’s developer, either – after the announcement, one uncharitable ABC radio presenter referred to the outfit pushing the project as a “penny dreadful” – ouch!

But it’s not just Suzlons’ dire financial predicament that puts this project under a very dark cloud – the weasels involved have not signed a Power Purchase Agreement (PPA) with a retailer.

The PPA guarantees a wind power generator a fixed price for sparks over at least a 15 year term – usually in the order of $90-110 per MW/h.

The PPA is an essential ingredient in obtaining finance to build wind farm projects.  Financiers look to the future stream of cash that the wind power generator will receive under the PPA and is then able to place a net present value on that future stream of income, using a discount rate.  The bank then agrees to lend money on the basis that the money advanced is safely secured against that future secure stream of income.

The wind weasel – of course – has nothing else of value to offer as lending security.  There is no market for secondhand fans (try finding a buyer for three-year-old Suzlon s88s) – and the landholder agreements with turbine hosts are merely licenses – which create no valuable proprietary interest – apart from the ability to sling up giant fans on someone else’s property and leave them there to rust out 75 years later.

In the absence of a PPA the developers will not raise a single cent from investors or bankers – unless they’re completely barking mad.

With the Coalition all set to scrap the Renewable Energy Target – and ready to amalgamate the Carbon Credit Unit (which forms central part of its Direct Action Policy) with the Renewable Energy Certificate, likely to result in collapse in the price of the latter – no retailer in touch with their earthly senses is ever going to sign a PPA.

The last time STT heard of a retailer entering a PPA was in November 2012 (see our post here) – but that was back when the Green-Labor Alliance was at the peak of its powers – and wind power was the flavour of the month.  Things have moved on just a little since then – these days when Nick Xenophon talks about the insane costs of wind power, the Coalition listens – carefully.

The announcement this week that the RET review will be headed up by former Reserve Bank board member, Dick Warburton; Matt Zema, the chief executive of the Australian Energy Market Operator; Brian Fisher, the former executive director of the Australian Bureau of Agricultural and Resource Economics; and Shirley In’t Veld, the former chief executive of Verve Energy in Western Australia – has all but assured the demise of the RET.

So, unless the weasels behind Ceres can find someone as mad as Clive Palmer – who actually has $1.5 billion in his pocket – and is prepared to lose it – STT thinks that SA Labor’s announcement backing the project will fade from our collective memory pretty fast.

One thing’s for certain – with Dick Warburton heading the RET review and Danny Price advising the Coalition on the Australian energy market – the days of wind weasels being feted as heroes in the Big House on the Hill are all but over.