Judith Sloan: Junking the RET is the right thing to do

Judith-Sloan

Judith Sloan – back for another cracking swipe at the RET.

Judith Sloan has already entered the STT Pantheon with an earlier piece on the insanity that is the RET (see our post here).

Well, the lass with a head for numbers – and smarter than brain pie – is back at it with this sizzling piece from The Australian.

Junking energy target is right
The Australian
Judith Sloan
25 February 2014

FORGET the conspiracy. According to section 162 of the Renewable Energy (Electricity) Act, the Renewable Energy Target must be reviewed every two years.

The Climate Change Authority, which undertook a totally inadequate review of the RET in 2012, wanted to extend this period to every four years, but even the Labor government wasn’t having a bar of that idea.

Given the government’s election commitment to close down the CCA, it makes sense for the government to select a committee comprised of persons with deep and varied experience, including some who have actually run businesses, to review the deeply flawed RET.

Most apologists of this distorting and expensive intervention in the electricity market will quickly point out that the RET was first introduced by the Howard government in 2001. All Labor did was to extend the scheme.

But take a look at the scale of the various versions. Under Howard, an annual gigawatt hours target of 9500 was set for 2010, to be maintained until 2020. This scheme looks positively homeopathic compared with Labor’s version.

In 2009, the RET was expanded by nearly five times, to include a target of 45,000GWh by 2020, ensuring that at least 20 per cent of Australia’s electricity supply would come from renewable sources. Note that the absolute number of gigawatt hours was based on a prediction of what 20 per cent of electricity demand would be in 2020. There was always considerable scope for forecasting error.

In 2010, a further change was made, as the small-scale renewable energy sector – think solar panels on rooftops in expensive suburbs – was creating havoc with investment in the large-scale renewable energy sector – think multiple turbines dotted along picturesque, windy landscapes.

The Large-Scale Renewable Energy Target was given a target of 41,000GWh by 2020 and the uncapped Small-Scale Renewable Energy Scheme, an aspirational target of 4000GWh.

There was only one message coming out of the CCA’s 2012 review of the RET – investment certainty and predictability must be maintained for investors in renewable energy. Therefore, no change should be made to the scheme.

The fact that the expanded RET has destroyed hundreds of millions of dollars in the carrying values of conventional energy companies was not acknowledged. The impairments to asset values that these companies have had to include in their books are the flip side of the regulatory assistance given to the renewable energy sector.

The CCA paid a degree of lip-service to the fact that poor people have faced much higher electricity prices and “low-income households spending on domestic power represents a larger proportion of their total expenditure (than high-income households)”.

Given that many poor people rent houses, or cannot afford to install solar panels and the like, they effectively subsidise the wealthier people who can.

But unlike the carbon tax for which there was specific compensation paid, there has been no mechanism to help poor people meet the higher cost of electricity as a result of the RET.

Apologists for the RET will make the claim that the extent to which the RET has contributed to higher electricity prices is small – 3-5 per cent.

This claim is contentious. It should be noted that the estimate only covers the cost of complying with the RET and does not include the change to wholesale electricity prices.

According to my calculation, and depending on the assumptions made about the cost differential of renewable energy over conventional energy, by 2020 electricity prices will be 25-40 per cent higher than would be the case had the RET not been in place.

This impact on prices is enough to cause considerable pressure on many households, leading to so-called “energy poverty”.

It is also more than high enough to drive many energy-intensive businesses to the wall or to relocate offshore, notwithstanding some of the concessions given to some businesses in the early years of the revamped RET and the introduction of the carbon tax.

So what should review panel be looking for?

The first thing to consider is abandoning the absolute target of 45,000GWh. The current best guess is that 45,000GWh will be 25-27 per cent of electricity demand in 2020. With the closure of GMH, Ford, Toyota and Alcoa Point Henry, the figure is now likely to be closer to mid-30s.

A more fundamental consideration is whether the RET should continue based on an assessment of whether the scheme is cost-effective.

Consider the meta-analysis undertaken by Bjorn Lomborg. “The biggest peer-review estimate of the damage cost of CO2 is about $US5 per tonne. This means solar and wind power avoid about US3c of climate damage for every dollar spent”.

Note that this estimated return is based on an average cost of abatement of $US180 per tonne of CO2 by solar and wind power.

In Australia, the equivalent estimates for the overall RET scheme vary from $60 per tonne of CO2 abated to just under $300. In anyone’s book, this is an extraordinarily poor return for the dollars invested, in terms of lower emissions.

On this basis, the best option for the government is to junk the RET, before we incur even higher prices, which do virtually nothing to reduce emissions and introduce the additional problem of supply intermittency in the future.

The renewable energy sector brags that their unit costs are declining. If they can compete with conventional energy without the substantial subsidies that are implicit in the RET, that is all well and good. The industry should now be allowed to make its own way without the RET.

As for the argument that the RET has led to billions of dollars of investment in renewable energy, consideration has to be given to how much investment has been driven out by virtue of the RET.

In net terms, there is little doubt that Australia has paid a very high price for such a misguided policy.
The Australian

Rarely is STT not moved to comment on an Australian journo’s efforts to come to grips with the greatest economic and environmental fraud of all time.

But here – to add, would simply detract – grace dictates that we bow out and leave the stage to Judith Sloan – honorary RET Slayer.

dick-warburton

Don’t worry Judith – the Head Boy’s picked a
man with a plan to can the fans.

About stopthesethings

We are a group of citizens concerned about the rapid spread of industrial wind power generation installations across Australia.

Trackbacks

  1. […] Energy Target and its product: the wind industry (for just a few examples, see our posts here and here and here and here and […]

  2. […] Energy Target and its product: the wind industry (for just a few examples, see our posts here and here and here and here and […]

  3. […] grown-ups, which carries detailed and thoughtful economic discussion and analysis from the likes of Judith Sloan, Henry Ergas and Alan Moran. When its editor is moved to call for the abolition of the RET, it’s […]

  4. […] via Judith Sloan: Junking the RET is the right thing to do. […]

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