A little while ago one of our readers posted a comment including what would appear to be a fairly simple question, The Callous Wind wrote:
I have a request for STT. Would you be able to please explain to us mere mortals, how the REC’s do actually work? There seems to be a lot of false information being put out there on both sides of the argument. Are the REC’s only paid on power produced, or are they paid on the rated capacity of the particular wind turbine project? Do the wind turbine companies receive any other incentives from the Government, besides the REC’s. I believe the REC’s are around $38 per megawatt hour and are likely to go to $90 per megawatt hour, is this correct?
The answer, however, isn’t quite so simple. This scam (oops, we mean “scheme”) was designed to mislead and confuse “mere mortals” with the help of an industry so cunning that you could stick a tail on it and call it a weasel.
Let’s start at the very beginning which, as Sister Maria told us, is always a very good place to start.
The Renewable Energy Target (RET) is the product of Commonwealth legislation being the Renewable Energy (Electricity) Act 2000, the Renewable Energy (Electricity) (Large-Scale Generation Shortfall Charge) Act 2000, the Renewable Energy (Electricity) Regulations 2001 and the Renewable Energy (Electricity) Amendment Act 2010. Those looking for a little extra bedtime reading can find the key legislation here, here, here and here.
The RET requires retailers of electricity to source 20% of all electricity sold from “renewable” sources by 2020. How we got to that target and who was and is responsible for it appears in this detailed article by Ray Evans and Tom Quirk. Back in 2009 Tom and Ray predicted with chilling accuracy the escalation of power prices due to increasing wind power generation.
Ray and Tom concluded that because of the much increased capital cost of wind power installing an extra 26,000 MW of wind power capacity to reach the 2020 target will cost $52 billion. Adding to that cost will be the need to have backup generation capacity of at least 23,400 MW – from baseload sources such as coal or gas – to ensure continuity of supply. And to absorb the intermittent and unpredictable wind power generated by wind turbines dispersed over Tasmania, South Australia, New South Wales, Victoria and Queensland – all feeding into the South-Eastern grid – there will need to be at least $30 billion invested in a duplicated transmission network.
What they mean by duplicating the transmission network includes $107 million for an interconnector for no other purpose than to send South Australian generated wind power to Victoria at night-time – as reported by The Age.
All of those additional costs will, of course, be borne by the electricity consumer or “sucker”, as the electricity industry lovingly refers to us. And anyway, $80 billion to set up a feel-good green boondoggle doesn’t sound like much if you say it fast enough. But that’s just the cost of the additional and otherwise unnecessary infrastructure needed to support the wind farm scam; we haven’t even got to the subsidy trough yet. And put aside the fact wind farms simply can’t reduce greenhouse gases because they have to be continually backed up by fossil fuel generators.
The RET mandates that retailers MUST take wind power in preference to other sources, irrespective of the cost; although the retailer could, instead, choose to cop a “fine”. If the retailer fails to acquire 20% of the electricity that it sells from renewable sources it gets whacked with a fine of $65 for every MW/h that it falls short of the target – here and here.
Any fines paid by retailers will, no doubt, be added to the wholesale cost paid by the retailer and passed on to power consumers.
The fine is tipped by insiders to be increased from July 2014 to $75 for every MW/h that the retailer falls short of the target.
With a captive market, the wind power generator can, therefore, dictate the wholesale renewable power price, which it does through long-term power supply agreements with retailers called Power Purchase Agreements (PPAs).
Over the last few years wind power generators have been signing PPAs with retailers at wholesale prices between $90 to $120 per MWh, with the agreement running for up to 15 years.
That cost compares with gas or coal thermal power which wholesales from between $25 to $40 per MWh. So retailers are paying up to 4 times the price for wind power which turns up on your power bill. Yippee! Don’t ya just love green tokenism? But, wait, there’s more.
Adding to the price paid by retailers is the cost of “peaking power” needed to urgently backfill the grid when the wind stops blowing and demand outstrips available supply: think 40 degree summer’s days when there is no wind blowing anywhere and air-conditioners are running full throttle.
Windfarm operators like AGL supply “peaking power” using gas turbines at Macarthur and elsewhere, which are more or less 747 jet engines strapped to tiny generators that cost more than $300 per MWh to run. Because the grid would otherwise collapse, peaking power generators have gotten away with charging $2,000 per MWh and up to $12,900 per MWh to cover peak load demands, which occur when the wind stops blowing. And yes, you guessed it, these costs are all passed on to you, the electricity sucker. Some might call it “chiseling”, STT calls it State sponsored theft.
Under the RET legislation a Large-scale Renewable Energy Certificate (REC) is issued by the Federal Government’s Clean Energy Regulator to a wind power generator for each MWh of electricity supplied to the grid. The REC is a little like a coupon which can be cashed in at any time. If there are lots of coupons their price falls; the price rises if there are fewer of them.
The wind power generator sweetens the PPA deal with its retail customer by handing over a REC for every MWh it supplies. Of course you wouldn’t expect our ol’ mates at Infigen to give you something for nothing. The projected value of the REC is built into the price set by the PPA; and the retailer gets to sell the REC. There is also a very opaque futures market for RECs, but that is another story for another day.
Since the RET started, the trading price of RECs (yes, there is a market for them) has bounced around reaching $60 prior to the amendment of the RET legislation in 2010 (which created a separate market for residential solar RECs and Large Scale RECs) and is currently around $38 per REC.
In The Age article linked above you might have wondered how wind power generators can afford to sell to the grid at negative wholesale prices? Well, the generator still collects a REC and will also claim a supply on its PPA with its retailer and collect $90-120 per MWh supplied to the grid. You didn’t really think they were giving away power for free, did you?
Take Macarthur, where AGL has 140, 3MW Vestas V112 turbines driving the locals nuts. When the wind is blowing and each turbine is operating at its full capacity of 3MW per hour, AGL collects 3 RECs for each turbine: 1 REC per MWh.
If the wind blew around the clock, AGL would collect 26,280 RECs each year from each turbine: 3 RECS per hour x 24 hours x 365 days.
Assuming, generously, that its turbine operates at its full rated 3 MW capacity around 40% of the time, it will collect 10,500 RECs from that turbine annually.
At current values, 10,500 RECs will “earn” AGL $399,000. AGL will also sell the electricity to a retailer under a PPA for something like $90 MWh and collect another $945,000. And AGL, being the kind-hearted behemoth that it is, recovers every last cent of it from its retail customers. Oh, almost forgot, and the retailers recover it all, plus a fat margin, from the consumer.
A little earlier we mentioned the fine paid by retailers who fail to reach the mandatory LRET of $65 for every MW/h that the retailer falls short of the target (see our post here).
The fine is a cost that the retailer can’t claim as a legitimate tax deduction, whereas the REC is – this places an added value on the REC to the extent that its face value can reduce the retailer’s taxable income. That fact, and the pressure that will mount on retailers to reach the LRET’s increasing targets with an undersupply of RECs predicted, means that the REC price is forecast to reach $94 around March 2015.
At $94, 10,500 RECs collected from a 3MW turbine running 40% of the time will be worth around $987,000 annually.
Since the implementation of the RET began in April 2001, over 195 million RECs have been created – worth more than $8 billion.
From now until 2031 (when the RET expires) the RECs that will need to be issued to meet the RET, at the price forecast, will be worth an estimated $54 billion; ALL to be added to your power bills.
Labor MP, Joel Fitzgibbon was onto it last October. Pity his Labor mates didn’t have his interest in the plight of small business and families struggling with escalating power bills.
The factors outlined above: the mandatory RET – the penalty of $65 per MWh for failing to satisfy the target, tipped to rise to $75 per MWh in 2014; the price of the Large-scale REC, rising to $94; the need for investment in further backup fossil fuel generation – base-load, intermediate and peaking power sources; and the cost of duplicating the transmission network just to take intermittent wind power all means that retail prices have only one way to go, and that’s North.
In 2011 residential power prices were around 20.4 cents per KWh, by 2017 households and can expect to pay in the order of 36.3 cents per KWh: an increase of 78%. While industry can usually strike better electricity deals with retailers it will not escape a punishing increase in one of the unavoidable costs of doing business. Heaven help any business that uses bucket loads of electricity to make something.
Thanks to its great wind rush, in South Australia wind power now makes up around 40% of its total generating capacity. With such ridiculous reliance on wind power, and more to come, it’s no surprise that South Australians will soon be paying the highest retail power prices in the World, if they aren’t already – as reported by The Advertiser.
As Alby Schultz said: “The only reason people are not rioting in the streets about the unjustified increase in their power bills is that they simply have no idea what is going on.”
Well, now you know.
that the Coalition plans to scrap the REC
if it wins in September.
With the hint that the Coalition is going to review the “Great RET Scam” and scrap the REC altogether, retailers are becoming a little gun shy and simply aren’t signing up to PPAs like they used to. Any retailer with a half a brain won’t want to be caught with a bunch of worthless RECs. That rats might be ready to jump from a leaky ship got the greentard bloggers up in arms last Christmas.
The Coalition made this mess and only the Coalition can fix it; they need to hear it loud and clear from a less than happy mob.
So grab your blazing torches and sharpened pitchforks and we’ll see you on June 18, 2013 at Parliament House, Canberra. Loyal readers, don’t just bring yourself, bring 2 friends – they pay power bills too and have just as much at stake as the good folk in the trenches fighting the good fight against the tyranny of big wind. We’ve got one shot at the title, let’s make the most of it.
STOP THESE THINGS 
David and all, try to watch on line last Sunday 12/5 SBS “On Demand” programme, “Shadows of Liberty” film by DocFactory.This explains why “our” newspapers won’t print against Big Wind SBS.com/ondemand
Thank you STT for your forensic dissection above. It’s worthwhile spending time putting it altogether. Whichever way you look at it, it is the most phenomenal scam but the real
scandal is how the public is having the wool pulled so completely over its eyes and how it is the public that will ultimately pay the (huge) price. Wake up Australia!!
The Climate Change Authority is currently holding a review of the RET (Caps and Targets Review) with the closing date 30th May for submissions.
See the website: http://climatechangeauthority.gov.au/ where all is explained.
We all need to send in submissions about this – even if it is a simple letter.
In its final report to the Government, the Authority will:
1. review Australia’s progress towards its medium and long term emissions reduction targets;
2. recommend a 2020 emissions reduction target
3. recommend caps (or ‘limits’ on emissions) for the first five trading years of the carbon pricing mechanism;
4. recommend a national carbon budget and indicative national emissions trajectory; and
5. discuss how Australia might meet its trajectory, budget, target and caps, including how different sectors contribute, and the role of international emissions trading.
I would suggest that many of us would have something to say about 1 and 2 at least. It is the push for the 2020 target of 20% renewables which is driving the REC-seeking wind industry. The target needs to be reviewed and elements such as reduced electricity demand, unaffordable subsidies, economics etc need to be factored in. One fact that is often overlooked is that renewable sources of electricity which were in place prior to 2000 (such as hydro power – Snowy Mountains, Tasmania etc) are not counted into this target.
Perhaps STT would like to expand on all this as well?
Money sure is the ‘root of all evil’ as the saying goes! We simply can’t afford to continue to stand and deliver. Isn’t our power bill supposed to be doubling over the next couple of years? Who will afford that? Not me. Our health living next to wind factories is continuing to deteriorate.
Our beautiful wide open or mountainous spaces are being denigrated. A wind farm on King Island!?? The honest bloke living there won’t directly benefit and they’ll suffer with no escape and like us will pay and pay. What and where else are they planning to pollute with these mechanical monstrosities. With 11,000 or whatever more turbines to go up, many must be rubbing their hands together. Another unanswered question is exactly how much power do these turbines each use to operate?
My gratitude lies with the true leaders that help protect and build up our communities, the leaders not resorting to inappropriate labelling or name-calling and not blatantly robbing us of our worth.
Thank you very much for that explanation, STT, as confusing as it is, I now have a much better understanding of how the RET/REC’s work. The quicker this scam is shut down, the quicker the country might start to get going again. The rising electricity prices are crippling industry, especially here in South Australia, how often have we heard lately, that ‘it is too expensive to manufacture here’.
I can’t understand why every newspaper in the country isn’t jumping on this RET REC scam. News papers use electricity too and surely their hip pocket nerve is hurting. What does it take to spur them to action? Get the media running full pelt with this issue and governments will HAVE to sit up and listen.
Thank you I now have a better idea of how it all works, though I still find it confusing and it seems there are so many hands in the jar, for it ever to be cost effective. It’s interesting to read that SA is now producing 35% of it power from renewables – that means we have reached and exceeded the Rann and Weatherill’s desired 33% by 2020, so presumably there is now no need to install anymore here. We need to tell them loud and clear to ‘shove off’ and leave us alone, no need for CERES, Stony Gap, Keynton, Woakwine or any others being considered/prepared.
Of all non-hydro renewable sources, solar thermal is harvested and stored and released as needed and can provide base-load power.
The same bunch that have an eros for wind keep pointing out that solar thermal is expensive whereas wind is cheap. However factor in the other costs of wind, such as its intermittent nature and the highly polluting CSG needed to power those inefficient open-cycle gas plants, the story starts to change.
Solar thermal can be retrofitted on existing coal plants, whereas wind turbines never have and probably never will close down a coal plant. Another cost to consider?
Lastly the effects of wind turbines are so taxing on soundscape, and landscape that frankly it makes the real price of wind something closer to the worst human and environmental sacrifice ever made in human history, not for the sake of religion but an insane obsession with spinning monstrosities.
The story above needs to be told to the workers in industry that are going lose their jobs, because industry can not compete because of the high cost of èlectricity. The car makers is a good place to start.