Queensland Energy Minister Switches On to Cost of the RET

mark mccardle

Mark McCardle: smarter than the average Victorian Premier.

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A couple of posts back we looked at Victorian Premier Denis Napthine’s “vice like grip” on Australian energy policy – this intellectual giant apparently has no idea what a Renewable Energy Certificate is and believes that wind power is not subsidised.  Hmmm.

Well, in stark contrast, it gives STT great pleasure to welcome Queensland Minister for Energy & Water Supply, Mark McCardle to the STT Hall of Fame.

Here’s a little piece that Mark wrote in The Australian last week.

Targets Increase Cost of Energy
The Australian
Mark McCardle
16 December 2013

AS we enter into important discussions on electricity pricing at the Standing Council on Energy and Resources, it is important to put some facts on the table when it comes to renewable energy and the Renewable Energy Target.

Miles George, a director of the Clean Energy Council asserted in this newspaper (December 5) that renewable energy through the federally mandated RET creates “significant downward pressure on electricity prices”, because apparently “large-scale renewable energy facilities nearly always underbid fossil fuel generation in the wholesale electricity market, thereby reducing wholesale prices”.

This unfortunately does not bear any semblance to reality. In fact the reality is absolutely otherwise.

In Queensland we have a regulated retail energy market. The regulated tariff prices are set annually by the Queensland Competition Authority.

In determining the cost of producing and supplying electricity, the QCA has confirmed the effect that the RET has in pushing up the cost of supply of electricity to households and businesses.

From January 2011, the RET scheme changed into the Enhanced Renewable Energy Target scheme.

The changes split the scheme into two categories: a Small-scale Renewable Energy Scheme and a Large-scale Renewable Energy Target .

In their final determination for electricity prices for 2013-14, the QCA calculated the cost of complying with the LRET scheme was $4.15/megawatt hour and the cost of complying with the SRES scheme was $5.74/MWh.

In a subsequent letter to me the QCA estimated this equated to $81.24 on an average household electricity bill. With larger families and businesses the cost is much more.

So contrary to the philosophical assertions made by the various clean energy lobby groups that the RET does not have the impact of lowering energy prices, in reality it increases the cost of energy.

This is entirely consistent with fundamental market principals.

If renewable energy was economically comparable then you wouldn’t need a mandate because the energy retailers would be buying as much of it as they possibly could.

Make no mistake. The Queensland government supports renewable energy. However it must be commercially cost-effective, otherwise we are simply adding to electricity prices by mandating a level of green energy that must be used, regardless of how expensive it is.

The challenge for the renewable energy industry is to find ways to make their energy cheaper so it competes with other sources in cost-effectiveness.

Bjorn Lomberg, an adjunct professor at the Copenhagen Business School puts it best when he says:

“The solution is not to make fossil fuels so expensive that nobody wants to use them because that will never work, but to make green energy so cheap that eventually everybody wants it”.

All this should also be considered in the context of countries across the globe abandoning their taxpayer-funded support for renewable energy.

The Queensland government supports the federal government’s impending review of the RET because it will allow us to have the conversation about whether Australians are prepared to pay for energy sources that are not economically viable through their electricity bills.

Mark McCardle is Queensland’s Minister for Energy & Water Supply.
The Australian

Finally, a State Energy Minister who actually has something like an understanding of Australia’s energy policy.

At the moment the wind weasels and their parasites – like the Clean Energy Council and the Greens – are running a line that wind power is responsible for reducing power prices.  Mark was quick to scotch that one, as he put it:

So contrary to the philosophical assertions made by the various clean energy lobby groups that the RET does not have the impact of lowering energy prices, in reality it increases the cost of energy.

This is entirely consistent with fundamental market principals.

If renewable energy was economically comparable then you wouldn’t need a mandate because the energy retailers would be buying as much of it as they possibly could.

The only issue we take with Mark’s – otherwise sound – analysis is the tendency to “blancmange” renewables costs, average them and then try to attribute their contribution to the “average” household power bill.

The true cost of the RET lies in the use of insanely expensive wind power which is delivered at crazy, random intervals and must be fully backed up 100% of the time with fast start-up generating capacity – which means fossil fuel generating sources – coming either from “spinning reserve”, Open Cycle Gas Turbines or banks of diesel generators.

True it is that wind power can cause (wholesale) prices to “fall” but ONLY if you are looking at dispatch prices into the grid on those rare occasions when wind power is making a substantial contribution as a percentage of its total nameplate capacity of 2,660MW.

But – contrary to CEC and Green spin – no-one cares less what the dispatch price is – it’s the retail cost that matters – and that’s doubled in the last 4 years or so – Queensland saw a 23% increase last year and South Australia (with a phalanx of giant fans) has the highest power prices in the world.

Wind power generators hold Power Purchase Agreements (PPAs) with retailers under which they receive a guaranteed return – PPA contract prices range between $90-110 per MW/h.  The generator collects a REC for each MW dispatched to the grid and each REC is worth around $34.  The PPA includes the value of the REC which the generator hands over to the retailer as part of the trade.

In the end the retailer ends up paying somewhere between $60-$80 per MW/h for electricity that they would otherwise be able to buy all day, every day at around $25 per MW/h from coal-fired generators.

Based on the margin available under the PPA, wind power generators can happily dispatch power into the grid at prices approaching $ZERO.  On occasions, particularly at night time when demand drops, wind power generators literally pay the grid manager to take their power so they can cash in on their PPAs with retailers.  See our post here.

Retailers, of course, pass on what they pay under their PPAs to power punters, which means we are paying 3-4 times the cost of conventional power when the wind is blowing.

When the wind stops blowing across the entire Eastern Grid – as it does over 100 times each year – wind generators deliver a pittance (if anything) of their 2,660MW total capacity.  On those occasions the dispatch price skyrockets and hits the regulated cap of $12,500 per MW/h.

These repeated events are having huge upward pressure on retail power prices – working like a ratchet. The retail price is regulated, but with the number of occasions when the dispatch price hits the cap increasing (thanks to intermittent wind power) the retailers (looking to maintain their margins) simply put increased pressure on the regulator to up the rates they can charge their customers.

The figures cited by McCardle from the Queensland Competition Authority are simply long-term averages and do not take into account the impact of PPAs when the wind is blowing or the insane spikes in the dispatch price when it stops.  For a recap see our posts here and here and here.

But all that is to quibble.

Mark McCardle clearly gets the relationship between the RET and power prices and, therefore, its impact on struggling Australian businesses and households suffering from what’s now called “fuel poverty”.

Queensland was saddled with a mountain of debt left by the previous Labor government that threw cash around like confetti at a big fat Greek wedding.

To have any hope of getting back on track, the Sunshine State clearly needs all the economic policy help it can get.

Cutting input costs to businesses means more economic activity and employment and, therefore, more State revenue.

Scrapping the RET and bringing power prices back to earth would be a very good place to start.

Queenslander2

Mark McCardle clearly aims to keep Queensland lit up for a while yet.

About stopthesethings

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

Comments

  1. Thank you Mark McArdle… a man who knows his energy portfolio. So why are his liberal colleagues Warren Entsch (Federal Member for Leichhardt), David Kempton (Qld State Member for Cook) and Michael Trout (Qld State Member for Leichhardt) pushing so hard for Ratch’s & Port Bajool’s giant Mt Emerald Wind Farm in the far north of Queensland? These politicians are keen to repeat in the media what the wind farm developers have told them, without bothering to do their own research. Surely it’s obvious to them that the turbines will neither reduce power prices nor provide energy security? Thanks STT for your informative posts. We wish you all the best for 2014.

  2. Allan and Anne Schafer says:

    Dear STT, Heartfelt appreciation for STT. You are an enormous and caring support, source of information, wisdom and wit for many people. Giving many a chance to be heard when they feel no one else is listening. Our best wishes for a wonderful Christmas and a very successful new year. Hoping that 2014 is a “game changer” and that truth and justice finally prevail. Thanks to all. Anne and Allan Schafer

  3. Great to have Qld on board. The Oz doing a great job as usual. However in journalism terms this concise explanation of the Great Renewables Scam (backed up with figures as well as facts) is at the head of the field.

    STT earning its place in the official global warming history. The PhDs won’t be far away.

  4. Good on you Mark McCardle, you are talking more like a Goverment that knows what is sending up power prices, not like smiley Denis the Menace in VIC who would not have a clue.

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