Call to Scrap RET goes from Whisper to Roar: BCA joins the queue

Tell us what you really think of the RET, big fella.

Renewable energy target distorting market: BCA
The Australian
Annabel Hepworth
14 February 2014

THE nation’s peak business group has warned that the controversial renewable energy target — already blamed for distorting the $11 billion National Electricity Market — could become more expensive when the carbon tax is repealed.

In a submission obtained by The Australian, the Business Council of Australia urges the Abbott government to broaden this year’s review of the RET to examine the impact of the scheme on the “resilience” of the electricity market and the implications of relying on more volatile intermittent generation sources, such as wind and solar.

The BCA also warns that the electricity market is oversupplied and the RET is exacerbating this. While the RET was intended to see 20 per cent of electricity come from renewable sources by 2020, The Australian has learned of energy sector estimates that it is on track to reach 28 per cent because of government subsidies and falling overall demand.

Last night, one of the nation’s largest energy companies, EnergyAustralia, backed the BCA warning, declaring that the RET had to be reviewed if the government wanted to retain community support for renewable energy.

“Following the removal of the carbon price, the subsidy value required by the RET will need to increase,” said EnergyAustralia group executive manager for strategy and corporate affairs Clare Savage.

“This will cost consumers between $900 million and $1.6 billion a year without contributing to any further large-scale renewable generation investment.”

The comments add to pressure on the government over the RET as cabinet is badly split on what to do it about it, while Tony Abbott’s key business adviser, former ASX chairman Maurice Newman, has blamed the RET and carbon tax for ruining Australia’s competitiveness and the EU last month signalled watering down its renewables target.

Last week, the Prime Minister vowed the review would look at the impact of the RET on people’s power prices and declared “we should be the affordable energy capital of the world”, given the abundance of coal and gas.

But in a submission to the energy white paper being developed by Industry Minister Ian Macfarlane, the BCA says “our historical competitiveness in this area cannot be taken for granted” and that the energy-intensive nature of much of the nation’s industry must be recognised.

As well as raising concerns on the RET, the submission calls on the government to set out a clear process for how it would manage a situation where legislation to scrap the carbon price is not repealed by July 1.

The energy sector and major energy users are increasingly worried about this, as Labor and the Greens continue to oppose the repeal legislation in the Senate, meaning the situation could drag on for months.

The BCA submission also says new gas supplies are stymied by a lack of political leadership and barriers including moratoriums on fracking and “unscientific” exclusion zones around projects.

It calls on the federal government to work with the states to rationalise what remains of 230 greenhouse gas emissions and energy efficiency policies that impose costs on the community for little or no benefit; to encourage the states to privatise their energy assets through a rebate of corporate tax after asset sales; and to streamline environmental approval processes.

On renewables, the BCA points to recent findings that the RET costs between $30 and $290 per tonne of carbon abatement.

The BCA argues that as the dumping of the carbon tax will lead to lower wholesale electricity prices, renewable energy generators are likely to “seek to recover their losses from reduced wholesale margins” through higher costs on renewable energy certificates that electricity retailers are required to buy and surrender to a government regulator.

If this happens, the BCA argues, the risk is that renewable energy certificate prices will rise to the level of the financial penalties for not surrendering enough of the certificates.

Consequently, retailers could opt to just pay the penalty price rather than buy the certificates.

“In effect this would mean consumers would be paying a higher price for electricity, with no additional renewable energy generation,” the submission says. “The BCA encourages the government to fully consider these issues as part of the RET review in light of the intended repeal of the carbon price.”

But the Clean Energy Council said the market for certificates created by large-scale renewable power stations was oversupplied, with the prospect of the RET review meaning wind farm investors wanted to “keep their wallets in their pockets”.

Prices for the certificates were often locked into power purchase deals struck between renewable generators and retailers, said the council’s strategic policy manager Tim Sonnreich.

“If the renewable generator comes to them and says, ‘You have to jack up your price by 20 per cent’, the retailer can just say ‘no’,” he said.

Mr Sonnreich said it was “a good time to be a buyer and a bad time to be a seller”. He said that if the carbon price was repealed, “the most likely scenario is that people will have even less incentive to build a wind farm in the short term”.

Yesterday, Green Energy Trading was quoting certificate prices of $36.50 for small-scale renewables such as rooftop panels and water heating, while certificates from large-scale renewables were at $27.

Ms Savage said that, under the current scheme design, “when we don’t achieve the target, customers will start paying a tax for no new renewable energy”.
The Australian

The Business Council of Australia gets it: the RET is an insanely expensive way of not reducing CO2 emissions and simply has to go.  The BCA have been on the trail to kill the RET for some time now (see our post here).

The other perversity associated with the RET (and pointed out above) is the fact that retailers would rather pay the mandated “shortfall charge” than actually sign up to buy wind power to receive RECs.  Some of Australia’s biggest retailers – including Origin – made that choice plain a while back (see our post here).

To find out how the shortfall charge works in practice (see our post here).

Thankfully, the RET is on the road to extinction.

Like the Moa the RET’s on the road to extinction.