Chris Back meets Alan Jones & Graham Richardson on Sky News

Proving the adage that you can’t keep a good man down Western Australian Senator, Chris Back came out swinging in this cracking interview with STT Champion, Alan Jones and former ALP head kicker, Graham Richardson on Sky News this week.

Enjoy!

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Alan Jones didn’t quite hit the target when he talked about a mandatory RET of 40%. The notional renewables target is 20% of electricity demand to be supplied by 2020. However, the target set by the Rudd Labor government is fixed at 41,000 GW/h annually.

Given the recent decline in Australia’s manufacturing and industrial sectors demand for electricity has fallen substantially in the last few years – and with the two big motor manufacturers – Ford and Holden – about to close their doors, demand is forecast to fall further still. It’s estimated that – in the unlikely event that the 41,000 GW/h target is retained – Australia will end up with a mandatory RET representing more than 27% of demand. It’s that fact that means the current fixed target is likely to get the chop.

Chris Back was asked about costs associated with the mandatory RET and deferred to his Liberal colleague, Angus “the Enforcer” Taylor.

STT has been spelling out the present forecast costs of the wholesale subsidisation of wind power through the RET/REC scheme since December 2012. We’re happy to lay out a few of big ticket items for ease of reference here.

The REC

The Renewable Energy Certificate – aka “Large-Scale Generation Certificate” is a Federal Tax on all Australian power consumers which is paid as a direct subsidy to wind power generators.

Since the implementation of the RET began in April 2001, over 195 million RECs have been created and which has, so far, added more than $8 billion to power bills.

If the current RET is maintained at 41,000 GWh RECs are forecast to increase to around $90. At that price, given the number required to satisfy that target, it is estimated that the REC Tax will add a further $54 billion to power bills until the RET expires in 2031.

The alternative to retailers purchasing RECs from wind power operators is to pay the mandated “shortfall charge” – a “fine”. If a retailer fails to acquire 20% of the electricity that it sells from renewable sources (and thereby fails to purchase a REC) it gets whacked with a fine of $65 for every MW/h that it falls short of the target – here and here.

For a detailed wrap up on the RET/REC see our post here.

Recouping returns on “investments”

When developers start mouthing off about making billion-dollar “investments” in wind farms, power consumers should brace themselves for power price penury. These “investments” aren’t being doled out by Father Christmas – on any “investment” in wind power capacity the operator is looking to recover a fat return on capital.

Developers aim for gross annual returns of 20%. The only way of recovering that return is through electricity sales and RECs. With a power purchase agreement (PPA) lasting 15 years – with a guaranteed minimum price between $90-110 per MW/h – the operator is guaranteed that level of return and power consumers end up paying 3-4 times the cost of conventional power.

As an example, a while back we looked at the ridiculous Ceres project planned by a bunch of cowboys for SA’s agricultural Heartland, the Yorke Peninsula (see our post here).

The Ceres project was quite rightly slammed by SA’s favourite Greek, Senator Nick Xenophon as “an economic kick in the guts for SA.” Here’s why.

That project is said to cost $1.5 billion. Based on a 20% gross annual return, South Australia power consumers will face, at least, an additional $300 million in power costs for electricity – power which can be readily delivered from existing generation sources at a fraction of the cost.

That $300 million annual return would be recovered directly from power consumers – as a combination of RECs and electricity sales to retailers (if there’s one silly enough to sign a PPA).

Assuming, generously, a capacity factor of 35% (the chancers trying to get if off the ground wildly claim more than that) each turbine will receive 10,424 RECs annually.

By 2020 – with RECs worth $90 – a single Ceres turbine would be receiving $938,160 – which means the project as a whole (197 turbines) would receive $180,817,752 worth of RECs in a single year. Remember, the REC is a Federal Tax on power consumers which is simply added to retail power bills. The balance of the $300 million return will be recovered from retailers under PPAs – and the whole lot recouped from retail customers.

Accordingly, if projects like Ceres were ever built – SA power consumers can simply expect further escalations in power bills that are the highest in Australia by a substantial margin and which jockey with the other wind power “capitals” Germany and Denmark for the inglorious title of suffering the highest power prices in the world (see page 11 of this paper: FINAL-INTERNATIONAL-PRICE-COMPARISON-FOR-PUBLIC-RELEASE-19-MARCH-2012 – the figures are from 2011 and SA has seen prices jump since then).

For the history of the RET and a great summary of its costs see this detailed article by Ray Evans and Tom Quirk. Back in 2009 Tom and Ray predicted with chilling accuracy (in this paper) 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 base-load 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 Eastern grid – there will need to be at least $30 billion invested in a duplicated transmission network.

The “investors” in $52 billion worth of wind power generating capacity – and in $30 billion worth of poles and wires to carry it – will all be looking to recover gross annual returns of 20% – which will all be added to retail power bills. The only way for retail power prices is up.

Duplicated transmission network

During the interview, Alan, Graham and Chris talked about the cost of “poles and wires” and the impact of “goldplating” the network on power prices. To carry 26,000 MW of new wind power generating capacity scattered all over South-Eastern Australia will require the network to be “platinum plated”.

The $30 billion talked about by Ray and Tom in their papers is the cost of duplicating the network just to take wind power – on the few occasions it actually delivers (see our posts here and here and here and here).

What Tom Evans and Ray Quirk mean by duplicating the transmission network to accommodate wind power 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.

A network exclusively devoted to sending wind power output from remote, rural locations to urban population centres (where the demand is) will only ever carry meaningful output 30-35% of the time, at best. The balance of the time networks devoted to carrying wind power will carry nothing – for lengthy periods there will be no return on the capital cost – the lines will simply lay idle until the wind picks up.

The 26,000 MW of new wind power capacity that Ray and Tom suggest would be built to meet the 41,000 GWh target would see turbines spread far and wide over rural NSW, SA, Victoria, Queensland and Tasmania (which would be all connected to the Eastern grid). For that to happen, a network will need to be built that runs in the reverse direction to the existing grid.

Most major capitals have substantial generating capacity within relatively close proximity and existing networks radiate out from there – sending power out to rural and regional towns and farms. With wind farms being spread over huge geographical areas their output has to be chanelled back to where the markets are. The coasts and coastal cities are where the populations are – rural and regional Australia is relatively sparsely populated and the further you go inland the sparser it gets.

To specifically cater for a huge increase in wind power capacity will necessarily require an enormous investment in dedicated high capacity transmission lines (and all the other associated infrastructure) running from remote, regional and rural Australia back to the population centres – rather than the other way round.

We haven’t even got to the costs of installing and operating highly inefficient peaking power plants needed to backup wind power capacity when it disappears each day and for days on end, but we’ve made our point.

Meeting the current 41,000 GWh mandatory RET by “investing” in wind power generating capacity will cost power consumers more than $54 billion in REC Tax.

Then comes the return on “investment”: $52 billion to install 26,000 MW of further capacity; and a further $30 billion in setting up a network to get it to market. Power consumers will end up paying for all of that “investment” through their power bills – think of a 20% gross annual return being recovered from power consumers on an $82 billion investment.

The potential cost to power consumers can only be described as colossal.

There is, however, relief in sight. The Head Boy understands the impact the RET has had on power prices – and has taken advice from people like Maurice Newman – people who are acutely aware of the true and hidden cost of wind power (see our post here).

And now the PM will take his cue from the RET Review Panel – headed up by Dick Warburton – a review which, for the first time, will actually look at the actual costs versus the spurious claimed benefits of wind power (see our post here).

Not a moment too soon.