Power Prices“r”UP: Clive Palmer Determined to Destroy Australian Business and Crush Australian Families

gore and palmer

Move over Oscar & Felix: here’s the even Odder Couple.

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Australian politics is (sadly) renowned for its “colour” – and there are few more colourful than Queensland’s political “giant”, Clive Palmer. Head of the PUP – or the “Prices“r”UP” Party.

Yesterday – in a circus so bizarre that PT Barnum would have been left speechless – Palmer teamed up with none other than Al Gore – the “Capo dei Capi” of global warming alarmists (although these days he calls it “cataclysmic climate change”).  It was his risible film “An Inconvenient Truth” that helped kick-start the great wind power fraud.  Gore was centre of attention for years – despite the fact that his film contained 9 glaring and fundamental errors – as held by the English High Court.

Gore – like most climate change and renewable energy advocates has his trotters in the renewables trough – so it pays him to keep up his scare campaign – and his wind industry backed trip to Oz was just the latest installment.

Big Clive came out to announce that he would support the Coalition’s move to scrap Labor’s tax on carbon dioxide gas – yes, that’s right Australia placed an enormous $23 a tonne (business killing and family punishing) tax on an odourless, colourless, beneficial trace gas, essential to life on earth (you’re breathing it out right now).

Standing shoulder to shoulder with the original global warming Chicken Little, Palmer – a budding coal baron – promised to vote to abolish the “carbon” tax, provided an Emissions Trading Scheme was put in place to replace it. Palmer’s ETS would only become effective if the rest of the world signs up to one too. Never mind that there’s already an ETS on the statute books (the legislation was designed in such a way that an ETS would replace the carbon tax). And never mind that Al Gore’s Democrat led United States has not and will never introduce a Federal carbon tax or emissions trading scheme, which guarantees that Clive’s ETS would never come into operation.

Palmer’s stated reasons for helping to scrap the “carbon” tax included the costs imposed on businesses and families: another condition of having PUP’s support to abolish the “carbon” tax is that all savings must be passed back via reduced energy bills. As Clive put it:

“Action by our Senators will make Australian industries more competitive internationally and the lives of our people more manageable. The carbon tax is an arbitrary tax and it sets a price on carbon at a level far above the international price for carbon. In so doing it disadvantages Australians and that’s why it should be repealed.”

So far, so sensible. However, Palmer went on to announce that PUP will prevent any change to the mandatory Renewable Energy Target; and that it would oppose the abolition of the Clean Energy Finance Corporation and the abolition of the Climate Change Authority.

The Clean Energy Finance Corporation is a Green-Labor slush fund for renewables, that is the ONLY finance currently available to wind power outfits. It lends at rates far below the true commercial costs associated with high-risk lending; and this is ultra high-risk lending. Wind power outfits without Power Purchase Agreements hoping to develop a wind farm can offer no valuable security for their borrowing from the CEFC (retailers haven’t signed PPAs since December 2012). If they had a PPA, they would be able to offer the future stream of income under that agreement as security and borrow from commercial banks (see our post here).

The CEFC, however, is quite happy lend our money on unsecured terms to outfits like near bankrupt Infigen. In the highly likely event that these outfits go bust it’s the Australian taxpayer that will be left to pick up the tab. Given its stated aims of looking after small business and families, PUP’s support for the CEFC borders on lunacy.

As STT followers well know, the mandatory RET includes the REC Tax imposed on all Australian power consumers and transferred as a direct subsidy to wind power generators. A failure by retailers to purchase the number of RECs required under the mandatory RET leaves them liable to pay the $65 per MWh “shortfall charge” – in effect a fine for failing to pay the REC Tax.

Whether retailers are purchasing RECs via a PPA or paying the shortfall charge, those costs are lumped on top of the wholesale price paid for electricity and recovered from power consumers by retailers, along with a healthy 10% retail profit margin (see further below).

The hypocrisy in PUP’s contradictory positions on the carbon tax and the mandatory RET was picked up by The Australian in its editorial today.

Costs are blowing in the wind
The Australian
26 June 2014

The Renewable Energy Target is inefficient and costs jobs

WHY Al Gore bothered to fly around the world to support Clive Palmer’s confirmation yesterday that he would vote to abolish Australia’s carbon tax is a mystery. For all the theatrics, the biggest change in Mr Palmer’s position — acknowledging that Australia should move to an ETS when the rest of the world also does so — is a longstanding position of this newspaper. An ETS is the most efficient way to abate carbon, unlike Labor’s clunky Renewable Energy Target. Mr Palmer’s determination to rule out any changes to the RET by contrast, which forces households to subsidise costly wind farms though their power bills, was disappointing.

RET supporters have seized on new modelling this week that shows household power bills will ultimately be higher if the government scraps the RET, which is under review. But there is no magic pudding here. If the government by law forced builders to construct hundreds of new office blocks, diverting workmen from more worthwhile jobs, commercial rents would ultimately fall. That outcome does not make such a policy sensible.

In the same study ACIL Allen also points out that the cost to Australia’s economy from keeping the RET is $12.8 billion in present value terms. The cost of abating one tonne of carbon via the RET is about $55 a tonne — almost 10 times more than it would have been under an emissions trading scheme — they note. Other estimates project thousands of net job losses as higher power bills ripple throughout the economy.

Black and brown coal-fired power stations are able to provide electricity at about a third the cost of wind turbines, the construction and operating costs of which are substantial — it is a furphy that wind energy has a zero marginal cost. Improving the efficiency of renewable energy is laudable. But Australia’s RET subsidises production, not research. If it were truly the case that renewable energy was able to provide power more cheaply than coal and gas, as clean energy advocates now claim, the RET would be superfluous. Mr Palmer’s surprise decision to vote for keeping the RET, before even reading the review’s assessment, risks damaging the living standards of the Australians who voted for him.
The Australian

The Australian cites “modelling” by ACIL Allen which claims “that the cost to Australia’s economy from keeping the RET is $12.8 billion in present value terms” and that the “cost of abating one tonne of carbon via the RET is about $55 a tonne”.

The first point we take with ACIL Allen’s modelling is its claim that wind power is abating CO2 gas, at any known price, or at all. We would love to see the ACTUAL DATA upon which that claim is based.

In Australia, there has never been any detailed analysis of the wild and unsubstantiated claims made by the wind industry about reducing CO2 emissions in the electricity sector – other than a couple of woefully inadequate desktop studies. For example, one put up by wind industry pets, Pitt & Sherry that’s full of omissions – such as failing to account for increased “spinning reserve” held by coal/gas-thermal plants to account for wind power FAILS – and the need for highly inefficient OCGTs – and based on assumptions so ridiculously favourable to wind power as to be embarrassing. There has never been any proper data gathered upon which any such assertion could be made.

However, in jurisdictions where data has been made available – all of the evidence points to wind power causing an increase in CO2 emissions: the inevitable result of trying to incorporate wind power into a coal/gas fired grid is increased CO2 emissions (see our post here and this European paper here; this Irish paper here; this English paper here; and this Dutch study here).

As to the other key claim, ACIL Allen grossly understates the cost of the mandatory RET. This massive underestimate arises from the fact that ACIL Allen completely ignores the fundamental relationship between wind power generators and retailers, as it exists in the form of the Power Purchase Agreement.

PPAs are the direct product of the mandatory RET. Irrespective of the prevailing wholesale price on the day – the wind power generator receives (and the retailer must pay) the price fixed under the PPA. These prices range from between $90-$120 per MWh – which compares with the average wholesale price of between $30-$40.

As previously reported, AGL (in its capacity as a retailer) is paying $112 per MWh for wind power under its PPAs (see our post here).

Under the PPA, the retailer not only purchases electricity but also receives a Renewable Energy Certificate. The retailer surrenders the REC to the Clean Energy Regulator so as to avoid being hit with the $65 per MWh shortfall charge, that would be otherwise imposed under the mandatory RET. The retailer gets to pocket the value of the REC (currently $24) – thereby reducing the net price it pays for wind power under the PPA.

In AGL’s case: it’s effectively paying $88 per MWh to obtain wind power ($112 – $24 = $88). However, retailers charge their customers (ie Australian power consumers) the full amount paid under the PPA – plus a healthy retail margin in the order of 10% on top (in AGL’s case, around $123 per MWh).

If the mandatory RET were scrapped – and retailers were free to purchase electricity at prevailing prices (ie in the absence of a PPA with a wind power generator) – they would be paying $30-$40 per MWh on average – to which a retail margin in the order of 10% would be added: retail customers would, therefore, end up paying between $33 to $44 per MWh (or 26% to 36% of the cost being paid by AGL’s customers for wind power).

Under the mandatory RET, a similar result follows where a retailer refuses to enter a PPA to receive RECs (or otherwise refuses to purchase RECs) sufficient to meet the mandated target – and ends up liable for the shortfall charge of $65 per MWh. In this case, the retailer purchasing power pays the average wholesale price of $30-$40 per MWh and also has to pay the shortfall charge of $65 per MWh. The retailer therefore ends up paying between $95-$105 per MWh. Add to that a 10% retail profit margin and the retailer’s customers end up paying between $105-$115 per MWh, as a result of the mandatory RET.

The impact of PPA’s and/or the shortfall charge on retail power prices is something completely overlooked by ACIL Allen in its analysis.

The combined operation of the REC Tax and shortfall charge will add a further $50 billion to power bills between now and 2031, when the RET expires (see our posts here and here and here). By failing to take into account these fundamental relationships, the boffins at ACIL Allen have not only failed Australian Energy Markets 101, they’ve produced a report which is fundamentally flawed.

Someone who’s prepared to go a fair bit harder than ACIL Allen is Burchell Wilson, Chief Economist for the Australian Chamber of Commerce and Industry. Here’s what Burchell had to say.

Burchell Wilson

Burchell Wilson: trying to unravel the RET rort.

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Australian Chamber of Commerce and Industry
MEDIA RELEASE
WEDNESDAY, June 25, 2014

CORPORATE SUBSIDY ON A MASSIVE SCALE

A statement by ACCI’s Chief Economist, Burchell Wilson Public release of the Renewable Energy Target Review’s draft modelling results today shows that the RET is delivering subsidies to the renewables sector on a massive scale.

The modelling outlines that if the RET remains unchanged it will effectively deliver $37bn in subsidies to the renewable sector for the life of the scheme, most of which will benefit the wind industry.

The scale of these subsidies is vast and their cost is borne by households and industry, although well hidden. Even if the government moves to a real 20 per cent target the revised RET would still generate $20bn worth of support to the renewables sector.

Closing the scheme to new entrants merely limits that effective subsidy to $8.7bn. Only repeal of the RET ends the gravy train currently being enjoyed by the renewables sector. ACIL Allen’s modelling also reveals that the RET is a highly inefficient abatement mechanism.

The cost of abatement under the large-scale element of the scheme is $54 per tonne of carbon, which is more than double the current $24.15 per tonne carbon tax. The small-scale element of the RET is grossly inefficient, imposing costs of $186 to abate one tonne of carbon.

The RET is a major policy failure. The RET seeks to abate carbon at $54 per tonne and $186 per tonne when the cost of emitting that carbon is $24.15 per tonne. The excess of that cost above the alleged benefit of abating that carbon is clearly wasteful.

Household energy bills will be higher until the end of the decade as a result of the RET according to the modelling results, on average by $54 per annum, equating to $290 over the period. All of which serves to bolster the multi-billion dollar subsidies enjoyed by the renewable sector.

These modelling results show why the RET needs to be urgently addressed by the government. The government’s review of this scheme was timely and it should act boldly on the basis of these findings.
Burchell Wilson Chief Economist
Director of Economics and Industry Policy

Meanwhile in Australia’s economic basket case – aka South Australia – its spiralling power prices have claimed yet another industrial victim and – along with it – 95 perfectly good jobs.

South Australia is renowned by the wind industry and its parasites as the wind power capital of Australia – it is, however, a dubious “honour” – SA’s insane rush towards intermittent and unreliable wind power (requiring high cost backup from fast start-up Open Cycle Gas Turbines) has left it paying the highest power prices in the world (see our post here).

Hardly the environment for miners or mineral processors – no wonder it’s going backwards faster than the speed of sound.

With a history dating back to 1935, Penrice Soda cited SA’s spiralling power costs as among the reasons for shutting up shop and laying off 95 faithful employees. Here’s The Australian, again.

Chemical plant closes with loss of 100 jobs
The Australian
25 June 2014

Almost 100 jobs have been lost at Penrice Soda’s chemical plant in Adelaide after a possible buyer withdrew its interests. The administrator of Penrice said the failure to sell the business meant it would cease operations, with most of the plant’s 95 employees made redundant.

The opposition yesterday linked the job losses to the State Labor government, saying it was “another blow to the South Australian economy on Premier Jay Weatherill’s watch”. “The Weatherill Labor government now needs to explain to those affected just what job opportunities are available to them in South Australia’s current job crisis,” opposition employment spokesman David Pisoni said.

Manufacturing Minister Susan Close said the decision to close the Osborne plant was deeply disappointing. “These are highly skilled workers who with the appropriate support should be able to find new jobs,” Dr Close said. Mr Pisoni said the government should also be concerned about the fate of Penrice Soda’s Angaston quarry operation, which employs 40 people.

In January last year Penrice said its decision to no longer mine and manufacture soda ash in South Australia was due to increasing energy and labour costs, increasing taxes (notably the carbon tax) and increasing regulatory compliance costs. Last week’s state budget showed Labor would fall 85,000 jobs short of its 2010 pledge to create 100,000 new jobs by 2016.
The Australian

With Clive Palmer keen to retain the mandatory RET expect to see more perfectly avoidable disasters like this, starting with Australia’s aluminium processors (see our post here).

Penrice carter-nicholson

The mandatory RET soon wiped the smiles off their faces.

About stopthesethings

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

Comments

  1. Jackie Rovenksy says:

    Listening to Clive Palmer being questioned by the media, I believe yesterday. I could not get over how he glorified his having 3 Senators in the Federal Parliament and that they held the power there. Shortly later he is saying that Democracy means that the majority rule – fat chance when he is only interested in getting his own way, he has no intentbion of working for the ‘masses’, he is only interested in what suits his business interests. Actually I believe I caught an example of him saying this in an ‘off-side’ remark during this questioning period.
    Al Gore – well nothing much to say about him – Someone from a country where it is impossible to get any changes through their governing system – easier for him to travel the world trying to get other countries to fall for his failed arguments. Not sure what he expected from Palmer, but he looked very uncomfortable next to him on the podium.

  2. Mrs Chips says:

    I wouldn’t believe Clive Palmer. He couldn’t lie straight in bed. Remember the so called interview in Chicago with the pups? He said he’d turn up. He lied and stayed in QLD, lying all the time about why he couldn’t get his plane off the tarmac! When he was giving his statement out with Gore beside him, he was lying- reading from a script. I don’t trust him at all!

  3. Terry Conn says:

    Congratulations to STT for once again clearly setting out the dreadful truth surrounding the economic impacts of the RET and REC schemes in these last two posts ( as well as the many others). It is no surprise that my co-written submission to the RET review panel re-inforces the matters spelt out in these posts
    (the submission is on the Department web site and is fully referenced for those interested). The empirical evidence on the devastating economic impacts from schemes that mandatorily force intermittent and unpredictable sources of energy into a national grid is clear and conclusive when you look at the case studies from Europe and various States and Dominions in North America. Too often commentators limit discussion to only one part of the big picture (eg. only talking about ‘generation’). Needless to say, the ‘politics’ of the matter still has a long way to run but the more STT continues (as it does so well) to disseminate the truth about the ‘wind farm’ scam and the part played by the RET in that scam the quicker it will collapse from the weight of public opinion.

Trackbacks

  1. […] Australia’s National broad-sheet, The Australian stands as an exception; publishing plenty of pieces that, quite rightly, highlight the obscene cost and spurious “benefits” of the mandatory Renewable Energy Target and its product: the wind industry (for just a few examples, see our posts here and here and here and here and here). […]

  2. […] Australia’s National broad-sheet, The Australian stands as an exception; publishing plenty of pieces that, quite rightly, highlight the obscene cost and spurious “benefits” of the mandatory Renewable Energy Target and its product: the wind industry (for just a few examples, see our posts here and here and here and here and here). […]

  3. […] In his Herald Sun piece, Alan refers to modelling by “Acil Tasman”. The firm is now called ACIL Allen and it produced modelling which is fundamentally flawed – grossly underestimating the impact of the mandatory RET on retail power prices – simply because it failed to consider the impact of the Power Purchase Agreements struck between wind power generators and retailers that sets the price paid for wind power at rates 3-4 times the average wholesale price for power (see our post here). […]

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