Australia’s Runaway Renewables Policy to Cost $Billions

runaway train lone ranger

The mandatory RET: a train wreck in the making.

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Competitive structure best way to rein in costs
The Australian
Barry FitzGerald
20 August 2014

IT is a touch ironic that it has taken the abolition of the carbon tax to highlight just what a pernicious bit of work it was. More than even Tony Abbott’s labelling of it as a big, bad tax.

Take the cost of a return ferry ride down to Tasmania for two people and their car. The carbon tax surcharge for the joy of that was $24, refunded now if it was booked before the tax was repealed. Did the ferry start handing out oars to the passengers as a carbon offset alternative?

Of course not. But did the surcharge impose a ridiculous impost on ferry passengers and the struggling economy of the Apple Isle? Absolutely. And that is but one small example of the carbon tax’s pernicious nature.

In the weeks ahead, energy providers and others are required to detail the cost savings. And according to the federal government, the average family will benefit by $550 annually.

The Tassie ferry example suggests that the government could actually be underselling the savings benefit.

But there is more work to do. The renewable energy target — the subject of a review by Dick Warburton expected to be handed to the government this month — must be the next to go, or at least substantially amended.

Established under the Howard government to subsidise the generation of about 4 per cent more electricity from renewable sources, an expanded RET target was framed by the Rudd government in 2009 to generate a total 20 per cent from renewable sources by 2020.

At the time, Australia’s electricity demand was expected to grow in perpetuity. But demand growth has now stalled, meaning mandated renewable generation could become more like 27 per cent by 2020, forcing more existing generation capacity to close and further ratcheting up electricity prices until the scheme eventually finishes in 2030.

The rise of renewables — essentially the wind and solar sectors — might seem to be a wonderful thing in an ever greening world. But it has to be remembered it is underpinned by investment in additional (and unpredictable) generation capacity when there is already a long-term glut in the national electricity market. This could cost consumers billions of dollars.

It is unlikely that the government will support the abolition of the existing RET subsidies because of the sovereign risk implications for committed investments. But there will be no surprise if the Warburton review recommends a freeze on the subsidised generation at current levels.

Failing the freezing of the RET, a recommendation that it be capped at a “true” 20 per cent at most would seem to be the Warburton review’s next most likely recommendation.

Such an outcome from the RET review would be an easier sell to that big chunk of the electorate yet to be convinced that the coalition’s Direct Action plan, along with its $2.5 billion Emissions Reduction Fund that will pay polluters to reduce emissions, is taking the global carbon challenge seriously enough.

That same chunk of the electorate argues that the carbon tax and the RET were working, pointing to the slump in electricity demand as evidence. They are factors all right, but the slump in demand has more to do with a manufacturing sector labouring under a host of pressures, not the least of which has been the sharp rise in energy costs. On ABS figures, electricity prices for business increased by close to 80 per cent in the last five years. For households, it was 110 per cent.

Households and industry are adamant that rising energy costs can’t go on. The review of the RET provides the government with an opportunity to set the framework for the Energy White Paper, due later this year.

Both sides of politics acknowledge that energy policy has got away from them. It is time to rein in costs and return to a competitive energy structure, and the White Paper is just the place to spell it all out, including policy commitment to the environment.
The Australian

As detailed in this post the PM has determined to bring the great wind power fraud to an end; and is planning to use the Coalition’s Direct Action policy to do it.

The Emissions Reduction Fund under Direct Action – at a cost of $2.5 billion – would be a mere “snip” by comparison with the $50 billion worth of RECs that would be transferred to wind power outfits – at the expense of all Australian power consumers – over the next 17 years (see our post here).

Yet again the furphy about “sovereign risk” gets a run.

The wind industry and its parasites have been dogged in their efforts to salvage the mandatory RET by wailing about “sovereign risk”, as if it were some kind of magical shield.

“Sovereign risk” and “regulatory risk” are two entirely different animals: the wind industry is the product of Federal Government regulation which, of course, is prone to amendment or abolition at any time.

Sovereign risk” is the risk that the country in question will default on its debt obligations with foreign nationals or other countries; and, by some definitions, includes the risk that a foreign central bank will alter its foreign-exchange regulations thereby significantly reducing or completely nulling the value of foreign-exchange contracts.

It has nothing at all to do with changes in legislation that impact on industry subsidy schemes – which is precisely what the mandatory RET/REC scheme is: the prospect that a subsidy might be reduced or scrapped is simply “regulatory risk”.

To claim that the alteration of a government subsidy scheme is “sovereign risk” is complete nonsense (ask General Motors Holden, Ford and Toyota). And even more so when considered against the “pesky” provisions of the Renewable Energy (Electricity) Act 2000.

To reduce or scrap the mandatory RET, the coalition does not need to change the legislation retrospectively, as wind industry rent-seekers moan. The Renewable Energy (Electricity) Act itself makes it clear that the Government can increase or decrease the mandatory target (by any margin it chooses) every two years, at will. For the benefit of those crying “foul” – or willing to accept rent-seeker bleating at face value, here’s s162:

Periodic reviews of operation of renewable energy legislation

(1) The Climate Change Authority must conduct reviews of the following:
(a) the operation of this Act and the scheme constituted by this Act;
(b) the operation of the regulations;
(c) the operation of the Renewable Energy (Electricity) (Large-scale Generation Shortfall Charge) Act 2000;
(d) the operation of the Renewable Energy (Electricity) (Small-scale Technology Shortfall Charge) Act 2010;
(e) the diversity of renewable energy access to the scheme constituted by this Act, to be considered with reference to a cost benefit analysis of the environmental and economic impact of that access.

Public consultation

(2) In conducting a review, the Climate Change Authority must make provision for public consultation.

Report

(3) The Climate Change Authority must:
(a) give the Minister a report of the review; and
(b) as soon as practicable after giving the report to the Minister, publish the report on the Climate Change Authority’s website.
(4) The Minister must cause copies of a report under subsection (3) to be tabled in each House of the Parliament within 15 sitting days of that House after the review is completed.

First review

(5) The first review under subsection (1) must be completed before the end of 31 December 2012.

Subsequent reviews

(6) Each subsequent review under subsection (1) must be completed within 2 years after the deadline for completion of the previous review.
(7) For the purposes of subsections (4), (5) and (6), a review is completed when the report of the review is given to the Minister under subsection (3).

Recommendations

(8) A report of a review under subsection (1) may set out recommendations to the Commonwealth Government.
(9) In formulating a recommendation that the Commonwealth Government should take particular action, the Climate Change Authority must analyse the costs and benefits of that action.
(10) Subsection (9) does not prevent the Climate Change Authority from taking other matters into account in formulating a recommendation.
(11) A recommendation must not be inconsistent with the objects of this Act.
(12) If a report of a review under subsection (1) sets out one or more recommendations to the Commonwealth Government, the report must set out the Climate Change Authority’s reasons for those recommendations.

Government response to recommendations

(13) If a report of a review under subsection (1) sets out one or more recommendations to the Commonwealth Government:
(a) as soon as practicable after receiving the report, the Minister must cause to be prepared a statement setting out the Commonwealth Government’s response to each of the recommendations; and
(b) within 6 months after receiving the report, the Minister must cause copies of the statement to be tabled in each House of the Parliament.
(14) The Commonwealth Government’s response to the recommendations may have regard to the views of the following:
(a) the Climate Change Authority;
(b) the Regulator;
(c) such other persons as the Minister considers relevant.

Well, that couldn’t be much clearer.

The Act itself provides that reviews of the mandatory RET must take place every two years; taking into account the cost and benefits of any recommendation made, as part of the review. There is nothing in that section to suggest that the government is bound to maintain any particular figure for the mandatory RET; or to accept assertions by the wind industry that the “benefits” of wind power outweigh its “costs”. Indeed, the section is entirely to the contrary.

By reference to that section, the RET Review Panel would be completely within its rights to recommend that the mandatory RET be scrapped in its entirety; simply because the demonstrated and extraordinary costs of wind power (the key beneficiary of the RET) completely outweighs any of its purported benefits.

Moreover, as the wind industry simply cannot provide any credible evidence that wind power satisfies the key objective of the Act – namely, actually reducing emissions of greenhouse gases in the electricity sector (see s3) – then a recommendation to substantially wind back or scrap the RET would not be inconsistent with the objects of the Act (see s162(11) above).

Such a recommendation is absolutely on the cards – and STT hears that the PM is itching to implement it.

In this post, WA Senator, Chris Back slammed the “sovereign risk” story straight over the long-boundary, based on Parliamentary advice which, funnily enough, reflects the terms of s162 above – and what STT has already said on the topic (see our posts here and here).

But the need to ignore the provisions of the legislation that brought it into existence doesn’t stop the wind industry and its parasites running “sovereign risk” as the last line of defence. However, it’s a line which didn’t get much traction with Panel head Dick Warburton.

Back in April, Dick – along with the rest of the RET Review Panel – held a meeting in Sydney, attended by representatives from peak business bodies, such as the Business Council of Australia; miners, like Rio Tinto; and serious (ie conventional) power generators. Along for the ride too were a bunch of rent-seekers from the wind and solar industries – including, of course, the Clean Energy Council – all desperate to keep the RET gravy train rolling (see our post here).

At one point during the meeting, as Dick Warburton spelt out the panel’s mission, the boys from Infigen (aka Babcock & Brown) howled from the back of the room: “but, what about sovereign risk?!?” To which a nonplussed Warburton retorted: “what about it? Sovereign risk is your problem, it’s not our problem” (see our post here).

Ouch!

There’s been plenty of speculation about just what the RET Review Panel will recommend. However, one thing appears clear – don’t expect to see “sovereign risk” featuring high among the list of the Panel’s concerns. As Dick Warburton made plain from the outset, the Panel’s primary concern is “the cost impacts of renewable energy in the electricity sector”.

dick-warburton

Dick Warburton: if there’s “sovereign risk”, it’s the wind industry’s problem.

About stopthesethings

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

Trackbacks

  1. […] – trot out the furhpy about “sovereign risk”. Not only is it utter bunkum (see our posts here and here and here and here), harping on about it won’t save the wind industry from the […]

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