Rearranging Deckchairs on the Titanic: or Ian Macfarlane’s Futile Efforts to Save the LRET & his mates at Infigen

Ian Macfarlane 18.12.13

Ian Macfarlane: Captain of a Titanic Policy Debacle.

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For more than just a little while, STT has been pointing out that the Large-Scale Renewable Energy Target (LRET) is simply unsustainable – be that as a matter of simple economics; or as a cold, hard political fact.

A couple of weeks back, we provided a very detailed analysis as to just why the LRET is all set to implode, in this post:

LRET “Stealth Tax” to Cost Australian Power Punters $30 BILLION

Since STT popped up our little insight into the parallels between the collapse of the government backed, wool Reserve Price Scheme (RPS), back in 1991 and the market for wind power under the LRET, the story has done the rounds among our, now panicked, political betters in Canberra; and has caused no end of anxiety amongst wind industry spruikers, such as Tristan Edis at the Climate Speculator (we’ll return to the Climate Speculator’s fears in a moment).

The very basis of the wind industry’s “profitability” and, therefore, survival, depends upon the price of Renewable Energy Certificates (RECs).

The price of RECs is directly linked to the shortfall charge under the LRET, which is currently $65 per MWh. Accounting for the effects of taxation, by reference to the shortfall charge, RECs are supposed to trade at $94, as the shortfall starts to bite later this year and beyond.

The $65 per MWh figure, currently set for the shortfall charge, operates as a “floor price” for RECs, in precisely the same way as the “floor price” operated for wool under the RPS.

The government was ultimately forced to scrap the floor price set for wool under the RPS, for precisely the same reasons that it will be forced to scrap the LRET: the ultimate buyers simply stopped buying.

In the case of wind power, commercial power retailers stopped entering Power Purchase Agreements with wind power generators, more than two years ago.

The only reason that retailers enter PPAs is to obtain a stream of RECs over the life of the LRET (which expires in 2031). Unlike wool, there is no viable market for wind power – retailers worked out long ago that it can’t be delivered on demand, which is, after all, what their customers want.

ICU Respiratory_therapist

Oh, so you were hoping for power around-the-clock?

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Moreover, with prices set under PPAs at 3-4 times the average wholesale price of $35-40 per MWh, retailers are acutely aware that they have to recover the full cost of that power from power consumers – who are increasingly struggling to pay their bills – in a retail environment where tens of thousands of power consumers are being chopped from the grid every year; simply because they can no longer afford their escalating power bills (see our posts here and here).

Now, this may come as a shock to the intellectual pygmies over at the Climate Speculator, and others similarly equipped, but electricity retailers are not in the business of selling the highest priced power available.

Retailers, surprise, surprise, are in the business of making money, by selling power to as many people as possible, at margins which are both sustainable and profitable over the long term. It’s the profit motive that drives retailers, not altruism, or some kind of love for pointless government policy debacles, like the LRET.

Canny Scot, Adam Smith was on to it in the 18th Century with his observation that:

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

The management of electricity retailers couldn’t care less where the power they on sell to their customers comes from: as long as it’s available round-the-clock, at prices cheap enough that the companies they control can make a profit over the long term; and, therefore, reasonable returns to their shareholders. Indeed, a company’s primary obligation is to its shareholders, who are generally pretty interested in profits that result in dividends, or increased share prices, when recapitalised.

Wind power, of course, is never available round-the-clock; and, at quadruple the price of conventional power, is hardly a recipe for retailers being able to provide affordable power to their customers, at profitable margins.

With tens of thousands of homes unable to afford power at all, retailers are facing a shrinking market in which to sell their product, at a time when there is a substantial and growing oversupply of power available from conventional sources. All of which means there is only one way for the wholesale power price to go, and that’s South.

In that environment, why on earth would power retailers lock into exorbitant prices, for an unreliable power source, under PPAs that last for a minimum of 15 years?

It would be like home buyers being told to lock into a fixed interest rate today, at a time when everybody knows that home loan interest rates are guaranteed to fall for years to come.

In those circumstances, it’s little wonder that Grant King, head of Australia’s largest electricity retailer, Origin – and no fool when it comes to making money from retailing power in a tough regulatory environment – has made it very plain that he has no intention of signing up to purchase any more wind power to obtain RECs via PPAs at all.

And it’s that fact that has the boys over at the Climate Speculator ranting and railing in recent pieces about retailers being “defiant” about the LRET; and accusing Tony Abbott of “inciting civil disobedience” for not coming out with a ringing endorsement of a pointless policy in its death throes.

The Climate Speculator’s Tristan Edis, obviously fishing around for an answer from Grant King that might cheer his wind industry mates, got one that he clearly didn’t expect when he asked King about wind power outfits offering Origin better terms under PPAs, and King responded that:

[T]hey weren’t looking at contracting with anyone so couldn’t say whether such offers were available.

As STT has pointed out, Origin, and all the other retailers have a choice.

Retailers don’t have to enter PPAs to purchase RECs – they are perfectly entitled to crack on with the business of selling power and pay the shortfall charge, instead. And that’s exactly what Origin, and all the major retailers, are about to start doing.

Retailers will simply pay the shortfall charge, and recover it from their customers, noting on their bills that they are recovering a “Federal Tax on Electricity Consumers”.

As detailed in our previous post, the shortfall charge is nothing more than a Federally mandated “stealth tax”, which will add over $30 billion to power bills over the life of the LRET.

Knowing that this situation will pretty quickly become political poison for a government that couldn’t sell its proposed $7 Medicare co-payment for a trip to see the GP; or a $0.01 increase in the cost of an excise on petrol, electricity retailers know full-well that the government will be on a political hiding to nothing on this one.

The prospect of watching this (or any) government try to explain a $30 billion electricity tax to an already angry electorate – with tens of thousands currently cut from the grid, and sitting freezing (or boiling) in the dark, with thousands more set to join them – will not make for pretty political viewing: and the retailers know it.

Which brings us to Ian “Macca” Mcfarlane, and his latest cunning efforts to cut a deal with Labor on the target set under the LRET.

No doubt, Macca’s urgent anxiety to save the LRET, with a quick and dirty deal, is being driven by the hysteria exhibited by his best mate, Miles George – head of the Clean Energy Council, as well as the near-bankrupt wind power outfit, Infigen (aka Babcock & Brown).

banshee

Calm down Miles, it’s just the end of the world as you’d planned it.

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In recent weeks, Miles has been seen running around like a grief stricken banshee. No doubt, deeply “concerned” that retailers have NO intention of signing up to PPAs with his outfit; or any other wind power outfits, for that matter.

For a taste of Miles George’s painful epiphany about retailers having no intention of signing PPAs with Infigen, or anybody else, see this ruin-economy rant here.

In that paranoid little piece, Miles George talks about calling the “bluff” of operators like Grant King, who received this wrap up from the Harvard Business Review back in 2013, as reported by The Australian.

Origin Energy’s Grant King makes top 100 CEOs list
The Australian
Matt Chambers
12 January 2013

THE number of Australian company bosses listed in this year’s Harvard Business Review’s top 100 chief executives has dwindled to one, with Origin Energy’s Grant King the sole representative.

This is a far cry from 2010, when seven heads of Australian companies made the inaugural list.

Mr King was named the world’s 88th best performing chief executive, having added $US8 billion to the market value of the company since 2000, with country-adjusted total shareholder returns of 985 per cent and industry-adjusted returns of 1673 per cent.

Top of this year’s list, as he was in 2010, was Apple boss Steve Jobs, who died in October 2011.

Harvard Business Review said he had added $US359bn to the company’s market value since 1997.
The Australian

In the “battle” between Miles George (who is in charge of a company, the value of which amounts to little more than a rounding error on Origin’s balance sheet) and Grant King, STT is more than happy to place our houses, our beach houses and all the family silver on Grant King, for some strange reason ….

Infigen 2009-5.5.14

[Miles George’s efforts to “bluff” another market …]

But, for all the huffing and puffing from the wind industry, its parasites and spruikers about saving the LRET, doing deals on targets and ranting about retailers being “defiant”, calling their “bluff” etc, this whole debacle boils down to one thing: “the golden rule”.

“The golden rule” is that whoever has the gold, makes the rules.

In this case, it’s power retailers that have the “gold”; and, by directing it away from PPAs with wind power outfits, these boys will pretty quickly end up with the rules that suit their businesses, their profits and their shareholders. And, in the result, ALL Australian power consumers.

In the meantime, the efforts of Macca, and his mates at Infigen, to strike a last-ditch-deal on the LRET makes about as much practical sense as rearranging the deckchairs on the Titanic.

The LRET has been holed below the waterline; and it’s heading straight to the bottom.

titanic

Did anyone bother to tell Macca to leave the deckchairs alone, because it’s pretty clear that this bad boy’s heading straight to the bottom?

About stopthesethings

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

Comments

  1. clive hoskin says:

    Long may they reside on the bottom, to keep the Titanic company.

  2. Haddock39 says:

    Macca and Miles deserve to go down with the ship along with their scurvy wind rort mates.

    But you can be sure they will have commandeered their lifeboat (bugger the women and children) so they can scam another day…

  3. Uncle Fester says:

    To quote from the film in question regarding sinking….

    “It is a mathematical certainty.”

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