Wind Power Dreamers Put Australians on Highway to Energy ‘Hell’

Bill

Electricity Bill Shorten: wants to put Australians on the Highway to Hell.

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When Electricity Bill Shorten came out to announce Labor’s 50% renewable energy target, a month back back, Tony Abbott quite rightly jumped on it as an economy destroying policy, that would drive power prices through the roof; energy intensive businesses offshore; and households into a dim, dark electricity free future. And fair enough:

Adam Creighton: Labor’s Ludicrous Wind Power Policy to Squander more than $100 Billion

But that’s to compare insanity with complete madness. The Coalition’s 33,000 GWh Large-Scale Renewable Energy Target comes with a $45 billion cost to power consumers in the form of the REC Subsidy, funneled to wind power outfits and added to all Australian power consumers’ retail power bills – and that ignores the phenomenal cost of holding dispatchable generation (equal to 100% of whatever wind power capacity exists) from fossil-fuel generation sources and building an entirely unnecessary duplicated power grid:

Labor’s Renewable Target is Pure Insanity: the Coalition’s Target is Simply Madness

Now that Labor has pinned its colours to the mast, serious economics commentators, like the The Australian’s Henry Ergas have put pencil to paper, in an effort to tally up the cost of Shorten’s rush of political blood (read “let’s save our Super Funds’ wind farm investments“).

henry ergas

Henry Ergas: highlights Labor’s Highway to Energy Hell.

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Bill Shorten’s climate-change policy a one-way ticket to energy hell
The Australian
Henry Ergas
17 August 2015

If you want to know what the lead-filled sock of fate has in store for us, look no further than Labor’s ­climate-change policies.

With barely one per cent of ­global emissions, Bill Shorten would have us mandate a share of renewable energy two times greater than that aimed at by the world’s largest emitters.

The threat that poses to consumers, who would face dramatic increases in power bills, is obvious; but the mere possibility of so ­irrational a policy — which would squander an amount equivalent to the sum of the budget deficits over the forward estimates — must compound the sovereign risk that is already damaging Australia’s international competitiveness.

Of course, the renewables lobby has beamed with joy ever since Shorten announced that “Labor’s ambition is to see 50 per cent of our electricity energy mix generated by renewable energy by 2030”. And however poor renewables may be at actually generating power, that lobby’s capacity to generate spurious arguments would make the sun shine at night.

We have, for example, been told that far from raising prices, the Renewable Energy Target reduces them. However, that is only true for so long as the growing stock of renewables adds to overcapacity in the National Electricity Market, forcing prices in that market down to the cash costs of keeping plants going. In addition to being inherently inefficient (since it makes no sense to aggravate a capacity glut), any benefit to consumers must be short-lived, as prices will rise once the surplus plants leave the market.

But it is even worse than that. In most markets, when supply exceeds demand, it is the highest cost suppliers who get knocked out, cushioning the price increases associated with a return to balance. In this market, however, the exact opposite is occurring, as the renewables mandate ensures the costliest capacity remains while cheaper capacity is prematurely scrapped.

That process is already apparent, with expensive renewables accounting for 98 per cent of the 1100 megawatts of capacity added last year to the NEM, while coal plants, which have low operating costs, accounted for 90 per cent of the 4500 MW that have been withdrawn or whose withdrawal has been announced.

Were the renewables target nearly doubled, as Labor proposes, the distortion would be even more severe. Quantifying the impacts involves myriad assumptions; but a reasonable estimate (derived using a model developed for the Minerals Council by electricity specialists Principal Economics) is that increasing the renewables ­— target would raise the costs of power by $86 billion, which amounts to $600 per household per year.

Given that the average family has an annual electricity bill of some $1600, adding $600 is hardly trivial. Nor could anyone claim $86bn is small change for the Australian economy as a whole: not only is it more than twice this year’s budget deficit, but it exceeds the total deficits forecast over the period to 2018-19.

And since any abatement it buys could be obtained far more cheaply by other means, it would be wasteful even were cutting emissions worthwhile.

However, the economic costs of Labor’s proposal don’t end there. After all, Shorten also intends to introduce a tax on carbon. While the details have not been released, it is clear any such scheme would disproportionately raise the costs of the coal-fired generators, accelerating their exit, and so further boosting prices. And by piling a carbon tax on top of the tax associated with the RET, it could make the distortions caused by increasing the RET even greater than the $86bn cited above.

The extent of the additional loss will depend both on the ­precise nature of Labor’s carbon tax scheme and on its rate. But Treasury’s modelling of Julia ­Gillard’s carbon tax suggests that, given a carbon tax, the additional loss from raising the RET would (on an admittedly rough estimate) be in the order of $38bn, taking the total cost of Shorten’s renewables policy well over $100bn.

Not that the renewables lobby would ever accept those figures. Rather, it argues that the cost of renewables will plummet as their share in the energy mix rises. But those arguments are hopelessly flawed.

To begin with, as the Productivity Commission found in reviewing the original modelling for the carbon tax, Australia’s share of global investment in renewables is so small that any scale economies from doubling that share would reduce costs by less than one-tenth of one per cent. Moreover, far from falling, the economic costs of increasing wind capacity are likely to rise, as many of the best sites have already been taken, forcing growth to occur where transmission costs are high and ­capacity utilisation low and intermittent.

And with massive demand in the developing world for coal and gas plants, technological progress in fossil-fuel generation is at least as rapid as that in renewables, keeping it highly cost competitive.

Little wonder then that in the US, states such as West Virginia and Kansas have now decided to scrap their renewable energy mandates altogether, while Ohio has deferred the steady increases its law originally required. And as data from the US federal Energy Information Administration shows, electricity is 22.9 per cent more costly in those states with renewables mandates than in those without, competition to attract footloose capital and labour seems set to accelerate the trend away from compulsory targets.

Such a move would make even more sense in Australia, given our uniquely abundant resources of brown coal that is costly to transport. Those resources, and the very low power prices they allowed, have long underpinned our prosperity; by throwing what little remains of that advantage away, Shorten’s policy, were it ever ­implemented, would be a one-way ticket to energy hell.
The Australian

Nice round-up, Henry.

But we would be pleased to see him tackle some even more fundamental aspects of a ‘policy’ so ludicrous in effect, and obvious outcome, as to defy the very meaning of that word. ‘Policy’ may be good or bad, but, in the usual case, it comes with some kind of ‘design’.

Wind power is central to the ‘design’ of the LRET, but, for a wholly weather dependent ‘system’ to work in an integrated grid, requires a complete upheaval (the sane might say total ‘destruction’) of the energy market; with impacts on pricing that come straight from the ‘play book’ ‘designed’ by Enron, for its most mercenary use in the Californian power market, that’s now being played out in South Australia on a daily basis, thanks to its ridiculous wind-rush:

South Australia’s Unbridled Wind Power Insanity: Wind Power Collapses see Spot Prices Rocket from $70 to $13,800 per MWh

Where Henry seems to buy into the furphy about the LRET reducing  power prices, we’d love for him to run his ruler over the post above; and to tell us all just how the LRET is supposed to lower power prices?

Starting with what happens to the spot price when wind power output collapses entirely, almost every other day?

When he’s dealt with that, we’re sure his readers would love to hear his analysis of what would have happened in SA’s spot market if its 1,477 MW of installed wind power capacity were, instead, ‘dispatchable’ (ie available on demand). In particular, would any of the 8 extreme ‘pricing events’ evidenced for July (that saw the spot price rocket from the usual $70 per MWh mark to $13,800) have occurred if SA had – instead of pouring $billions into occasional power – invested in 1,500 MW of firm capacity from coal, gas or – heaven forbid – nuclear power generation sources?

Over to you, Henry. Oh, and to help with your analysis, here’s what SA’s 17 wind farms got up to in the month before our little wind power market primer above.

June 2015 SA

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:

    It doesn’t matter how often they try to convince people it is possible for a modern society to operate solely on renewable energy, and especially with wind at the apex of renewables, they cannot prove it.

    Reliance on wind energy is nothing more than a pipe dream, and if Labor gets the chance to follow that dream then this country will go down the pipe pipe, the black waste pipe.

    The sooner the mass media begins to assess and report in an unbiased manner, the sooner people will become aware of what can and cannot be relied on to provide the energy needed in a progressive modern society.

  2. Really, what would the likes of Henry Ergas, Terry Mccrann, Alan Moran or indeed your good selves STT know about the potential economic impacts of energy policy?

    We should have more faith in Bill Shorten’s understanding of energy policy. I’m confident Bill will have conducted his own detailed economic modelling based on the rigorous Rudd/Conroy authorised ALP guidelines for economic modelling!

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