Labor to Throw $200bn to the Wind: Electricity Bill Shorten’s Economic Suicide Pact Unpacked

Electricity Bill Shorten: Certified Economy Killer

****

In the cutting British satire, Extras, the hapless Andy Millman (Ricky Gervais) is always foiled by his gormless but lovable side-kick, Maggie Jacobs (Ashley Jensen).

Maggie, when she’s not inadvertently ruining Andy’s romantic hopes and/or acting career prospects, poses puzzling rhetoricals such as “would you rather be trampled by elephants or eaten by lions?”

Following Maggie’s lead, STT poses the following:

“would you rather have your economic future destroyed by a $45 billion electricity tax, designed to subsidise the construction of another 6,000 of these things; or a $90 billion electricity tax, designed to subsidise the construction of another 12,000 of them?”

Unfortunately, unlike Maggie’s death by elephant or lion conundrum, with STT’s poser there isn’t any way of avoiding one or the other.  Here, it’s the ‘choice’ that Australians face at the upcoming Federal election: or as Maggie might put it, “would you rather be run over by a steam-roller, once or twice?”

Terry McCrann and Alan Moran detail the ‘Maggie Jacob’s options’ faced by Australian voters, as follows.

Long and Bill Shorten of it: be afraid
The Australian
Terry McCrann
7 May 2016

This is the budget which announces that Australia is now ungovernable. That the system — that messy mix of politics and policymaking — is simply incapable of making the necessary changes to put the country on even a sustainable, far less a dynamic, growth path.

That’s in a sense the ‘good,’ or perhaps rather the ‘least worst’, news; for the other major thought from the week is that it might be time to be afraid, to be really afraid.

Opposition leader Bill Shorten gave a very impressive budget reply speech on Thursday night, in my judgment. That’s in and only in political terms. In substance it was both shamelessly and sweepingly dishonest and breathtakingly unhinged from fiscal and economic reality.

Unless, that is, you really think we can raise tens of billions of extra dollars every year forever from that fiscal Aladdin’s Cave — ‘the top 1 per cent’ — to throw at every perceived problem and interest group. Or alternatively, that even bigger future budget deficits than are already in prospect don’t matter.

If that is not horrifying enough, almost a wilfully deliberate determination to turn Australia into the Greece of the South Pacific, Shorten’s overarching coup de destruction is the total insanity, restated aggressively on Thursday night, of the commitment to 50 per cent renewable energy by 2030.

This would at the same time dramatically increase the cost of power to all Australians — probably as much as four times; devastate business across the board; and add billions of dollars to our current account deficit, already running at $80 billion a year, and to our foreign debt, already above $1 trillion, as we write out cheques to ‘Nigerians’ and other emission-permit providing main-chancers.

Apart from the fact that even getting to 50 per cent renewable energy in just 14 years is completely impossible — unless we chose ‘the Venezuelan route’ of literally turning off the lights, so that it would be 50 per cent of a much smaller figure than we currently use.

Such that we had an ‘Earth Hour’ every second hour, say, imposed on us.

Right now we get barely 14 per cent of our total electricity from renewables. So getting to 50 per cent doesn’t sound that hard: you might think, we ‘only’ need to triple it?

Well, think again, about 8 per cent of that 14 per cent comes from the now ‘dirty’ renewable of hydro. We ain’t going to build any more hydro dams; so in the weird space that passes for Shorten’s brain, wind and solar have to go from about 6 per cent to 42 per cent. They have to increase sevenfold, and in just 14 years.

Further, that’s the output they have to produce, given their, ahem, intermittency. We would probably have to build something like 10 times the number of windmills that currently, so uselessly, despoil the countryside.

And even then, we’d still have to keep the coal or gas-fired power stations open because, when the wind don’t blow and the sun don’t shine, the power don’t flow.

That’s why I say, be afraid, be very afraid, because that combination of political slickness and total dishonesty could very well win the election.

This is so, especially against a Prime Minister who is quite frankly and simply a dud; and whose total ineptness at retail politics is going to be on display for eight long, cringingly awful, weeks. …
The Australian

Terry McCrann asks “would you rather ….”

****

Terry went on to slam the ‘flog them with damp lettuce’ budget pitched up by Turnbull, that included an attack on rules governing tax on Superannuation (designated retirement savings) that sent traditional Liberal voters into a white-hot rage, but which failed to do much at all about Australia’s runaway government spending and burgeoning debt.  And, nothing at all, about the looming cost of Australia’s suicidal Large Scale RET.

The LRET has cost power consumers more than $9 billion so far, and is destined to cost them another $45 billion in REC Tax over the life of the scheme.  Already the largest single industry subsidy scheme in the history of the Commonwealth, Electricity Bill Shorten wants to inflict a double dose of insanity, with Labor Party policy plumping for a ludicrous 50% Renewable Energy Target.

A topic picked up by STT Champion, Alan Moran.

Federal election 2016: parties clueless on cutting emissions
The Australian
Alan Moran
13 May 2016

The Green take the cake, but even Labor and Liberal plans would hurt the economy

Few people and no politicians would understand the costs of the political parties’ energy policies.

The ALP, Greens and Liberals each have lengthy statements explaining how their approach is smarter and would cost little and be supervised by a plethora of acronymic bodies to regulate, advise and judiciously dole out money.

In estimating the costs of energy policies, the bottom line is: how much does it cost to replace fossil fuels with renewables and how much is involved in paying or regulating farmers and others to reduce emissions from land use?

Electricity is the key focus. A market-based electricity supply system would give Australia the lowest costs in the world, largely as a result of our low-cost, low-sulphur and conveniently located coal resources. Such a system fully fuelled Australian electricity at the start of the millennium (and still accounts for 92 per cent of supply). It means highly reliable electricity generated at about $40 a megawatt hour.

The cheapest renewable source is wind, which costs three times as much as coal at about $120 a megawatt hour; solar panels cost about half as much again. These renewable sources are also intrinsically unreliable, depending as they do on the vagaries of the weather (and solar cannot generate at night).

Such unreliability means additional costs including back-up plant to fill the supply valleys and increased expenditure on poles and wires. These extra costs are mainly hidden since they are wrapped up in regulatory requirements. But they do end up in the electricity bills we pay.

The costs of replacing fossil-fuel generation and, therefore, of energy policies can be calculated by estimating the enforced penetration of renewables into electricity supply and multiplying this by the premium required of renewables. If we add direct spending to this cost we can arrive at the economic losses from each political party’s program.

Australia uses 250 million megawatt hours of electricity a year. With an unregulated market at $40 a megawatt hour, the generation of this is valued at about $10 billion a year.

The Coalition policy is based on subsidies to renewable energy plus about $500 million a year for the Emissions Reduction Fund, which mainly pays farmers not to use their land productively. The Coalition’s 2030 renewables target (including hydro) is 23 per cent of electricity. As this includes 8 per cent of commercial hydro, it means a 15 per cent share for low quality, high-cost renewables. That amounts to about 40 million megawatt hours at an additional cost of more than $3bn a year. With the ERF and other measures, it means a cost of $4bn a year.

The ALP’s centrepiece is a 50 per cent renewable share by 2030. The cost for the non-hydro renewables component (43 per cent) comes at an additional cost of $8.4bn a year. It is not clear that a stand-alone integrated network can operate using 43 per cent weather-dependent renewables and the policy would require considerable additional spending on back-up/transmission support.

The ALP also has its own version of emission reductions from the land that involves regulating land use, unlike the Coalition’s policy of buying such emission reductions from land use via the ERF. The economic effect is similar and brings the ALP cost to $9bn and possibly $10bn a year.

Both these policies are left in the jet stream of the methamphetamine-powered policy offered by the Greens. The Greens’ policy requires 100 per cent renewables by 2050 for electricity supply plus an increase in regulations over land and other development, measures that would return Australia to its pre-1788 living standards. The gradual development of the Greens’ policy means, however, that in the period to 2030 its costs differ little from the $9bn to $10bn a year estimated for the ALP.

Other parties are a mixed bag. The Liberal Democrats suggest taking no mitigatory action against carbon dioxide emissions, a view shared by Bob Day of Family First. The Australian Liberty Alliance favours “sensible” wind and solar technology and calls for nuclear power and domestic gas. The Nick Xenophon Team favours a cap-and-trade carbon tax to meet an undefined target.

Measures that increase costs will always have detrimental effects but they are especially injurious in the case of energy because of its indispensability to most productive activities. An impost that is largely confined to hitting consumers directly, such as the GST, is very different from one that raises production costs.

Energy accounts for high percentages of costs of many products; 30 per cent in the case of aluminium. Additional costs on tradeable goods mean the activities relocate overseas to jurisdictions that don’t levy emission reduction charges. This is being seen here and elsewhere with the aluminium and steel industries. Such relocations do not result in a net reduction in global emissions, they merely harm the economy that imposes the charges.

Not only do few, if any, politicians understand the costs of the policy measures they are promoting, but few grasp that their impact in an interconnected world is very much diminished.

Alan Moran is with Regulation Economics.
The Australian

Nice work, Alan. He’s clearly been paying attention to Australia’s one-stop-shop, when it comes to laying out the business and household crushing cost of the LRET.

Alan points out the cost of the current 33,000GWh LRET at “more than $3bn a year”, but that is just the cost of the RECs and/or shortfall penalty imposed on all Australian power consumers.  Effectively a $3bn a year electricity tax, the LRET lasts until 2031 (or it’s scrapped). The horrifying numbers are as follows:

****

In the table above we have included the penalty which is recovered as a $65 per MWh fine (aka “the shortfall charge”) – and directed to general revenue (ie a ‘stealth tax’), on the 16,000 MWh that output will fall short of the target. The full cost of the penalty to retailers – at $93 per MWh – includes the loss of a tax benefit attached to buying RECs.

In relation to collecting the cost of the REC Subsidy from power consumers, Origin Energy’s Grant King correctly puts it:

“[T]he subsidy is the REC, and the REC certificate is acquitted at the retail level and is included in the retail price of electricity”.

It’s power consumers that get lumped with the “retail price of electricity” and, therefore, the cost of the REC Subsidy paid to wind power outfits.

Whether it is the cost of purchasing RECs or paying fines, the whole lot will be recovered through retail power bills (we are, of course, talking about AGL and not the Salvation Army).

Labor’s plan would automatically double the LRET Tax/Subsidy/Penalty (set out above) to a lazy $90 billion or so.

But that is just the tip of the iceberg.

To build wind power capacity to meet a 50% target requires more than 12,000 of these things and a completely duplicated electricity grid.

Even satisfying the current 33,000 GWh target – will cost at least a further $80-100 billion, in terms of extra turbines and the duplicated network costs needed to hook them up to the grid: all requiring fat returns to investors; costs and returns that can only be recouped through escalating power bills:

Ian Macfarlane, Greg Hunt & Australia’s Wind Power Debacle: is it Dumb and Dumber 2, or Liar Liar?

In the post above we looked at the additional costs of building the wind power capacity needed to avoid the shortfall penalty – including the $30 billion or so needed to build a duplicated transmission grid.

That is, a network largely, if not exclusively, devoted to sending wind power output from remote, rural locations to urban population centres (where the demand is) that 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 fact that there is no grid capacity available to take wind power from remote locations was pointed to by GE boss, Peter Cowling in this article, as one of the key reasons that there will be no new wind farms built in Australia:

GEreports: Can Australia now learn from any other country in how to encourage renewables?

Peter: Oh yeah, certainly. I mean, I think China’s perhaps an extreme example, but the point is that you put a firm policy in place, and you take it seriously, you unleash infrastructure bottlenecks to allow it to happen, and it will happen.

GEreports: What are Australia’s infrastructure bottlenecks?

Peter: Quite often there are concerns about grid stability if you have large numbers of renewable plants out there. You can fix all that if you really are honest about wanting to increase the level of renewables in the system. There are technical fixes to all of this.

GEreports: Can you give me an example?

Peter: Ultimately, what you might have to do is what they’ve done in Texas, which is get out there and build a new grid – big backbone powerlines – and then the wind turbines come. The problem in Australia is we look at a big windy area and say, “Oh, look, it hasn’t got any grid.” No individual developer can afford to build grid, so it doesn’t happen.

GEreports: The government should do that?

Peter: They could if they wanted to, or they could step up and put in place the mechanism to encourage someone else to do it.

Australia has stepped back from that sort of planning of the grid. The government used to own the grids, and we’re pulling back from that. And that’s fine. It’s not vital that you own it. But you do have to have a plan and send the right signals to investors that you’re serious about the plan for them to be able to risk investing. And that’s a critical question.

Let the private sector do it and I think you’d probably drive your best result, particularly in an economy like Australia. But, you do need the certainty, and the reason things have stalled in Australia is not because it’s too hard or because there’s planning issues or anything else.

It’s simply that people cannot be certain at the moment that the renewable energy target will still be binding on those liable under it, so people pull back from investing. Too risky.

Network owners have no incentive to build the whopping additional transmission capacity required to accommodate new wind power capacity; and nothing like the capacity needed to send a further 17,000 GWh into the grid to meet a 33,000 GWh target, let alone Labor’s 50% target which more than doubles that figure.

Moreover, even if investors were prepared to – in a Field of Dreams, “build it and they will come” moment, of the kind suggested by GE – throw money at a duplicated grid, the returns demanded by those investors can only be recovered from retail power customers. Which is yet another reason why retailers are out to wreck the LRET and the wind industry with it.

Which leaves Australian voters with one of Maggie Jacob’s rhetoricals.

“Which would you rather vote for: a party of ostensibly business friendly economic conservatives, run by energy illiterates, looking to destroy an entire economic system by pandering to the idiots that occupy the lunatic fringe?; or a party of Union backed thugs, out to reach the same result in less than half the time?”

It’s a conundrum for voters, to be sure.