SA’s Wind Power Debacle Escalates as Australian Wind Power Subsidies Hit $3 Billion a Year

Subsidy-Sam

Renewables’ subsidies put sting into power bills
The Australian
Michael Owen
26 July 2016

Renewable energy output in Australia is subsidised by almost $3 billion a year, more than 19 times the amount for generation from fossil fuels, a report by an economic consultancy says.

The report by Principal Economics found renewable energy subsidies added between 3 per cent and 9 per cent to the average household bill, and up to 20 per cent for some industrial users.

This comes as federal Energy Minister Josh Frydenberg yesterday said this month’s energy crisis in South Australia, in which wholesale electricity spot prices spiked from an average of $100 a megawatt hour to almost $14,000/MWh, would be discussed at an August 19 meeting of the Council of Australian Governments Energy Council in Canberra.

The summit comes amid increasing concern that surging power prices, which caused some major businesses in South Australia to warn of possible shutdowns, could spread across the country if there is a rushed transition to greater renewable energy.

Mr Frydenberg said the nation’s energy sector was undergoing a major transition, driven partly by changing technology and renewable energy policies.

The COAG meeting will focus on future technologies, such as energy storage, rather than major reform of the National Electricity Market, which South Australia is pushing for to enable greater ­interconnection with other states.

South Australia’s Labor government is seeking a more reliable supply of baseload power from interstate in the face of volatile prices and intermittent wind and solar, which makes up more than 40 per cent of its energy mix.

The COAG meeting would also consider gas market reform and recommendations of the Australian Energy Market Commission and Australian Competition & Consumer Commission into the competitiveness of gas prices.

The Clean Energy Council said tight gas supplies were driving up South Australia’s electricity prices, rather than an over-reliance on renewable energy.

The Principal Economics report, commissioned by the Minerals Council of Australia, found that the $2.8bn in subsidies for renewables in 2013-14 translated into an output of almost $412/MWh for solar, $42/MWh for wind and $18/MWh for all other renewables including hydro.

Subsidies attributable to generation from coal were less than $1/MWh and less than 30c/MWh for natural gas.

BHP’s Olympic Dam asset manager, Jacqui McGill, said it was “a work in progress” trying to sort out its energy woes in South Australia. “We operate in a global market and what’s important for Olympic Dam and BHP Billiton is that to be competitive globally, we need globally competitive pricing for inputs, of which electricity is one, that is sustainable,” she said.

“Whilst these pricing swings aren’t passed on to residents, we all participate in employment and development of our economy, and all of the businesses are exposed to this pricing.”

South Australian Treasurer and Energy Minister Tom Koutsantonis yesterday continued to blame privatisation of the state’s electricity assets for the highest power prices in the country.

“If I owned assets, I could make decisions about what we produce, about our energy mix, about what kind of fuel we’re using and when,” he said. “Any politician who says they can fix a national electricity market with a wave of their hand is lying.”
The Australian

koutsantonis

SA’s witless Energy Minister gets one thing right when he says that anyone who thinks that they can fix the energy calamity with a magic wand is lying.

For South Australia, apart from re-opening Alinta’s recently closed Northern plant at Port Augusta, there is NO solution: not interconnectors (that will cost $billions and take 5-10 years to build); not grid-scale battery storage (a pipe dream which is an engineering impossibility and, if not, economic disaster); and certainly not more wind power capacity.

Principal Economics puts the subsidies for wind power at $42/MWh for wind during 2013-14.  That figure is apparently based on the average price of Renewable Energy Certificates 2 or 3 years ago.

If the cost of the subsidy is simply based on the value of the REC issued to wind power outfits and transferred to retailers for every MWh delivered under their PPAs, then the figure of $42 per MWh, as a historical average for 2013-14, is probably close to the mark.  However, the guaranteed prices set by PPAs – of between $90 and $110 per MWh – include a presumed subsidy value for the REC which is included in the trade.

With the massive shortfall in accredited renewable generation (representing 16-17,000 GWh of the ultimate 33,000 GWh LRET target) guaranteeing that retailers will very soon be paying the $65 per MWh “shortfall charge” (a Federal penalty tax on all Australian electricity consumers) the current REC price has rocketed to $85 (see below).  Which, on the Principal Economics analysis, means the current cost of the subsidy to wind power is $85 per MWh.

LGC

When the current oversupply of RECs is exhausted, the market will go to penalty, and the REC price will hit $93. The table above (taken from Mercari) suggests – with the Offer price of $94 in Cal 20 – that the market knows that the penalty will start being imposed in the not too distant future; thereby driving up the REC price, before the LRET finally implodes.

Again, on the Principal Economics analysis a REC price of $93 means that power consumers will, in effect, be paying $93 per MWh in subsidies for weather dependant wind power: conventional Victorian power generators can deliver electricity all day, every day for less than $40 per MWh.

Here’s how the wind power subsidy numbers stack up.

The LRET target is set by s40 of the Renewable Energy (Electricity) Act 2000 (here).

At the present time, the total annual contribution to the LRET from eligible renewable energy generation sources is around 16,000 GWh (depending on the weather, of course); and, because retailers will not enter PPAs, is stuck there now and forever. There has been some talk by AGL of offering PPAs, but these are limited to terms of 5 years and wind power outfits (or rather their financiers) need a minimum of 15 year terms to make the venture worthwhile.

In the table below, the “Shortfall in MWh (millions)” is based on a total contribution to the LRET from eligible renewable sources of 16,000,000 MWh (1GWh = 1,000MWh). The LRET target is, likewise, set out in MWh (millions).

As appears from the forward price for RECs, the shortfall charge will kick in very soon; the timing depending on whether those currently holding RECs decide to sell or hold out for the market to actually hit penalty.

The REC price is, due to the impact of the shortfall charge, expected to hit $93, and, due to the taxation treatment of RECs versus the shortfall charge, the full cost of the shortfall charge to retailers is also $93. RECs are tax deductible as an expense; the penalty is a fine and, therefore, is not tax deductible. Retailers, including Origin, have indicated to STT’s sources that they will be recovering the full $93 cost of the shortfall charge. Using that figure applied to the current LRET target, we’ll start with the cost of the shortfall penalty.

Year

Target in MWh (millions)

Shortfall in MWh (millions)

Penalty on Shortfall @ $65 per MWh

Minimum Retailers recover @ $93

2016

21.431

5.431

$353,015,000

$505,083,000

2017

26.031

10.031

$652,015,000

$932,883,000

2018

28.637

12.637

$821,405,000

$1,175,241,000

2019

31.244

15.244

$990,860,000

$1,417,692,000

2020

33.85

17.85

$1,160,250,000

$1,660,050,000

2021

33

17

$1,105,000,000

$1,581,000,000

2022

33

17

$1,105,000,000

$1,581,000,000

2023

33

17

$1,105,000,000

$1,581,000,000

2024

33

17

$1,105,000,000

$1,581,000,000

2025

33

17

$1,105,000,000

$1,581,000,000

2026

33

17

$1,105,000,000

$1,581,000,000

2027

33

17

$1,105,000,000

$1,581,000,000

2028

33

17

$1,105,000,000

$1,581,000,000

2029

33

17

$1,105,000,000

$1,581,000,000

2030

33

17

$1,105,000,000

$1,581,000,000

Total

471.193

231.193

$14,947,745,000

$20,012,949,000

****

Between 2016 and 2031 the total target could be satisfied by the issue and surrender of 471 million RECs. However, with only 16 million RECs available annually there will be a total shortfall of 231 million; with only 240 million RECs available to satisfy the remaining 471 million MWh target over the life of the current LRET.

Under the current LRET, with RECs hitting $93 as the penalty begins to apply, the total cost added to power consumers’ bills will nudge $44 billion (471,193,000 x $93), as set out in the table below.

Power consumers will end up paying for the shortfall penalty collected by the Federal government, and for the cost of the RECs issued to wind power outfits – 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.

To give some idea of how ludicrously generous the REC Subsidy is, consider a single 3 MW turbine. If it operated 24 hours a day, 365 days a year – its owner would receive 26,280 RECs (24 x 365 x 3). Assuming, generously, a capacity factor of 35% (the cowboys from wind power outfits often wildly claim more than that) that single turbine will receive 9,198 RECs annually. At $93 per REC, that single turbine will, in 12 months, rake in $855,414 in REC Subsidy.

But wait, there’s more: that subsidy doesn’t last for a single year. Oh no. A turbine operating now will continue to receive the REC subsidy for another 15 years, until 2031 – such that a single 3 MW turbine spinning today can pocket a total of $12,831,210 over the remaining life of the LRET. Not a bad little rort – considering the machine and its installation costs less than $3 million; and that being able to spear it into some dimwit’s back paddock under a landholder agreement costs a piddling $10-15,000 per year. State-sponsored theft never looked easier or more lucrative!

The REC Tax/Subsidy, including that associated with domestic solar under the original RET scheme, has already added more than $12 billion to Australian power bills, so far.

At the end of the day, retailers will have to recover the TOTAL cost of BOTH RECs AND the shortfall charge from Australian power consumers via retail power bills.

And that’s the figure we’ve tallied up in the right hand column – which combines the annual cost to retailers of 16 million RECs at $93 (ie $1,488,000,000) and the shortfall penalty, as it applies each year from now until 2031, at the same ultimate cost to power consumers of $93.

Year

Target in MWh (millions)

Shortfall in MWh (millions)

Shortfall Charge Recovered by Retailers @ $93

Total Recovered by Retailers as RECs & Shortfall Charge @ $93

2016

21.431

5.431

$505,083,000

$1,993,083,000

2017

26.031

10.031

$932,883,000

$2,420,883,000

2018

28.637

12.637

$1,175,241,000

$2,663,241,000

2019

31.244

15.244

$1,417,692,000

$2,905,692,000

2020

33.85

17.85

$1,660,050,000

$3,148,050,000

2021

33

17

$1,581,000,000

$3,069,000,000

2022

33

17

$1,581,000,000

$3,069,000,000

2023

33

17

$1,581,000,000

$3,069,000,000

2024

33

17

$1,581,000,000

$3,069,000,000

2025

33

17

$1,581,000,000

$3,069,000,000

2026

33

17

$1,581,000,000

$3,069,000,000

2027

33

17

$1,581,000,000

$3,069,000,000

2028

33

17

$1,581,000,000

$3,069,000,000

2029

33

17

$1,581,000,000

$3,069,000,000

2030

33

17

$1,581,000,000

$3,069,000,000

Total

471.193

231.193

$20,012,949,000

$43,820,949,000

****

Whether it’s RECs being generated by current (or additional) wind power generation, or the shortfall charge being applied, retailers will be recovering the combined costs of BOTH from all Australian power consumers.

Over the last week we’ve been quietly chuckling while the Energy and Environment Minister, Josh Frydenberg has been doing the media rounds.

Josh is convinced that he can save the LRET and the wind industry by plugging in to a mythical, as yet to be built, grid-scale battery storage system.  Josh has also been press-ganged by the wind industry and its parasites to blurt out the nonsensical statement that the LRET is “set in stone”.

In a similar vein, wind industry puppet, the Clean Energy Regulator, Chloe Munro has been asserting that it would be ‘inconceivable’ for Australia’s power retailers to allow the power market to go to penalty.  Josh, Chloe – ‘desperation’ is a stinky cologne.

With the wind power debacle unfolding in South Australia – rendering it an international laughing stock – the smart money is on the market going to penalty; and, thereafter, another hasty retreat from the current LRET target of 33,000 GWh.

SA’s business leaders are fuming about an erratic power supply and routine spot market power price spikes of $2-4,000 per MWh, hitting the market cap of $14,000 – every time wind power output goes AWOL on a total and totally unpredictable basis; with its few remaining industries threatening to pack up and leave the state – threatening thousands of jobs in a state with the worst unemployment figures in the Nation.

Against that politically toxic backdrop, no financier in their right mind is going to invest so much as a penny in an industry that exists, and only exists, as a result of guaranteed subsidies under a policy scheme that can be scrubbed at the stroke of a pen.

Josh and Chloe might have slept through 2015 and missed the fact that the once “rock solid”, “immutable”, “set in stone” 41,000 GWh target – which had die-in-a-ditch “bipartisan” support – was slashed for precisely the same reasons it will be slashed again.

The recent focus on South Australia has alerted millions of Australians to the pointless expense of subsidised wind power. Australian businesses, lucky enough to operate outside of its borders, have no inclination to follow South Australians down the road to social and economic disaster.

When people finally wake up to the fact that the subsidies being paid to wind power outfits under the LRET constitute the largest single industry subsidy scheme in the history of the Commonwealth, power consumers (read voters) will be angry enough.  When they find out that around half of the LRET’s annual $3 billion Federal tax on electricity is being collected as a “fine” and being returned to general revenue, they won’t be angry, they will be furious.

Josh Frydenberg and Chloe Munro can bank on it.

josh frydenberg

Josh Frydenberg measures the chances of setting his LRET in stone.

About stopthesethings

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

Comments

  1. Toby, if you accept the Boco Rock CF of 34%, then our calculation is not an exaggeration: we used 35%.

    Let’s say, for argument sake the CF is 30%, then with the latest turbines from Vestas rated at 3.45MW http://www.vestas.com/en/products/turbines/v126-3_3_mw a single 3.45MW turbine would collect 9,066 RECS annually (3.45 x 24 x 365 = 30,222 x 0.3 = 9,066). Note Toby that the CF of 30% (which is achieved at a fair number of wind farms in SA) is represented by the figure ‘0.3’ in the last line of our calculation, which gives the actual number of RECs collected annually.

    9,066 RECs at $93 = $843,193.

    Turbine capacities will increase, not decrease from here. You can run the sums using a 3.45MW Vestas on the average eastern grid CF of 28% and still pocket over $780,000 worth of RECs. So, Toby what’s your next point?

  2. Jackie Rovensky says:

    The economic detail above is of great importance in educating people of the diabolical state this Nation is in.
    I would however, like to make comment on our Koutsantonis and his constant gripes.
    Not that long ago – a week or so he was blaming the Federal Government for their funding of wind turbines, now he is blaming the sale of this States energy assets, commenting he could make decisions on the State energy mix IF he had control of the assets – funny how he the Premier Weatherill and a goodly number of the current Labor Government were members when Mike Rann was Premier – the man who opened SA up to the wind industry. Weatherill was even at the beginning of the invasion Planning Minister and over-rode his Departments decision not to support a wind turbine proposal and approved it which in the end it did not transpire as the company kept dragging its tail, this was a project Mr Rann’s brother had a hand in.
    This present SA Labor Government cannot keep sidestepping its responsibility, it cannot keep blaming others. They have been in power for many years, they even got rid of Rann themselves with a ‘coy’ Mr Weatherill offering to take his place even though he implied he didn’t really want it, but someone had to take the reigns.
    Well he, his Treasurer and Party have them and it is they who have overseen the demise of industry and the continued invasion of wind turbines and it is they who until now have ignored the warnings, even to the extent of changing Planning regulations to remove our right as citizens to speak out and be heard, even to remove our right to seek justice in a court of law.
    In the list of those who have been there throughout to oversee the disaster that is now SA we cannot leave out a man who sits there with a folio of Ministry’s that ensures him as a power broker in the parliamentary party, John Rau:
    Attorney-General
    Minister for Justice Reform
    Minister for Planning
    Minister for Industrial Relations
    Minister for Child Protection Reform
    Minister for the Public Sector
    Minister for Consumer and Business Services
    Minister for the City of Adelaide
    Three men in positions who throughout could have stopped this situation from occurring but did nothing and now blame everyone else.
    Soon they will be blaming the people of SA for wanting to keep warm in winter and cool in summer and have jobs so they can financially look after themselves and their families.
    It’s those who sit in Parliaments at every level in this Nation who are to blame for this debacle, it is those who ‘rule’ in accordance with the wishes of ideological extremism and a need for personal power/gain rather than clear rational thought and planning that are to blame.

  3. Hi,
    I just started a petition “SA PREMIER JAY WEATHERILL : Demand the resignation of the Energy Minister for HIGH POWER PRICES CAUSING SA’s JOBS CRISIS and also 15,000 household POWER DISCONNECTIONS, frequent POWER BLACKOUTS and the July ’16 POWER CRISIS” and wanted to see if you could help by adding your name.

    Our goal is to reach 100 signatures and we need more support. You can read more and sign the petition here:

    https://www.change.org/p/sa-premier-jay-weatherill-demand-the-resignation-of-the-energy-minister-for-high-power-prices-causing-sa-s-jobs-crisis-and-also-frequent-blackouts-15-000-household-power-disconnections-and-the-july-16-power-crisis?recruiter=135406845&utm_source=share_petition&utm_medium=email&utm_campaign=share_email_responsive

    Please share this petition with anyone you think may be interested in signing it.

    Thankyou

  4. Thank you so much for doing these important economic calulations which the government refuses to do on behalf of the unwitting public. We are forever indebted to STT.

  5. Reblogged this on Climatism and commented:
    “Climate Change Crisis Inc.” – the biggest money thieving scam in the history of humanity.

    Billions upon billions of your hard-earned taxpayer money funnelled off to the ‘0.5%’ blood-sucking green corporate monoliths, to do absolutely nothing to ‘change’ the apparent sick climate.

    We TRULY are living in a ‘climate’ of collective madness and groupthink feel-good eco-insanity.

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