SA’s Wind Power Debacle: Opportunity Knocks for More Subsidy-Sucking Rent Seekers

judith sloan2

Investment is not always good
Catallaxy files
Judith Sloan
29 July 2016

Since the return of the Labor-lite Turnbull government – or should that just be Labor – the rent-seekers in the renewable energy space have been out and about.

No doubt, the South Australian debacle has thrown a spanner in the works, but the latest propaganda from the renewable energy is that the price spike and the high forward electricity prices in SA are not the fault of over-investment in renewables – blame gas and the lack of interconnection with other states.

If only the interconnectors with the other states were there and/or bigger, then the problem would never have arisen.  The fact that the rent-seekers don’t see the hypocrisy of this statement is staggering: after all, what the interconnectors do is to deliver reliable, low cost electricity sourced from coal.

And by the way, these interconnectors don’t come cheap and take some time to construct (more expensive and more delayed because of the trade unions).  Ultimately, the consumer pays for them as well as high cost intermittent renewable energy.

But what the rent-seekers in the renewable space (including the spivvy financiers) try to push is the size of the new investment and that such and such wind farm will deliver enough power for 15,000 households (which it won’t because it is intermittent).  We are supposed to think Gee Whiz.

Here’s the thing: investment is good for the economy when it is delivered on the basis of financial calculations in the context of competitive markets.

Investments that come about because of distorting government policy – the RET, for example – deliver high cost outputs that are only sustainable because of subsidisation.  This is bad investment.

It is made even worse because this bad investment makes unprofitable perfectly adequate generating capacity that has to be written off well before its natural economic and physical life.  In other words, the cost of waste need to be added in to the misallocation of resources.

Our only hope is that the government refuses to extend the RET beyond 2020 – I would be using the infant industry argument – and to adopt a technology neutral approach beyond that date.  And ignore the rent-seekers.

Let’s not forget that we have reached Peak Renewables in Denmark, Spain, the UK and Germany.  We are behind the curve as always.

Here’s a piece from the Fin on the rent-seeking activities by GE:

As the head of a renewable energy business with $US9 billion in revenue and 30,000 wind turbines operating globally, Anne McEntee is well placed to advise Australia on the transition to a world of diversified and distributed energy generation.

Energy and Environment Minister Josh Frydenberg would have heard McEntee, a global president of GE Renewable Energy, speak in Sydney this week, so there is hope that some wisdom from the private sector will filter through to the next meeting of the Council of Australian Governments.

That is not to say that Frydenberg needs to have wayward views corrected. He is one of the few political leaders who understands the complexity of managing a system with intermittent sources of power.

One telling quote from Frydenberg at this week’s Clean Energy Summit in Sydney dealt directly with the recent price spikes in South Australia. “People have to understand that this volatility is not a new thing. It was back there in 2008 … so to say that is the fault of renewables is not an accurate assessment,” he said.

McEntee agrees with Frydenberg that the transition to a new era of generation with a growing proportion of renewables requires considerable planning and “getting out in front” of the problem of intermittency.

But her most telling advice is in relation to policy certainty beyond 2020, which is the deadline for the current renewable energy target. “If you bring it back to Australia I think it is that clarity of policy that is so important,” she says.

“Investors are waiting on the sidelines right now to see how the off-takes are established. I think that’s really the big challenge. Around the world investors have many options to invest in renewable energy with long-term PPAs [power purchase agreements], so it comes down to a risk profile – the risk versus the reward.”

McEntee says in many countries developers of renewable projects are signing 15- and 20-year PPAs. These are in line with the life cycles of the equipment.

“It’s a much lower risk for investors to guarantee the returns,” she says. “So as we think about the future of Australia, I applaud the government for the renewable energy target, but how far out is that going to go?

“Are people going to see a long-term stable position? And how the ‘gentailers’ decide to procure that renewable energy is extremely important, because it is going to take more innovative financial structures to get the financial community to come in and actually commit.”

McEntee says the move by AGL Energy to partner with QIC and the Future Fund in a new renewable energy fund is a great example of innovation in finance and more of this will be needed.

In GE’s case its innovative finance package in Australia was for the Ararat wind farm in Victoria, which was the first major wind farm contract to be signed following restored bipartisan support for the RET.

GE said the 240MW Ararat Wind Farm  would be the third-largest wind farm in Australia and had attracted almost $500 million of direct international investment into Victoria.

McEntee said the Ararat wind farm included a creative financial structure with a mix of contracted power and merchant power. She says GE will be able to use that in other projects in Australia.

An estimated $10 billion of investment in renewables will occur over the next five to six years.

“As the generating companies decide on how they are going to remix their portfolios, I think there is opportunity in this country and that is why we are here this week,” she says.

Catallaxy Files

June 2015 SA

GE is salivating at the ‘opportunity’ created by dimwitted policy makers and their cult-like obsession with wind power and the – if you don’t look hard enough, you’ll barely notice it – occasional ‘gaps’ in its production schedule (see above).

The opportunity that knocks for GE – the makers of highly inefficient Open Cycle Gas Turbines that can be fired up in minutes to fill those pesky ‘gaps’ seen above, but which cost a fortune to run (upwards of $300 per MWh – hence, whenever one of those little ‘gaps’ in wind power output appears, the spot price spikes to $2-4,000 and all the way to the market cap of $14,000) – fits snuggly within the Grattan Institute’s Tony Wood’s “solution” to South Australia’s wind power debacle:

  1. Take a perfectly functioning, reliable, secure and affordable electricity supply;
  2. Create a Federally mandated subsidy (under the LRET) and direct it to an intermittent, unreliable and wholly weather dependent power source – with that subsidy to cost all Australian power consumers more than $3 billion a year until 2031 – a total of $45 billion from now until then;
  3. Watch subsidised wind power destroy the viability of the cheapest base-load generators, thereby leading to routine load-shedding, blackouts and spot price spikes to $2,000-$4,000 per MWh – often hitting the regulated cap $14,000 per MWh – whenever wind power output collapses;
  4. Having destroyed the viability of the cheapest and most reliable base-load generators, legislate to force power consumers and/or taxpayers to stump up massive subsidies (aka “capacity payments”) to keep generators of dispatchable supply in business and online, in order to prevent the obvious and inevitable consequences that flow from items 1-3 above.

Tony Wood’s ‘solution’ involves power consumers paying three times to keep the lights on: once for a system that works; once to wreck it; and once more to rectify the damage.

GE offers no solution, it’s part of the problem (seeking to slip very profitably into 3 and 4 above) all at enormous (and wholly unnecessary) taxpayer and power consumer expense. GE has been at it before, with its propaganda onslaught in late 2014, ‘Powering Australia’, when it spent $millions on ‘advertorial’ content in Australia’s major dailies – keen to massage thinking towards its OCGT ‘solution’ (see our post here).

Remember that it all started with Enron and its rape and pillage of the Californian power market (see our post here). GE snapped up Enron’s wind assets when it imploded in 2002. From its proposed ‘solution’ to Australia’s looming energy calamity (now a daily reality in SA), none of Enron’s legacy was lost on GE. Just show them the trough and they can work their Californian ‘magic’, all over again.

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About stopthesethings

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

Comments

  1. 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 2016 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-15-000-household-power-disconnections-frequent-power-blackouts-and-the-july-2016-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 for your time.

  2. Josh Frydenberg should be under no illusions, GE will be looking after the interests of GE as it always has done and it's highly unlikely that will be in the best interests of the Australian people.  Undoubtedly the old adage holds good in this case, the leopard doesn't change his spots:

    Obama Won't Create Jobs or Innovation by Hiring Progressive CEO Jeff Immelt

    Washington, D.C. – President Barack Obama's appointment of General Electric CEO Jeff Immelt to lead the White House's new "President's Council on Jobs and Competitiveness" does not signal a serious attitude toward thoughtful and open discussion on ways to jumpstart the stalled American economy.

    Experts with the National Center for Public Policy Research cite Immelt's close ties with Obama on policy matters such as cap-and-trade and his ineffective leadership at GE as proof that this new council will not possess the dynamic leadership it deserves.

    "Tragically, the continuing Obama-Immelt partnership is going to drive our economy and job creation over a cliff. Their war on fossil fuels is only going to drive jobs overseas," said Deneen Borelli, a fellow with the Project 21 black leadership network. "Americans stated loudly and clearly in last November's elections that 'We the People' will not stand for policies that expands government and raises energy prices. Putting Immelt in charge of this new council sends exactly the wrong message."

    According to Obama, the President's Council on Jobs and Competitiveness will "focus its work on finding new ways to encourage the private sector to hire and invest in American competitiveness." Immelt, in a January 21 Washington Post commentary boasting of his appointment, wrote: "My hope is that the council will be a sounding board for ideas and a catalyst for action on jobs and competitiveness. It will include large businesses, small businesses, labor, economists and government."

    "Obama and Immelt are mutually dependent on each other. Obama needs corporate money for his re-election campaign and Immelt needs the president's muscle to continue the Administration's war on cheap energy to make GE's renewable energy products economically competitive," said Tom Borelli, Ph.D., director of the National Center's Free Enterprise Project. "Making energy prices skyrocket is not an economic recovery plan. It's a recipe for economic disaster."
    As CEO of General Electric, Immelt directly participated in promoting Obama's "cap-and-trade" energy regulations proposal. While this could increase GE's short-term business in wind and solar technologies, the consequences of the policy is certain — by Obama's own admission — to "skyrocket" energy costs. GE has additionally sold technology to Iran and it is planning on sharing jet engine technology with China. GE also lobbied for and received tens of millions in stimulus money and received financial support from the Federal Reserve. During Immelt's ten-year reign as CEO, GE had to cut its dividend and its stock price has fallen to about half its previous value.

    Obama's pick of Immelt will undoubtedly provoke the further ire of tea party activists already unhappy with the White House's big-government agenda. A recent nationwide poll conducted by FreedomWorks and the National Center, which can be found at http://www.nationalcenter.org/PR-Tea_Party_Survey_112310.html, found that GE was extremely unpopular with conservatives due to Immelt's reliance on the government and support of Obama's policies.

    "Innovation and job creation will not come from someone who is already marching in lock-step with President Obama's big government agenda," added Deneen Borelli. "America needs economic leaders who embrace the entrepreneurial spirit not CEO leeches who feed on taxpayer money for revenue. Lead by the tea party movement, voters rejected progressive policies and cleaned house on Capitol Hill. If this council is going to be anything more than a continuation of the White House's attempt to woo big business to Obama's big government agenda, Immelt will provoke tea party activists."

    The National Center For Public Policy Research is a conservative, free-market non-profit think-tank established in 1982. It is supported by the voluntary gifts of over 100,000 individual recent supporters, and receives less than one percent of its revenue from corporate sources.

  3. Frank Campbell says:

    Congratulations to the STT team in recent years for informing and keeping up the spirits of the many people concerned and affected by the wind fraud. It’s taken 15 years for the MSM to finally begin to
    comprehend and cover the scam.

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