Australia’s Energy Debacle: South Australia Just the First Victim of the LRET’s $45bn in Wind Power Subsidies & Fines

turnbull-frydenberg

The road to Perdition: ‘Where to from here, Josh?’

***

Last week saw Federal Energy and Environment Minister, Josh Frydenberg briefly float and then just as quickly scrap the idea of a ‘carbon’ credit trading scheme, which – as we set out in yesterday’s post – counter-intuitively had the potential of avoiding a complete political disaster for the coalition.

While a media scrum kicked up dust around what sounded like a reprise of a ‘carbon’ tax (they mean a tax on CO2 gas), STT champion, Judith Sloan stood alone in pointing to the elephant in the room.

Energy scheming drives us to disaster
The Australian
Judith Sloan
7 December 2016

Here are two things you should know about energy and climate change policy in this country.

We already have a carbon tax; it’s called the renewable energy target. And Australia is the South Australia of the future.

The RET is imposing higher electricity prices on households and businesses through the cost of the underlying certificates and the payment of shortfall charges.

There is no way the 2020 target for the RET will be met, so we will pay higher electricity prices for nothing. This is a tax, an extraordinarily inefficient one.

The cost of abatement from the RET is extremely high and rising. It forces out much lower-cost generators — think Northern power station in South Australia and the soon-to-close Hazelwood in Victoria — causing massive instability to the grid.

South Australia’s power failures are a taste of things to come. The interconnector between SA and Victoria will prove a dead waste when Hazelwood shuts down. An interconnector between SA and NSW is too expensive and a long way off. Needless to say, state Energy Minister Tom Koutsantonis doesn’t want South Australians to pay for this new interconnector. We mugs in the eastern states should stump up, according to a SA government that specialises in extortion.

So many mistakes have been made in energy and climate change policy that it’s difficult to know where to begin. We are still pouring billions of dollars into cheap finance for renewable energy along with the massive kick-along from the RET.

There was always significant scope to reduce the growth of emissions while leaving the electricity grid alone but this option was ruled out early on.

Now add another you-beaut idea to the mix: an emissions intensity trading scheme that would penalise generators for above-baseline emissions. Whoever dreams up these schemes surely does not have any understanding of physics or engineering.

The operators of generators cannot just wish lower emissions — sometimes it is impossible, other times it is only possible with massive investments, generally unjustifiable.

The only possible advantage of an emissions intensity scheme would be the scope for gas to play a greater role in electricity generation. But given the massive market distortions, made much worse by state government bans on further gas exploration and production onshore, it’s not obvious what difference that would make.

There is such a shortage of gas in Victoria that already a large wool processing plant is about to close and the future of the export abalone industry is in doubt.

Rather than bring on even more reviews, the one thing federal Energy Minister Josh Frydenberg could do is to save Hazelwood — by far the cheapest source of power with a generating capacity of 25 per cent of Victoria’s baseload power.

He needs to get together with Industry Minister Greg Hunt and the Victorian and South Australian governments to see what can be done to ensure Hazelwood continues beyond March. Forget about introducing yet another scheme, go to the source — of course.
The Australian

elephant-in-the-room1

Nice work from Judith, as always. However, it would be rude if STT didn’t add some detail and numbers to the points so well made above. The elephant in the room is, of course, the Federal Large-Scale RET.

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 commercial retailers have refused to enter PPAs for over 4 years is stuck at that figure.

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).

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.

The almost $45 billion cost to retail power consumers of the penalties to be suffered and the subsidies drawn under the LRET will be more than enough to kill off any hope of Australia dodging a serious (and fast looming) economic recession.

Add in a chaotic power supply and a grid that is on the brink of collapse and the victims of the LRET won’t be confined to the basket case that is South Australia; the spreading economic and social carnage will be swift and brutal, starting in Victoria, with Queensland and New South Wales, close behind.

How Australia got itself into such a predicament will be a matter for the cool reflection of political and social historians. How Australia gets itself out of the current mess with economic lightweights like Josh Frydenberg and Jay Weatherill leading the charge is anybody’s guess. Over to you Josh…

josh frydenberg

Josh Frydenberg measures his chances of dodging
the $45 billion elephant in the room.

About stopthesethings

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

Comments

  1. John Paul McKerral says:

    It seems to me that wind farms receive subsidies from federal and state governments which are not disclosed for building etc in addition to the RECs.
    If you wanted a generator to provide 100 MW output, a gas or coal plant running at around .9 capacity factor, you would require 111 MW of installed capacity.
    With wind you would need 400 MW as according to AEMO figures wind in Australia has a capacity factor of .25. As the main component of the wholesale price of electricity is the capital invested and associated costs of that capital, unearned interest etc. you can see that the cost per MWh of wind generated electricity is rising rapidly. On top of that you would need four times as much transmission infrastructure, very expensive. I believe that O&M is very expensive with wind as well. Backup generators must also be considered.
    Surely on that makes it about 10 times as expensive to use wind generated electricity as fossil-fueled, around 4 cents per KWh, electricity not the claimed 8 cents per KWh claimed, plus the undisclosed 9.3 cents for the REC?
    The true cost of these things is staggering.
    JPM

  2. Jackie Rovensky says:

    If this Government wants to turn the tables and start to work for the people then they would drop the LRET and RECs and prevent anymore turbines being installed even if they have approval.
    They would at the same time start to look seriously and clearly at what can be done to bring this country back to the days when it was a progressive and inclusive place where jobs were there for the taking and people could see a future.
    They should be looking at turning off turbines which are damaging peoples health and the environment and start to look at alternative energy sources that work for everyone and not just a few money grabbing investors and swollen headed protagonists of the ‘Green’ Movement, some academics and other hangers on, who managed to put a stranglehold on so called world leaders and Governments who fell over themselves to appease their wanton warbling.
    If they want to leave a mark then they have to work hard to clear the dirty grubby marks left by others and ensure the one they leave is one which does not stain this country’s future generations.

  3. Crispin Trist says:

    Just received from a family member living in the UK.

    Merry Christmas STT!

    Court action win against wind farm in Ireland.

    https://mothersagainstturbines.com/2016/12/12/families-forced-from-their-homes-win-case-against-enercon/

    • Uncle Fester says:

      Does anyone know what the actual windfarm involved is? Best I can work out is Bawnmore 1 and 2 came online in 2011, and both use Enercon E82 turbines. If anyone knows exactly which farm(s) are involved and what equipment, much appreciated if you could share.

      • Crispin Trist says:

        The link contained within the mothersagainstturbines article to the Irish Examiner now seems to no longer work. Make of that what you will.

        But, that`s OK because friends-against-wind.org have posted it too. I have posted the text from the article below.

        http://en.friends-against-wind.org/oppositions/families-forced-from-homes-due-to-wind-farm-noise-win-court-case

        Quote…

        “Families forced from homes due to wind farm noise win court case

        The case was taken against wind turbine manufacturer Enercon who has accepted full liability for causing nuisance to seven families who live up to 1 km from the wind farm.

        A number of families in Co Cork who were forced to leave their homes because of noise from a nearby wind farm have won a significant case in the High Court this week.

        The families claim they have been severely impacted by noise since the wind farm began operating in 2011.

        This is the first action of its kind in Ireland and may now open many wind farm developers to the prospect of legal challenges from families in similar situations.

        The case was taken against wind turbine manufacturer Enercon who have accepted full liability for causing nuisance to seven families who live up to 1 km from the wind farm.

        The case will return to the High Court in 2017 to discuss punitive damages.

        Promises in Government over the last four years to introduce planning regulations regarding wind turbines have failed to materialise.

        According to out-dated guidelines, turbines may be built 500m from homes. In many cases, including this, wind turbines have been built closer than 500 m.

        A spokesperson for Wind Aware Ireland said: “There now is a possibility for multiple legal actions against wind farms right around the country.

        “The legal implications for the wind industry are significant. The use of inadequate and out-dated planning guidelines may come back to haunt the industry, planning authorities and the Department of Communications, Climate Action and Environment (DCCAE).”

        On election, Minister Naughten promised that new planning guidelines would be in place within 3 to 6 months of the formation of the new government.”

        Article of the Irish Examiner – December 11, 2016

        …end quote.

  4. THE ALIENS HAVE LANDED.

    Imposing in there hundreds,
    Such an army on display,
    Those alien grey metal monsters
    I saw while on my way.
    Aliens on our shores have landed,
    So tall, backs straight and true,
    At night they watch through flashing eyes
    Of red, at me and you.

    Some have scaled the mountains,
    Others near schools and homes,
    Of one thing I am certain,
    Those aliens have no souls.
    No “whispering” from their ranks at all,
    An unearthly sound they make,
    It envelops each and everyone,
    No more can humans take.

    Three giant arms revolving,
    Enveloping all around,
    They’re here to ‘save the planet’,
    The biggest “con” I have found.
    Such hideous tall grey monsters,
    Invade green and pleasant lands,
    To stay for generations,
    Unless the people make a stand.

    These aliens feed on power and wind,
    Without either, they will die,
    They’re NOT environmental friendly,
    They’re for profit, (at a cost), that’s WHY.

  5. The goal is for electricity to become so expensive that people cut the wire from the distribution system. It was never going to be a replacement. Sending western civilization back to the dark ages under the guise of sustainable power is the agenda. And you can’t produce your own power either.
    It’s been discussed at length how much solar, wind and nuclear would be need to replace fossil fuels. There isn’t enough space on earth in any combination.

  6. Terry Conn says:

    Until the whole system collapses the fix will not begin, and even then the fantasists will not believe ‘wind farms’ are not the ‘fix’. To use a current slogan, ‘the swamp has to be drained’.

    STT has given an interesting insight (yesterday) of Josh Frydenberg’s supposed plan, but now defunct. Perhaps the lesson is to deal with the LRET in a more straight forward way ie, just acknowledge it is a total failure, abolish it and stand back and let natural market forces sort it out free of watermelon green tape.

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