It’s Time for Frydenberg & Turnbull to Come Clean on the Cost of Subsidised Wind Power

***

STT has a hard time working out whether Federal Energy & Environment Minister, Josh Frydenberg is simply thick, obtuse or knee-deep in the greatest government sanctioned rort of all time?

Faced with a disintegrating electricity grid, skyrocketing power prices and a renewable energy policy on the brink of collapse, Frydenberg is playing political games, when he ought to be tearing up Australia’s costly and chaotic energy policy and starting from scratch.

Like Nero, fiddling while Rome burns, Frydenberg is exhausting his political capital ranting and raving about the ludicrous 50% renewable energy target being peddled by the Federal Labor Opposition, as well as berating Australia’s State Labor governments, for attempting to run their own races on renewable energy.

With a nod to Scripture, Frydenberg is obsessed with the specks in his political opponents’ eyes, but fails to notice the thumping great plank in his own.

Frydenberg wrote pieces in the Australian Financial Review and The Australian slamming Labor’s renewable policies, but which were strangely quiet on the cost of the current Large-Scale RET. Here’s one of them.

It’s time Labor came clean on cost of renewables
The Australian
Josh Frydenberg
20 January 2017

It’s time Labor was more transparent on the cost to consumers of its renewable energy policy.

Opposition climate change spokesman Mark Butler hit the airwaves this week as part of a campaign to alleviate the public’s growing concerns about Labor’s energy policy.

But despite endless opportunities to do so, he would not deny that Bill Shorten’s 50 per cent renewable energy target would lead to higher electricity prices.

Now is the time to debunk Labor’s myth-making and expose the true cost that its energy policies will have on Australian households and businesses.

• Myth 1: Power prices will be cheaper under Labor.

No one can believe this. Electricity prices in Labor’s last six years in office grew by more than 100 per cent, faster than any other OECD nation. Today Labor has adopted a trifecta of policies sure to do the same.

The combination of a 50 per cent RET, an emissions intensity scheme and the forced closure of Australia’s 24 coal-fired power stations — all Labor policies — will create a perfect storm that will hit energy prices, security and the country’s competitiveness.

Researchers at Bloomberg New Energy Finance have costed the Opposition Leader’s RET at $48 billion — that is more than $5000 a household.

The Australian Energy Market Commission has found that the RET “has the highest cost of abatement” of the options it considered. As the RET applies only to renewable technology, it “does not reward switching from high emission fuels to those with lower emissions” such as supercritical coal and gas.

Despite being opposed by the AEMC, Australian Energy Council, Grattan Institute, Business Council of Australia and others, Labor joined with the Greens to encourage the forced closure of coal-fired power in Australia, which provides more than 60 per cent of our electricity needs.

This method, the AEMC said, could cost consumers up to $24bn.

If the announced closure of Hazelwood is anything to go by, where Victorian households will pay up to $135 more this year for their power bills, then this Labor policy further exposes this myth.

In addition to their RET and forced closure policies, Labor wants us to believe that their commitment to an emissions intensity scheme will not affect prices. But last time they promised a trading scheme we ended up with a $15bn carbon tax. Why would this time be any different?

• Myth 2: “Renewable energy has nothing to do with the problem” in South Australia, it “is ­really a product of the gas market”.

This is disingenuous in the extreme as the only reason gas is increasingly setting the price of electricity is because wind and solar in South Australia forced the closure of coal.

It is no coincidence that with the highest penetration of wind and solar in the country, providing more than 40 per cent of its electricity, South Australia has the highest power prices in the national electricity market, 62 per cent above the average, and the highest rate of disconnections.

Unfortunately it is the low-income households in South Australia that are bearing the greatest burden as Labor’s “big experiment” — that’s what South Australian Premier Jay Weatherill calls it — goes wrong. According to the Australian Energy Regulator, a low-income household in South Australia spends 5.2 per cent of its disposable income on the electricity bill.

That’s almost double that of a middle-income household and five times that of a high income household earning more than $160,000.

While it’s true we need to strengthen our gas market, it would be better for Butler to convince his Labor colleagues in Victoria and the Northern Territory to lift their moratoriums.

In the Northern Territory alone, there are estimated unconventional gas reserves so large that they could meet our nation’s domestic gas needs for up to 180 years.

• Myth 3: Without a 50 per cent RET, “we will simply not be able to achieve the commitments we made … at the Paris conference”.

Much to Labor’s chagrin, the Coalition has proved this wrong. Numbers released last month show the Coalition is on track to beat its 2020 target by 224 million tonnes, a 187 per cent improvement on previous projections. This is in stark contrast to the projections when Labor was previously in office, which showed it missing the target by 755 million tonnes.

When it comes to the 2030 target, the numbers also show an improvement in our position by almost one billion tonnes due in part to energy efficiency and better land and agriculture outcomes.

Technology will be key to meeting our targets, among them carbon capture and storage, batteries, smart meters, more energy-efficient buildings and appliances. That is why the government is devoting significant resources to these areas.

• Myth 4: Labor’s renewable energy target will create more jobs than it will lose.

Most recent Australian Bur­eau of Statistics data shows only 14,000 full-time direct employees in renewable energy activities, more than half of them in the rooftop solar industry.

But the almost one million employees in Australia’s manufacturing sector, among them food processing, aluminium, steel and cement, are feeling the pain of higher electricity prices, a serious threat to jobs and investment.

Butler claims Labor will create 28,000 jobs in renewables. We haven’t seen the details, but if this claim was accepted, it equates to about $1.7 million per job under Shorten’s $48bn RET.

• Myth 5: “Countries like China are already starting to wind back their coal-fired generation.”

According to the International Energy Agency, this is simply not true. In its 2016 World Energy Outlook, the IEA said “coal remains the backbone of the electricity system in China” and “coal use in China has not peaked yet”. China’s 13th five-year plan will add coal-fired capacity equivalent to more than 100 Hazelwoods.

Meanwhile, India’s coal-fired fleet is projected by the IEA to increase 136 per cent to 2040. The equivalent of 30 Hazelwoods is under construction now.

It’s time Labor’s myths were exposed and the party came clean on the true cost to consumers of its energy policy, which is threatening jobs and investment and punishing households.

In contrast, the Coalition is adopting a more measured way to transition to a lower emissions future while implementing reforms to the gas market and electricity system that maintain energy security and affordability as our fundamental priorities.
The Australian

Josh fancies himself as some kind of political ‘Mythbuster’, however, he’s left one for others to tidy up. We’ll start with these efforts that popped up in letters to The Australian, some of which get close to debunking Frydenberg’s political fudge.

The hollow promise of renewable energy policy
The Australian
Letters to the Editor
21 January 2017

Josh Frydenberg does an excellent job in demolishing Labor’s fantasies regarding renewable energy (“It’s time Labor came clean on cost of renewables”, 20/1). However, scoring a few political points will not save the country’s electricity system.

With our national grid likely to be abused by some states with masochistic renewable energy targets, it is essential that federal control of electricity be secured to achieve national reliability. It’s time for Frydenberg to argue this case and obtain public support.
Geoff Dunsford, Lindfield, NSW

What a clear and concise article by Frydenberg criticising Labor and its pursuit of renewable energy sources. Labor, once the champion of the working classes, is going to be responsible for the heftiest rises in energy supply in Australian history.

This will most immediately be felt in Victoria with the closing down of the Hazelwood power station and the added disaster of the cost of hundreds of direct and indirect jobs. South Australia has already gone down the path of no return as has the ACT. Labor-held Queensland will do the same in the coming year. There is no doubt that the Greens, spurred on by the leftist media, are winning this battle and very soon all Australians will be paying the price — unless commonsense voices like Frydenberg’s are heeded.
Peter D. Surkitt, Sandringham, Vic

Frydenberg rightly criticises the adoption by Labor at federal and some state levels of targets of 50 per cent for using renewable energy sources to replace coal and gas. Such action has already increased electricity prices, reduced employment in some industries and reduced the ability of businesses to compete internationally. If continued, it will greatly add to problems in the future.

However, the Turnbull Government has not indicated why its own renewable target of 23.5 per cent is appropriate. True, this can be said to have passed the electoral test in 2015. But time moves on, and there is now a recognition not only of the addition to costs but a question as to why Australia should be a leader in usage of renewable energy when it is such a small emitter of CO2.
Des Moore, South Yarra, Vic
The Australian

Des Moore is well on the right track in pointing to the Elephant in the Coalition Party Room: the Federal Large-Scale Renewable Energy Target – from hereon, a $42 billion tax on all Australian power consumers.

For Josh’s benefit (and for those keen on some real Mythbusting) we will set out how the wind power subsidy numbers stack up under Josh Frydenberg’s very own 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 retailers will not enter PPAs with wind power outfits, is effectively stuck there interminably. 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.

As appears from the forward price for RECs (see above), 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.

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).

Year	Target in MWh (millions)	Shortfall in MWh (millions)	Penalty on Shortfall @ $65 per MWh	Minimum Retailers recover @ $93
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	449.762	225.762	$14,674,530,000	$20,995,866,000

****

Between 2017 and 2031 the total target could be satisfied by the issue and surrender of 449.762 million RECs. However, with only 16 million RECs available annually there will be a total shortfall of 225.762 million; with only 224 million RECs available to satisfy the remaining 449.762 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 $42 billion (449,762,000 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 14 years, until 2031 – such that a single 3 MW turbine spinning today can pocket a total of $11,975,796 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 $14 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
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	449.762	225.762	$20,995,866,000	$41,827,866,000

****

Whether it’s RECs being generated by current (or additional) wind power generation, or the shortfall charge being applied, retailers will be recovering every last cent of the combined costs of BOTH from all Australian power consumers through retail power bills: we are, of course, talking about AGL and not the Salvation Army.

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 $42 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’ being offered by Malcolm Turnbull and Josh Frydenberg; or as Maggie might put it, “would you rather be run over by a steam-roller, once or twice?”

Federal Labor’s 50% target 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.

At present, the South Australian Labor government is begging for taxpayers in other states to stump up around $4 billion to build extra interconnectors to direct reliable coal-fired power to SA from Queensland, NSW and Victoria – in an effort to avoid more wind power collapses resulting in load shedding and statewide blackouts. But, funnily enough, SA’s neighbours aren’t that keen to bail them out.

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 Australian voters, to be sure.