Australia’s Renewable Target in Tatters: Major Retailers Shun Wind & Solar, Electing to Pay $Millions in Retail Power Fines Instead

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In the week just gone, yet another of STT’s predictions unfolded, with devastating consequences for Australia’s Large-Scale RET and the remnants of a battered and beleaguered wind industry.

The LRET was slashed in 2015 simply to avoid the political embarrassment of having too little eligible renewable power dispatched to satisfy the 41,000 GWh target set for 2020. Choosing immediate tactical retreat over inevitable strategic failure, the wind industry and its stooges in the office of then Minister for the Environment, the clueless Greg Hunt, gutted the ultimate target to 33,000 GWh. Outsiders were pushing for 26,000 GWh, which might have been achievable. But Hunt’s hubris prevailed and the LRET’s die was cast.

At the time, those in the know predicted (as STT did – see our post here) that there was no way the new target would be met: akin to the demise of another government underwritten subsidy rort – the Reserve Price Scheme for Australian wool – the decision to cut the LRET target signalled a clear and present danger.

Once cut for political purposes it was inevitable that it would be cut again: bankers who might have financed new wind farm projects and investors that might have once bet their shirts on wind power outfits could smell mortal financial risk and, accordingly, turned off the tap.

Power retailers, too, could see that the LRET’s demise was a matter of when not if: they refused to sign long-term Power Purchase Agreements, due to the very sensible fear that the LRET would turn into a policy ‘zombie’ – leaving them locked into pointless renewable contracts, that would do nothing more than deliver them millions of worthless RECs and skittish unreliable wind power. The same forces saw the wool industry’s Reserve Price Scheme implode back in 1991, costing growers and the government $billions (see our post here).

The reason for all that financier and power retailer recalcitrance was that once the lack of renewable investment led to the imposition of the ‘shortfall charge’, the politics of the LRET would quickly turn rancid and the whole scheme would soon implode.

As we detailed in this recent post – It’s Time for Frydenberg & Turnbull to Come Clean on the Cost of Subsidised Wind Power – the shortfall charge is going to cost all Australian power consumers around $20 billion and there will be no increase in renewable power generation and no reduction in CO2 emissions in the electricity sector, the stated aim of the LRET (not that chaotic wind power is capable of reducing CO2 emissions at all – see our post here). And it’s that politically poisonous cocktail that spells inevitable doom for the LRET in its current form; or, indeed, in any form at all.

Now, the naysayers – like STT, cautious bankers and power retailers – are having their ‘Nostradamus’ moment: one of Australia’s big power retailers, ERM Power has rejected the RECs offered by wind power outfits and has, instead, taken the easier option of paying $123 million as ‘shortfall charge’. For the wind industry, its parasites and spruikers the wailing, moaning and gnashing of teeth starts now.

Here’s the AFR heralding the beginning of the end for the LRET, and the wind industry with it.

‘No chance’ of meeting 2020 energy target
Australian Financial Review
Mark Ludlow and Angela Macdonald-Smith
27 January 2017

The founder of ERM Power, one of the country’s largest electricity retailers, says Australia has no chance of achieving its Renewable Energy Target of 23 per cent by 2020, meaning customers will be forced to pay higher prices for no environmental gain.

Amid growing unrest from the business community about the relentless push towards clean energy, Trevor St Baker said the federal government might have to consider amending the legislated RET of 33,000 gigawatt hours again before the decade ends.

“There is no way we are going to make the 33,000 target. It’s impossible to get there. That’s what the argument should have been about all the time, it should have been 20,000 [gigawatt hours]. That’s all you can reasonably expect to be built,” Mr St Baker, who is non-executive deputy chairman of ERM Power, said in an interview with The Australian Financial Review.

“Our target should be greenhouse gas reduction. There is a renewables obsession that is like this schoolyard debate.”

Minerals Council of Australia chief executive Brendan Pearson said there needed to be a “clear-eyed assessment” of whether the RET was feasible, saying it added $3 billion a year to the energy costs of households and businesses each year.

“Perhaps the most sensible and rational option is to grandfather the scheme for existing projects as well as those projects not yet completed but under way,” he said.

“But there is no point persisting with a scheme which just continues to raise the cost for energy users without delivering any environmental benefit. More broadly, we need to return energy policy to a technology neutral model.”

Federal Energy Minister Josh Frydenberg said this week there would be no changes to the 2020 RET target while admitting it would be “a real challenge” to meet it. He said the Turnbull government is unlikely to commit to a new target for 2030, given investments contracted in the next few years are likely to run for the next decade.

The RET was already scaled back in 2015 from the Rudd government’s target of 41,000 GWh but investment is still lagging behind what is required to meet the revised goal. Bloomberg New Energy Finance calculates that investment in large-scale renewables needs to more than double, to $US2.9 billion ($3.8 billion) a year, compared with last year’s $US1.1 billion.

News this week that ERM will pay a $123 million penalty as part of its 2016 liability under the RET instead of surrendering its full quota of Large-scale Generation Certificates (LGCs) has revived worries about whether the target is viable. The scheme allows a retailer three years to make up for the shortfall by surrendering LGCs at a later date.

The ERM move has also underscored the fact that if the target is missed, consumers will be paying higher prices that cover the cost of additional renewable energy generation, without that energy being produced, with the money used instead to pay the “shortfall charge”.

Western Australian Liberal Senator Chris Back said this week the system could result in more than $1 billion a year of fines paid between 2020 and 2031 because there would not be enough renewable energy to meet the target.

Alinta Energy will also pay a shortfall charge for its 2016 liability under the RET, but chief executive Jeff Dimery rejected criticism that such a move undermined the scheme, which the company “absolutely, categorically” supports.

Mr Dimery said the ability to pay a penalty and then make good on that over the next three years by surrendering LGCs helped meet the 2020 target by creating a situation where a smaller retailer could then go forward and build renewables projects or commit to renewable power purchase contracts in confidence of the value it has locked in for the certificate.
Australian Financial Review

Here’s the Press Release from Chris Back, quoted by the AFR:

Dr Christopher Back
Liberal Senator for Western Australia
Media Release
24 January 2017

ERM pays Shortfall Charge – debacle was inevitable.

Senator Chris Back has repeated his call for a moratorium on new wind farms being constructed until the Productivity Commission completes a cost-benefit analysis of the effect the industry is having on the National Electricity Market (NEM) and retail electricity prices.

ERM Power Ltd [ASX: EPW] today announced it would meet its obligations under the Large-scale Generation Certificate (LGC) Scheme through a combination of surrendering certificates and paying the Clean Energy Regulator (CER) $123 million for calendar year 2016.

That sum is to discharge a liability on all retailers created by the Renewable Energy (Electricity) (Large-Scale Generation Shortfall Charge) Act 2000 which sets the shortfall charge at $65 per megawatt hour for each and every megawatt hour that a retailer falls short of the Renewable Energy Target (RET). On present estimates, the shortfall charge will be applied at a rate of over $1 billion per year from 2020 to 2031 because there is insufficient renewable energy available to satisfy the current 33,000 Gigawatt hour target.

Senator Back has continuously told the public and fellow parliamentarians that the action that ERM has announced today is the easiest way for businesses to comply with the legislation as we approach the 2020 Renewable Energy Target.

This ‘federal tax’ on electricity will flow into consolidated revenue. “I am assuming that this extra revenue will go towards reducing Labor’s debt.”

Senator Back said, “The RET may not be reducing emissions, but in this case it is reducing Labor’s debt by $123 million. All consumers are in effect paying a federal tax on electricity either as the subsidy issued in the form of RECs or the shortfall charge recovered as a penalty – so where is the benefit to the environment from such a scheme?”

The RET scheme was never intended to act as an unchecked, single industry subsidy. “With the disastrous example set by South Australia, comes a growing public awareness of the massive cost of subsidy entitlements under the large scale RET scheme, the permanent disruption to once functional power markets and the associated grid instability.”

“What we have witnessed is load shedding and blackouts that stem from reliance on wind power. It will become harder over time to find supporters for subsidised wind power as the fallout is the MEDIA RELEASE

forced closure of energy dependant businesses, thousands of households unable to afford power and routine supply interruptions when the wind stops blowing.”

“This announcement by ERM provides a wake-up call. There should be no further subsidies for intermittent and unreliable power sources that are proven failures. There are solutions to our climate challenges but wind power is not one of them,” Senator Back said.

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Western Australian Liberal Senator, Chris Back is on track when he puts the figure of what the shortfall penalty will cost all Australian power consumers at more than $1 billion a year until 2031 – the retail cost will total more than $1.5 billion annually and total over $20 billion over the life of the LRET (see our post here).

In the AFR piece, Alinta’s Jeff Dimery reckons his decision to stump up the shortfall penalty charge, instead of paying to purchase RECs hasn’t ‘undermined the scheme’. No, Jeff – the decisions by ERM Power and Alinta to pay penalties instead of buying RECs has signed the LRET’s death warrant.

No politician is going to be able to finesse a Federal penalty tax on power – that equates to an utterly ineffective, $93 per tonne CO2 tax.

Among the filth and fury that poured out of wind cult central over ERM Power’s refusal to play ball under the LRET was this rant by the Clean Energy Regulator, Chloe Munro – ERM falls short of their renewable energy obligations

Chloe’s rage is, no doubt, fueled by the fact that she had sworn a solemn oath to Energy & Environment Minitster, Josh Frydenberg and the PM, Malcolm Turnbull that the LRET would never, ever go to penalty.

Well, Chloe, sorry to rain on your parade: it just did.