Wind Industry’s Armageddon: Liberals Join Nationals to Demand an End to Subsidies

Yet again, Judith Sloan tackles the greatest policy disaster of all time, and yet again she hits the bulls-eye.

Clean energy target a non-starter on road to affordable energy
The Australian
Judith Sloan
10 October 2017

You remember the bloke wanting to get to Dublin. He wasn’t in a good place to start his journey. This sums up energy policy in this country.

But here’s the thing: Dublin is affordable and reliable energy and we have to get there as soon as possible. And let’s be specific: we need electricity prices to halve from today’s levels to return to their historical average. This would mean we have electricity prices comparable with the US, for instance. It’s doable.

Luckily on the trip to Dublin, a little bird tells our bloke that the clean energy target is a non-starter as far as the government is concerned. It was always a completely dopey idea; just a rejigged version of the renewable energy target, which has been one of the most economically damaging interventions imposed by an Australian government.

(Bob Hawke has to be joking: a $122 million postal survey, which is not even an instrument of economic policy, doesn’t make the top 1000 in terms of bad policies.)

To be sure, a CET would have been better than an RET when this dastardly edict was first implemented. Depending on the parameters, a CET could have broadened the range of technologies that would have been incentivised by the scheme. But it is way too late to be talking about this.

The CET as envisaged by the sneaky Finkel report is described as “technology agnostic”. This is a serious stretch in the context of arbitrarily chosen emissions intensity benchmarks and the assumed need to meet set emissions reduction targets for the electricity sector.

The Finkel version of the CET would mean that all new investment in electricity generation would come from renewable energy (42 per cent by 2030) and that coal-fired electricity plants simply would cease to operate across time. It’s just the RET on steroids.

And don’t believe for a second the ridiculous proposition of Finkel that electricity prices would be lower with a CET than without. The same prediction was made about the RET and we know how that turned out.

One of the more useful developments in the energy policy space is the claim by the renewable energy sector that there is no longer any need for subsidies because renewable energy is now cheaper than coal or gas.

Hallelujah, I say. It means that those pesky renewable energy rent-seekers will no longer be camping out in the corridors of Parliament House beseeching gormless parliamentarians to serve up investment certainty so they can get on with their business.

What a lot of hooey is this investment certainty idea. The role of business is to make informed decisions about the investment environment and to commit to certain capital expenditures in terms of size and timing. There is no case for an RET-like racket with its volumetric guarantees and the prize of Renewable Energy Certificates. Thank goodness we are seeing the back of it, although the RET does limp on to 2030.

So what happens in this world of unsubsidised renewable energy? Hopefully there will be a significant dip in the construction of new wind farms, which are so disruptive to rural communities, and solar farms. The activists at GetUp! are predicting a valley of death in the early 2020s as far as renewable energy investment is concerned; I’m assuming they are right.

The key policy action now is to insist that renewable energy can be offered to the market only on the basis of full dispatchability. This condition must apply to existing renewable energy as well as new installations. Unless there is demonstrated firming (back-up) capacity attached to the sources of renewable energy, then the bids should not be accepted.

In fact, if this had been part of the original RET, the economic damage could have been much less. Instead of having a completely free ride — bidding in low and receiving RECs while ignoring the costs of intermittency as well as driving coal-fired plants to the wall — renewable energy providers would have been obliged to offer only reliable electricity.

This rule may double or even triple their costs, but so be it. Everyone believes in level playing fields, don’t they?

There may also be a case for reconsidering the bidding rules that attach to the National Electricity Market. At the moment, the highest marginal bid sets the price for all those who have their bids accepted over the time interval. In an increasing number of cases, it is the expensive gas-fired power stations that are setting the price — up from 12 per cent of cases several years ago to quarter now.

This means that all the intra-marginal bidders, including the renewable energy producers, are making a great deal of money. The system also encourages a high degree of gaming by the generators, particularly in the context of limited competition and the exit of several coal-fired plants.

Take the Queensland generators. It’s not as if they are operating at full capacity. But in terms of making money, it makes sense for one of them, say, to stay out of the market or for them all to make small bids for gas to set the price. But don’t think that it’s just the Queensland generators that are playing this game.

The three big gentailers — generators and retailers — are making hay while the sun shines. The real reason AGL wants to shut the Liddell coal-fired power station in NSW’s Hunter Valley (and not sell it to another operator) is that its exit from the market will further enhance the scope for the company to make money by working the system.

This gaming of the system is one reason the predictions of the Australian Energy Market Operator have become so unreliable. When Victoria’s Hazelwood power station closed in March, AEMO declared: “The security of the Victorian system or the broader NEM would not be compromised this summer.” Six months later, AEMO claimed a “strategic reserve of 1000 megawatts of flexible dispatchable energy resources is required to maintain supply reliability in South Australia and Victoria this summer”. (Same summer.)

A central question is whether the government should reconsider the bidding rules in the NEM and switch to an arrangement whereby bidders are simply paid the price they bid. This really would set the cat among the pigeons, not only for the renewable energy players, absent any RET/CET, but also for companies such as AGL.

It may allow our bloke to get to Dublin a bit faster.
The Australian

 

Another brilliant effort from Judith Sloan!

As pointed out in last Saturday’s post, energy policy has given rise to The Great Divide, where power becomes a luxury, affordable to the few; rather than a basic necessity of daily life, affordable to all.

After receiving power bills more than 20% higher than this time last year, many Australian power consumers have simply given up. Victoria alone has seen some 14,000 households disconnected this year and tens of thousands more are now on payment plans. From here, things only get worse.

In Canberra this week, the politics of power have taken centre stage.

Behind the scenes, Malcolm Turnbull and Josh Frydenberg are fighting a rear-guard action to save their political skins.

Liberal and National backbenchers have unified to reject Alan Finkel’s Clean Energy Target (a 42% RET) and are determined to slash all subsidies to wind and solar, starting right now. Former PM, Tony Abbott is absolutely on the money with his prescription:

In the short term, to avoid blackouts, we have to get mothballed or under-utilised gas back into the system.

In the medium term, there must be – first – no subsidies, none, for new intermittent power (and a freeze on the RET should be no problem if renewables are as economic as the boosters claim); second, given the nervousness of private investors, there must be a government-built coal-fired power station to overcome political risk; third, the gas bans must go; and fourth, the ban on nuclear power must go too in case a dry country ever needs base load power with zero emissions.

The government is now suggesting that there might not be a new Clean Energy Target after all. There must not be – and we still need to deal with what’s yet to come under the existing target.

What happens next, is anybody’s guess. But one thing is certain: the days of talk about bipartisan support for subsidised renewable energy are long gone.

Instead, as The Australian points out, unshackling Australia from its suicidal renewable energy policies is the one way that Malcolm Turnbull could give the Liberal/National Coalition a fighting chance at the next election.

Turnbull shaping to give voters clear energy choice
The Australian
Editorial
10 October 2017

We don’t have details of the Turnbull government’s energy policy but we are promised more before Christmas. Still, we heard encouraging noises yesterday from Environment and Energy Minister Josh Frydenberg and Malcolm Turnbull, who hinted the government might reject further renewable energy subsidies, eschewing a clean energy target in favour of power affordability and reliability. If the Prime Minister chooses to go down this path it will maximise his policy difference with Labor, prioritise electricity prices and supply, and generate another seismic shift in energy and climate policy. It will leave crucial economic and political questions hanging, and much will turn on how Mr Turnbull handles them.

The economics of energy are such that ruling out new renewable subsidies will do little to encourage investment in baseload power. The renewable energy target and risk of future carbon prices have made long-term investment in coal or even gas-fired generation a dubious proposition. Former prime minister Tony Abbott summed up the absurdity of the situation in London overnight. “A market that’s driven by subsidies rather than by economics always fails,” he said. “In Australia’s case, having subsidised renewables, allegedly to save the planet, we’re now faced with subsidising coal just to keep the lights on.” Despite the growing realisation the RET has played a large role in creating our dilemma, it would be almost impossible to unwind the subsidised 23.5 per cent renewable share. And any pledge to cap it is only as good as the next election. This is why the industry wants a bipartisan agreement on a CET: certainty allows companies to plan and invest. But consumers should not accept bad policy or higher prices to deliver predictability.

Labor leader Bill Shorten restated his promise of a 50 per cent RET even though studies show it requires $48 billion of investments by 2030 — an extra cost to be borne by consumers. The recklessness of this approach is hard to fathom, especially given we do not need to imagine the consequences; we have seen them already in South Australia, which has almost reached its 50 per cent renewable share and has weathered its first statewide blackout as well as some smaller brownouts. SA is spending $550 million trying to retrofit diesel generators and battery storage to its grid in time for summer. That a federal government would consider taking the entire country down this route is difficult to imagine but the past decade has shown that anything is possible in energy policy.

For Mr Turnbull the political questions are whether he can devise a plan that provides more generation without more subsidies and whether, as the Coalition’s leading climate evangelist, he can carry the public argument about elevating price and reliability decisively ahead of green aspirations. He will be accused daily of running Mr Abbott’s agenda rather than his own. But if there is a clear choice at the next election between economic responsibility and green adventurism, then he will have given voters a worthwhile choice and the Coalition a fighting chance.
The Australian