What Subsidised Wind & Solar Power Really Costs: And It’s Simply Staggering

A story that emerged last week involved the Australian Competition and Consumer Commission making a botch of an ‘investigation’ into the causes of Australia’s rocketing power prices. There were plenty of solid efforts correcting the ACCC’s unforced errors, here’s one from Andrew Bolt.

No, Journalists are wrong. Green schemes don’t add “just” 7% to Power Bills
Herald Sun
Andrew Bolt
16 October 2017

Typical is the Guardian Australia on the ACCC’s report:

It said 48% of that bill was network costs, 22% wholesale costs, 16% retail and other costs, and 8% retail margins. Green schemes, which have been the focus of most public attention in recent times, made up only 7%.

Fran Kelly, another climate crusader, twice on ABC Radio National Breakfast today confronted Finance Minister Mathias Cormann with the same assertion.

But they are wrong – completely wrong – in suggesting that this 7 per cent of the bill is all that the green schemes are costing us.

Look deeper in the ACCC report and you’ll find what common sense should have told you already: the push to get rid of coal-fired power costs us far more than that, but the ACCC has for some bizarre reason not added the extra generation costs from switching to wind and gas to its calculations of the costs of “green schemes”.

On top of that 7 per cent are increases in the wholesale prices caused not only by switching to more expensive generation by gas plants and wind farms, but by the shortages caused by killing off cheap coal-fired generations.

Check the ACCC report.

True, from a casual reading of the report you might be excused for believing those green schemes indeed added “just” 7 per cent to your bills:

Our preliminary findings are that, on average across the NEM, a 2015–16 residential bill was$1524 (excluding GST), and was made up of:

• network costs (48 per cent)
• wholesale costs (22 per cent)
• environmental costs (7 per cent)
• retail and other costs (16 per cent)
• retail margins (8 per cent).

But the ACCC in totalling the costs of green schemes includes only these:

Environmental schemes have also caused a significant component of the increase in overall customer bills. These are driven by the take-up of jurisdictional premium feed-in tariff schemes [for solar panels] and an increasing federal Renewable Energy Target (RET)…

To meet the [Large-scale Renewable Energy Target] energy retailers are obliged to acquire large-scale generation certificates (LGC), created for electricity generated by accredited power stations… Retailers are also obliged to acquire small-scale technology certificates (STC) created fromt he installation of eligible solar hot water or small generation units such as solar PV panels. Retailers can purchase STCs… LGC prices have increased sharply from a low of $22 in June 2014 to almost $90 in January 2017 on the spot market. STC prices have steadied around $40 since 2013.

But just one page after that breakdown of your bill that the journalists have seized on, the ACCC adds that the extra generation costs that come from the switch away from coal-fired power – a switch largely forced by such green schemes – are in fact included under “wholesale costs”:

Large, baseload coal-fired generation has exited the market in recent times, for example Hazelwood in Victoria and Northern in South Australia… This has resulted in gas powered generation becoming the marginal source of generation more frequently, particularly in Victoria and South Australia. The increased prominence of gas powered generation has coincided with shortages in domestic gas supply which have driven up prices.

Further in the report comes more acknowledgement that green policies are also driving up the wholesale costs that make up 22 per cent of your bills:

Other factors in South Australia make the wholesale market more prone to volatile prices, including relatively larger shares of gas powered and renewable generation… South Australian wholesale prices are the highest in the [national energy market]…

The wholesale cost of electricity makes up a significant proportion of total electricity costs…

These increased wholesale costs are already being passed on to consumers. Major retailers announced retail price rises of up to 20 per cent from 1 July 2017 in some NEM regions. In announcing its price increases, Energy Australia attributed the increases to “higher wholesale costs (the cost of buying electricity on behalf of customers) following the closure of large coal-fired power stations, increased demand for gas by liquefied natural gas projects in Queensland and reliability issues with some big generators.”…

The Australian Energy Market Operator’s (AEMO) 2017 Electricity Statement of Opportunities identified a high risk of instances of insufficient supply requiring load shedding over the next ten years, noting extremely high risks over the peak summer months.

The reduction in capacity is due largely to the decommissioning of a number of older, coalfired generators. Over the past five years, 2,350 MW of generation capacity has been decommissioned in Victoria (with 1,600 MW of that occurring in early 2017 with the closure of Hazelwood). In NSW, 1,744 MW of generation has been closed. In South Australia, the Northern Power Station (540 MW) and Playford B (200 MW) were permanently retired in 2015–16. These closures represent around 10 per cent of NSW’s capacity, and around 20 per cent of each of Victoria and South Australia’s generation capacity. Critically, the substantial exit of baseload capacity from the market has not been matched by new investment or entry in replacement capacity.

If the trend of insufficient investment continues, the NEM will face further challenges as additional baseload coal plants are retired. For example, NSW is currently forecast to be in a generation deficit from 2022 when the Liddell power station (2000 MW) is currently scheduled to close.

A clear example of the potential price impact of a tightening in the demand-supply balance is the recent closure of the Hazelwood coal-fired power station in Victoria. The decommissioning of Hazelwood is significant for the Victorian market as it contributed a large proportion of Victoria’s baseload generation. Wholesale prices in Victoria increased by 40 per cent between 2015–16 and 2016–17, and prices for 2017–18 are tracking to be significantly higher again—the average price so far this financial year is 65 per cent higher than the 2016–17 average, and almost double the average price over 2015–16…

In the past five years, over 5000 MW of generation capacity has been withdrawn from the NEM, almost all of which is old coal-fired assets being retired. Over the same period, around 2000 MW of new capacity has been installed, leaving a net decline in capacity of more than 3000 MW. Of the 2000 MW that has been added in the past five years, 92 per cent is renewables,161 which are unable to replicate the constant baseload supply that has been lost as coal-fired generators have been decommissioned…

And this will get worse:

High gas prices are also impacting on investment decisions in the NEM. With coal being phased out by most generation businesses, dispatchable generation capacity will increasingly be reliant on gas powered plants… The full impact of gas price increases may not be felt for some time as a number of generators would still be sourcing gas under existing contracts struck before price increases.

Part of the increase in network costs is also due to green schemes to encourage customers to use less electricity at peak times:

In Victoria, the rollout of mandatory smart meters as part of the Victorian Government’s advanced metering initiative, which commenced in 2009, was a main driver of Victorian network cost increases.

The cost of this madness is horrific, especially when you bear in mind that none of these emissions cuts are big enough to have any measurable effect on the temperature or the climate:

Based on CPI, retail electricity prices have increased by 80 to 90 per cent (in real terms) in the past decade when taking into account estimated price rises in July 2017.

These large increases in electricity prices have not been matched by price increases in other areas of the economy, nor in wage growth.

Those on low incomes are finding it increasingly difficult to absorb electricity price increases and are often limited in what they can do to reduce their energy costs.

Electricity prices for businesses are also increasing rapidly and recent increases in wholesale prices are driving small and large business to reduce costs through investments in energy efficiency or distributed generation (solar PV), or reducing other costs across their business including wages.

The international competitiveness of Australian manufacturers has been diminished over the past decade due to electricity price increases…

Choice’s Pulse Surveys have found that electricity prices are the number one household cost concern for Australians for nine straight quarters…

In 2017 households on standing offers faced further price increases. For low income or vulnerable households, meeting increases in electricity costs can mean reducing expenditure on other basics like food, children’s educational needs or healthcare, or deferring household repairs or basic transport costs…

Taking NSW as an example, in 2006–07, the bill (which reflected the regulated price at that time) as a proportion of household income was between 3 and 4.1 per cent for low income earners… In 2016, the median market offer as a proportion of household income was 4.8 per cent..

According to market research, 20 per cent of residential customers are considered a high risk of experiencing some difficulty in meeting their energy costs.

The NSW Energy and Water Ombudsman noted increases in average levels of electricity related debt, enrolment in payment plans, and disconnection for non-payment. Additionally, the Victorian Energy and Water Ombudsman has recently raised concerns in the media about the rising number of instances of high levels of debt for combined energy services with common debt levels amounting to $5000 for households in arears…

Nationally, the average electricity bill for [small to medium enterprises] using 40,000 kWh per year and paying the same rate all day (a single rate) has increased by 16 per cent since April 2016…

Submissions from businesses confirm that in the past 12-24 months they have seen increases, in some cases a doubling or tripling, against their most recent electricity offer…

Members of the grocery sector have reported that there is limited ability to increase retail prices to recoup increased electricity costs and that wage costs are the only variable cost that can be reduced. Master Grocers Australia has estimated that they will need to shed approximately 2,200 jobs in response to electricity price increases…

While BlueScope Steel has achieved over $300 million in cost savings across its Australian steel operations, it has also seen a near doubling of its electricity costs in Australia since 2016…

By world standards, Australia’s position in terms of electricity prices has deteriorated substantially. According to the Organisation for Economic Co-operation and Development (OECD) data, Australia has dropped from the 4th cheapest and below the OECD average in 2004 to the 10th cheapest and above the OECD average in 2016…

Other measures have Australia in a much worse position. Analysis undertaken by Carbon +Energy Markets (CME) found that Australia’s prices were close to the most expensive in the world. The difference between these estimates reflects some differences in methodology and also reflects different time periods.

And remember: all these green schemes actually don’t cut the temperature. We are just too small. All this pain is for zero gain.

So here is the political background, as reported in The Australian:

Malcolm Turnbull faces a crucial cabinet debate today with a new warning from voters against schemes that pass hidden power costs on to households, with ­almost 60 per cent of Australians saying they will not pay a cent more for clean energy policies.

The warning, in a special Newspoll survey, comes as the consumer watchdog prepares to release extraordinary research today showing households are paying $103 every year on average for environmental schemes.

The Australian Competition & Consumer Commission will warn today of “unacceptable pressure” on households from the spike in energy prices, which have soared 43.7 per cent in a decade — an average increase of more than $500 per bill — as a result of network costs, retail margins and climate-change targets.

The Herald Sun