Subsidised Wind & Solar Driving Out-of-Control Power Prices: Business Hit With 24% Hike

Australia’s energy policy has been hijacked by lunatics, whose persistent ignorance has left it with out-of-control power prices and a grid all set to collapse.

Pinning your energy needs to the weather was never going to pan out all that well.

Of the Australian states, South Australia set the benchmark for virtue signalling stupidity; establishing its own 50% Renewable Energy Target and meeting that target (weather permitting, of course).

Already suffering the highest power prices in the world, in just 12 months, household power prices have jumped another 19% with its few remaining businesses being whacked by an increase in the order of 24%.

Notwithstanding the scale and scope of that disaster, the same brand of insanity has broken out north of the Tweed.

In an astonishing outburst last week, leader of the opposition Liberal National Party (a once notionally conservative outfit) in Queensland, Deb Frecklington blurted out that if she was given the reins she would order state-owned electricity companies to invest in renewable energy in an effort to prepare the state for “a future without coal”.

Frecklington, sounding more like the kind of nut job that occupies the hard-green-left fringe, told the Queensland Parliament that:

“An LNP government would mandate government-owned energy companies to support renewable energy generation.  The LNP will direct our government-owned generators to transition responsibly to ensure our electricity reply is affordable, secure and clean.  I promise Queenslanders that the LNP will plan for a future beyond coal.”

Queenslanders also apparently need to plan for a future beyond logic, common sense and reason; not to mention a future without jobs, income and prosperity.

If they stick with that nonsense, the LNP will never again govern Queensland.

The great chunk of that state that sits to the west of the Great Dividing Range is home to the world’s biggest and most productive coal mines, which themselves need reliable and affordable electricity, a product only available from its numerous coal-fired power plants, fed by those very coal mines.

Deb Frecklington must live under a rock to not understand what attempting to rely on the ‘unreliables’ means for power prices and reliability of supply.

Here’s a hint Deb, take a look at South Australia – world renowned for having the highest power prices on the planet and the most unreliable grid outside of Africa.

And, immediately south of the border, New South Wales is being hit with Soviet-era power rationing, with big energy users bumped from the grid when the sun sets or the skies cloud up and/or the wind stops blowing.

Australia self-inflicted power pricing and supply calamity hasn’t been overlooked by The Australian. Here’s its editor pleading for politicians to exhibit some long-lost sanity.

Crunch time to provide reliable, affordable power
The Australian
Editorial
15 June 2018

Last week’s electricity supply crunch put the spotlight on how the transition to a lower-emissions power sector has imperilled the nation’s industrial base. Planned maintenance and breakdowns among coal generators, combined with poor weather conditions for wind and solar, squeezed supplies and pushed prices sharply higher to their $14,000 per megawatt hour limit. Industry, which accounts for double the power usage of households, has finally broken cover to protest.

Regulators described events of last week as a near miss because they did not result in forced blackouts. The unexpected winter electricity crunch was the second shoe to drop on a national emergency that came to light when South Australia was plunged into a statewide blackout in September 2016.

With the closure of the Hazelwood brown coal generator in Victoria last year, the supply squeeze is now a national problem. The Australian Energy Market Operator concedes that with the exit of almost 5000 megawatts of generation in the past decade, Australia lacks the energy reserves it once had to lean on in times of need.

The goodwill of consumers faced with ever-rising power bills has been lost. The Australian Energy Market Commission, as we report today, has found energy users are less satisfied with power companies than with banking, mobile phones, internet, water and insurance services.

High electricity prices and worsening reliability reflect a woeful failure of planning. First in South Australia and now across the National Electricity Market, the intermittent nature of renewables such as wind and solar is at the centre of the problem. Coal-fired generation has been made less reliable as a result of ill-considered renewable energy targets that have “hollowed out” the electricity supply.

Price signals that should have led to investment in maintenance and replacement of assets have been distorted. The playing field has been tilted by subsidies and preferential market access in favour of renewables.

Renewable energy supporters who claim wind and solar now represent the cheapest option for new generation do not take account of the full cost burden of intermittency. Big battery plants may have a role to play in grid stability but they are no solution when large amounts of generation go missing for extended periods because of lack of wind or sun.

The experience of major aluminium producers during last week’s supply disruption demonstrates the limits to demand management at scale. The alarm was raised by Tomago chief executive Matt Howell, who said if we wanted to be a nation that made things we needed an electricity system that reliably could deliver, independently of the weather. Looking to the future, the two main options to deal with intermittency appear to be mutually exclusive.

One option, treated with derision by renewable energy supporters and not favoured by industry regulators, is to recommit to a baseload fleet. This could comprise new lower-emissions coal technology, small-scale modular nuclear reactors or a much heavier reliance on gas through an expansion of domestic production or imports of liquefied natural gas.

The alternative is a hefty investment in new pumped hydro schemes via Snowy 2.0, 3.0 and 4.0 together with a network of projects in Tasmania. The renewables industry is backing hydro, the favoured option of Malcolm Turnbull. Big hydro would cost tens of billions of dollars and require an enormous overbuild of renewable energy projects to make it work.

Coal and nuclear, in contrast, could provide a complete solution that would not require renewables but they face big hurdles in financing, politics and community acceptance.

Recent events demonstrate the urgency with which the issue of long-term supply security must be resolved. Decision-makers must not be blind to what is happening in other parts of the world.

National debate is firmly anchored in the politics of climate change and the Paris Agreement to limit global warming to less than 2C. The Paris process, however, faces stiff hurdles as the deadline approaches for detail on how a global agreement will work and who will pay the billions promised for developing nations.

Germany, the poster child for action on renewables, is hosing down expectations as it looks set to miss its self-imposed targets. US manufacturers are outcompeting Europe thanks to cheap energy while India, Asia and Indonesia are doubling down on coal, often financed by China.

With domestic industry already counting the cost of expensive and unreliable power, this is a lesson Australia appears doomed to learn the hard way.
The Australian

Those that keep pumping wind and solar keep telling us that power prices are all set to fall (over some ill-defined timeframe, in some as yet to be defined place, and probably somewhere over the rainbow). However, for some strange reason, those states wedded to wind and sun keep watching their power prices rocket towards it.

As noted above, in SA – Australia’s RE ‘superpower’ – in just 12 months, householders have been hit with a 19% jump and its embattled businesses have been clobbered with a 24% hike in their power bills. They were already paying the world’s highest power prices, before the latest insult.

In Australia, the underlying rate of inflation is a little under 2%, which means that increasing power costs represent the greatest negative change in input costs to businesses. Household budgets necessarily suffer, too. This is a country where 100,000 households are on payment plans and another 100,000 households live without any electricity at all.

That power consumers are peeved is an understatement.

Confidence in energy retailers falls as prices rise
The Australian
Joe Kelly & Andrew White
15 June 2018

Confidence in Australia’s electricity market has sunk to crisis levels with customers saying the prices offered by energy retailers provide worse value for money than services in the banking, mobile phone, internet and insurance sectors.

In its fifth review of retail competition, the national energy market’s key rule-making body has delivered a damning analysis of consumer sentiment. It reveals that only a quarter of customers believe the market is working in their long-term interest.

Only one in two have confidence in the information available to make good decisions, while just 39 per cent of consumers have trust in the energy sector — down from 50 per cent in 2017.

The Australian Energy Market Commission review found that a failure by retailers to make their offers easier to understand had driven government intervention and that rising concern over power price rises had achieved little change.

The negative report card comes despite concerted efforts by government to drive down prices. Prime Minister Malcolm Turnbull last year forced the big three retailers — AGL, Energy Australia and Origin Energy — to provide clearer pricing information to consumers.

The Turnbull government also introduced rule changes aimed at providing certainty around power discounts and it intensified efforts to promote its power bill comparison website, Energy Made Easy.

The AEMC will make six recommendations today to the Council of Australian Governments’ Energy Council — chaired by federal Energy Minister Josh Frydenberg — proposing changes to improve information for customers seeking to escape high prices.

These include a new code of conduct to govern energy comparison sites. The AEMC warns the sites contribute to industry costs without always helping customers find the best deal. It says some sites lack transparency about the range of offers and the fees and commissions paid by retailers.

The AEMC also says it is consulting on rules to enable consumers to read their own meters to improve accuracy and reduce bill shock, and set minimum time frames for new smart meters to be installed. It is also considering how hardship provisions could be improved to protect the most vulnerable consumers.

The review suggests the Australian Energy Regulator separately report on customer numbers, switching rates and contract types for residential and small business consumers. However, the 351-page review finds that savings are available to customers prepared to switch retailers. AEMC chair John Pierce notes that consumers who stay faithful risk being hit with a “loyalty tax”.

The report shows a residential customer moving from a median standing offer to the cheapest market offer can save $832 a year on electricity in South Australia, $574 in Victoria, $504 in southeast Queensland, $365 in NSW, and $273 in the ACT. The number of consumers switching retailers was up in all jurisdictions — Victoria recording the highest increase for electricity and gas and at least a quarter of customers in southeast Queensland changing.

The report noted that, after being with one of the big three retailers for three to four years, the proportion of customers receiving “higher” level discounts tended to stabilise at about 20 to 40 per cent.

An alarm was also sounded on aggressive retailer behaviour. The AEMC found confusion around complex public offers ­allowed some retailers to engage in price discrimination based on how well informed customers were.

Writing in The Australian today, Mr Pierce implores retailers to move away from their “current approach of simply passing through network price changes”. While falling wholesale prices were being passed on, Mr Pierce says this is “just the beginning of what retailers need to do”.

“Now is the golden opportunity for retailers to start rebuilding trust and confidence … They can do this by making it simpler and easier for consumers to understand the deals on offer,” Mr Pierce said.

“Consumers are telling us they have had enough of nine-block tariffs made up of peak/off-peak/shoulder rates for three seasons — just unnecessarily confusing.”

From AEMC data, the government has concluded the big three have a “significant number of households on market offers with a zero discount”.

The AEMC review noted that power prices for residential consumers had increased across all ­regions — from $111 in NSW to $316 in South Australia — except southeast Queensland, where bills fell by $70. Electricity costs for small businesses went up across all jurisdictions — from 5 per cent in Queensland to 28 per cent in the nation’s capital.

Solar installations in 2017 rose 154,877 or 25 per cent on 2016. There are now 1.8 million Australian households featuring solar panels. Battery installations increased about 275 per cent.
The Australian

South Australians are spoilt for choice…

The line that Australia’s rocketing power prices will soon plummet is just a cruel hoax. As is the idea that retailers are fully responsible for the cost of power delivered to customers.

Instead of getting all steamed-up about retail margins and discount practices among retailers, Josh Frydenberg and the RE promoters at the AEMC should begin their crusade a little closer to home. Starting with the Federal Government’s annual $3,000,000,000 tax on all Australian power consumers.

Under Federal RET scheme, one man’s crippling and unnecessary tax is a renewable rent-seeker’s guaranteed gravy-train.

We’ve set it out before, and here it is again.

The subsidies for large-scale wind and solar under the Federal government’s Large-Scale RET will total more than $60 billion over the life of that scheme: the Renewable Energy Certificates issued under the LRET have already added more than $15 billion to power bills, so far.

And then there’s the billions in taxpayer’s money ladled out by the Clean Energy Finance Corporation in soft loans to wind and solar power outfits, as well as billion dollar gifts and grants from the ARENA fund, eagerly lapped up by renewables rent seekers.

Contrary to the propaganda dished up by the Coalition government, and those that spruik for RE outfits, the subsidies doled out under the LRET DO NOT END in 2020. Far from it.

The LRET target is set by s40 of the Renewable Energy (Electricity) Act 2000 (here).

Under the LRET the greatest single industry subsidy scheme of all time really only hits its straps in 2020, as the target reaches 33,000 GWh of mandated renewable energy – it runs at that rate until 2031:

At the present time, RECs are trading at $85 each: one is issued to a wind or large-scale solar generator for every MWh dispatched to the grid.

Retailers are forced to purchase RECs, with their alternative being a fine (referred to as the “the shortfall charge” – a ‘stealth tax’ on power consumers directed to general revenue) set at $65 for every MWh the retailer falls short of the annual LRET target. The fine is not tax-deductible (where the REC as an expense is), meaning that the true cost of the shortfall penalty is $93, assuming a corporate tax rate of 30%.

It’s that relationship that led to forecast prices for RECs of $93: it would make sense for retailers to pay that amount to avoid the shortfall penalty, which would effectively cost them the same figure.

In the table above, we’ve tallied up the cost of the REC subsidy using both the current $85 and predicted $93 figures. Each year, from 2020 until 2031, 33 million RECs must be issued and surrendered to avoid the fines under the LRET.

While Malcolm Turnbull spruiks his Snowy 2.0 pumped hydro white elephant, and his hapless sidekick, Josh Frydenberg promises Nirvana under his National Energy Guarantee, the cost of the LRET (in terms of REC subsidy alone) will push $40 billion between now and the end of the greatest scam in Commonwealth history.

The full cost of the REC Subsidy to wind and solar generators is born by retail power consumers: one reason for rocketing power prices; the other being the market distortions created by intermittent and unreliable renewables (see our post here).

The other game in subsidy town is the Small-scale Renewable Energy Scheme (SRES), which is another Federal government subsidy rort, that benefits householders and businesses who slap solar panels on their rooves.

The piddling amount of ‘look at me, I’ve saved the planet’ power produced when the sun’s up and the sky is clear is hardly worth the $1.3 billion a year cost of subsidies, born by those without rooftop panels. For $1.3 billion (the annual cost of SRES subsidies) Australia could have laid a pretty solid down-payment on a 1,000 MW nuclear power plant, delivering power 24 x 365, to all and sundry, not just the privileged few.

The poorest and most disadvantaged will never afford solar panels and plenty of families simply can’t afford power from the grid, either.

For the wealthiest though, the $1.3 billion annual subsidies to small scale solar allow them to reduce their power bills at their poorer neighbour’s expense, while pumping up their virtue signalling egos.

The SRES, like the LRET, runs until 2031. Which means that subsidies paid to householders under the SRES will add almost $17 billion (13 x $1.3bn) to the $40 billion in subsidies to large-scale wind and solar. For that kind of money, Australia could have built the best part of 5,000 MW of nuclear generating capacity, lasting a life time, instead of the short dozen years of economic life expected from solar panels and windmills.

The cost of the LRET and SRES is staggering; the consequences an economic disaster.

Poking retailers isn’t going to solve the problem. But taking an axe to the Federal Government’s hidden tax on power consumers is the kind of hip-pocket relief that Australian voters tend to reward.