Power Politics: Rocketing Power Prices Demand Immediate End to Wind & Solar Subsidies

The causes of Australia’s self-inflicted renewable energy disaster are all political; and have nothing to do physics, engineering, the weather or some kind of fossil-fuelled conspiracy.

The policies were deliberately designed to destroy Australia’s affordable and reliable power supplies. And, according to their purpose, they’ve done just that.

Last week, the Australian Competition & Consumer Commission delivered a report on the causes and consequences of the disaster. Its conclusion was the same as that reached by STT years ago: renewable energy policies created the debacle, for which federal and state governments are entirely responsible.

A mix of inertia and feigned indifference pervades in Canberra: the PM, Malcolm Turnbull and his gormless Energy Minister, Josh Frydenberg seem stuck like bunnies in headlights.

However, the ACCC has provided them with the perfect escape route. Whether or not they have the wit and temerity to take it, is another matter.

And that’s the subject of this cracking article by Chris Kenny.

Our mess of an energy market is the fault of both major parties
The Australian
Chris Kenny
14 July 2018

If you want proof of how the major parties are letting us down it was there in spades this week. We saw it in the grotesque theatre of political debate and in the clinical and depressing dissection of our energy market by the Australian Competition & Consumer Commission.

When Mark Latham, Graham Richardson and Pauline Hanson went toe-to-toe on television it was tempting to view the scene as a pointless prehistoric battle, reminiscent of those old horror movies with lizards standing in for dinosaurs. But such dismissals risk missing the point and letting contemporary major party politicians off the hook for the decrepit state of national affairs.

Surely the only reason people such as Hanson and Latham — and Tony Abbott for that matter — have salience in public debate is because they dare to address issues that orthodox politicians ignore or skirt around.

The major party leaderships tip-toe around issues such as the futility of climate gestures, self-harm of energy policy, social and economic pressures from high immigration and censorious overreach from governmental and educational institutions; so people listen to outsiders and fringe-dwellers addressing their concerns.

And if you wanted empirical evidence of how the unspoken consensus of national policy has undercut the interests of taxpayers and undermined national prosperity you only need to read the ACCC report on electricity affordability. Chairman Rod Sims has issued what is a tragic indictment of governments — Labor and Liberal, federal and state — and it vindicates those of us who have been protesting against the lunacy of these policies for years.

It is worth noting these concerns often have been scoffed at by both major parties and have been taken up only by the renegades and mavericks of political discourse.

Sims’s report is a clarion call to the political and business classes to be accountable for policy failures and their repercussions, and to finally act decisively to repair them.

The report does not say it in as many words but it makes clear that the problems with the electricity market have all been created by government interventions. And, sadly, the failures are so comprehensive that only more interventions can start to remediate them.

Mapping a path forward, Sims has recommended government underwrites new dispatchable generation investment — an idea not too far removed from the interventions promoted of late by Australian Conservatives senator Cory Bernardi and Coalition conservatives including Abbott and the Nationals.

To be fair, it is also a variation on the intent of Malcolm Turnbull’s national energy guarantee which looks to bolt on a mandate for energy reliability to the National Electricity Market.

But let us step back for a moment and recognise how the insanity of all this has been expos­ed.

A range of unprecedented and costly climate-related market interventions, most notably the renewable energy target, has so distorted the market that prices have doubled and supplies have become dangerously low and unreliable. Now another intervention is required to underwrite the investment in dispatchable power generation that the earlier interventions specifically were designed to undermine.

Taxpayer and consumer funds have been directly and deliber­ately applied to making carbon-emitting generation unprofitable, and now the same taxpayers and consumers are being asked to fund indirectly investment in reliable power — most likely carbon-emitting. And the political consensus of the major parties is to focus on details and excuses rather than call out this folly.

We don’t even need to recount here all the cold hard facts, endorsed by the Chief Scientist, that the sum of these emissions reductions initiatives can have no discernible effect on the global environment.

Sims and the ACCC were not commissioned to provide a critique on past policy failures, they were asked to find a way forward. Many of the recommendations relate to building more competition and transparency into all levels of the market.

Nonetheless, the paper gives us clarity on the mistakes of the past and how government policy is to blame for turning a cheap and reliable energy powerhouse into a nation suffering a pricing and reliability crisis.

Take this astonishing and incontrovertible assessment of what has happened to generation investment under the RET: “The subsidies received for installing wind and solar made the business case for doing so compelling but did so in a way that was indifferent to the ability to provide energy to the market when demand requires it.” A national energy policy “indifferent” to having power available when we need it — and we wonder why we are in strife.

Then consider this broader assessment of climate policies, state and federal: “Various governments have introduced environmental policies to encourage greater uptake of renewable generation, to encourage businesses and households to become more energy efficient, and to reduce carbon emissions in line with Australia’s international commitments.

“While these objectives are well inten­tioned, environmental schemes have typically imposed costs that have added to electricity bills.” This is a statement of the obvious, yet it is something often denied or downplayed by politicians and activists.

The quantum of the price increases is critical and the media/political class — the major parties, gallery journalists, lobbyists and commentators — often will restrict its consideration to the discrete environmental costs.

These are not to be sneezed at because they average 6 per cent of costs nationally, ranging from 4 per cent (or $76 annually) in Queensland to 10 per cent ($170) in renewable-rich South Australia and adding about $100 a year to bills in NSW and Victoria.

Yet this does not tell the whole story.

The increases in wholesale generation costs are largely attributable to pressures caused by the removal of coal-fired generation, which is a consequence of the renewables push.

The ACCC recognises this: “The tightening of supply and demand, brought about mainly by the exit of large coal-fired generators, has seen a general ‘lift’ in wholesale prices across the NEM in recent years.”

But the climate effect goes further because even the additional costs of gas contracts have been exacerbated by gas generators unable to lock in because of uncertainty about energy demand in the face of subsidised wind power.

The increases in so-called gold-plating of poles and wires have been amplified by transmission builds to connect renewable projects. And even at the retail end the increased complexity of mandated renewable shares has added to cost pressures.

The ACCC makes no attempt to quantify the full flow-on costs of the climate interventions but suffice to say that, without the intermittence of the renewable genera­tion, cross-subsidies of renewable investment and premature closure of coal and gas-fired dispatchable generation, the broken NEM would be operating much more cheaply and efficiently.

The report does highlight how solar rebate and feed-in schemes mean that all customers, including the poor, pay more for their power to subsidise the solar panel installations of even the wealthy, with the subsidies being higher “by many multiples” than the value of the energy produced.

It also says the NEM intended for high prices to trigger generation investment but, instead, the existing players have not invested and have taken advantage of “higher spot” prices.

The desire to reduce emissions is understandable, the report notes: “However, various policy failures here have hurt consumers.”

If this is what the political class has delivered, if this fits within the parameters of acceptable public policy implementation by the major parties, it is little wonder our national debate throws up angry and unconventional disrupters.

The climate consensus has been challenged by a major party only twice; by Abbott at the 2010 and 2013 elections (even then they were only partial tilts because he endorsed bipartisan emissions reductions targets).

Yet the results in those elections might provide a clue or two for the Prime Minister.
The Australian