Two events this week illustrated some of the confounding outcomes of disjointed energy policy in Australia:
1: A power retailer chose to pay a $123 million fine rather than execute compulsory renewable energy certificates; and
2: a Government called on businesses to buy electric generators to help protect themselves against power outages.
In a sophisticated economy, neither of these things should happen any time — and to our knowledge neither have in times of peace.
Point 2 is the most easily understood. It comes from South Australia, where power supply has become unreliable enough to prompt businesses (including agribusinesses) who need certainty of supply to resort to purchase of expensive generators.
The Government has supported this action in the interests of the State’s productiveness – but this has drawn predictable criticism from Opposition.
“Fixing SA’s expensive and unreliable electricity system should be the Government’s priority, instead of telling businesses to buy generators,” said Opposition MP Corey Wingard.
“We are a modern, first world economy. Calls for businesses and households to buy generators hark back to a bygone era of wartime rationing. ”
ABC Radio reported that SA irrigators and farmers were joining businesses with perishable goods in buying generators to guard against damage caused by power outages. They didn’t like it, but the felt they had no alternative, the report said.
In September, SA suffered an unprecedented statewide blackout caused by the loss of wind power during a storm, which then triggered a failsafe disconnection from the interstate grid supplying SA with essential electricity from Victoria. Two months later, 200,000 homes and businesses lost power due to an interconnector issue.
At the root of the situation in SA is the Government’s move to 40% renewable energy, which has caused the shutdown of coal-fired power in SA and increased dependency on coal-fired electricity, inefficiently transported 1000km from Eastern Victoria. Gas-fired power rescued the situation in SA, but the State needs more gas-fired capability if it is to restore power supply reliability – and current pro-renewables policies do not support investment in increased gas power.
To understand the seemingly bizarre point 1, it is necessary to understand the way renewable energy is double subsidised, by taxpayers, at Federal and State levels.
The construction of new renewables facilities such as wind farms and solar farms is subsidised by both Federal and State Governments via specific grants – to the tune of hundreds of millions of dollars.
Some estimates put the amount of total wind subsidy in Australia facilities at $13 billion. Forbes has calculated than in the USA, subsidies paid to renewable energy facilities are 25 times larger than those paid to fossil fuel generators.
In addition to the construction subsidies, the ongoing power demand for renewable generators is artificially supported (subsidised) by the Federal Renewable Energy Target (RET) scheme. This scheme guarantees income to renewable generators by requiring electricity distributors to buy RET certificates – even if they don’t take delivery of the power the certificates represent.
Failing to meet RET purchasing requirements triggers an automatic fine against power distributors.
In this instance, a major power retailer, ERM chose to cop the fines rather than buy the certificates. Why? Because the fine was less than the cost of executing the certificates, and because the company has three years in which to take a call on delivery of the power (and pay any shortfall on its RET obligations).
In an article in the Australian Financial Review, ERM Power founder Trevor St Baker said there was “no chance” that renewable energy would meet the national target of 23% by 2020.
The RET scheme was responsible for driving up electricity prices and this would continue, he said. Australia should focus on reducing carbon emissions instead of indulging an “obsession” with renewables.
USA figures show that the ‘shale boom’ conversion to gas energy has been the biggest contributor to the reduction in greenhouse gases, as was recently acknowledged by outgoing President Obama.
The same AFR article quotes WA Senator Chris Back as saying that RET fines could rise to as much as $1 billion a year from 2020 as renewables generators failed to make up their mandated increasing share of the national electricity supply.
Federal Energy Minister Josh Frydenberg is quoted saying there would be no change to the 23% target, despite admitting it would be “a real challenge” to meet it.