If you ever wondered why the sudden and renewed enthusiasm for an emissions intensity scheme from the fossil fuel lobby and their supporters, wonder no more. It will likely save coal and gas generators $30 billion over competing scenarios. But it won’t deliver any savings for consumers.
That, at least, is the conclusion of the modelling used by the Climate Change Authority – loaded with Coalition appointees – when it recommended an emissions trading scheme last November, and dumped its previous preference for high ambition, carbon pricing and renewable energy targets.
The modelling – prepared by energy consultancy Jacobs – is one of two cited by supporters of an EIS, and both are bad news for consumers and bad news for renewable energy. They result in more money for legacy coal and gas generators, less renewable energy, and no savings on electricity bills.
It makes you wonder why Labor and so many others are charging headlong into an EIS without stopping to think about the consequences. RenewEconomy has been criticised by many – both publicly and privately – for its stance on this issue.
Surely, we are told, we have to move forward. Yes, we reply, but we have to open our eyes and look where we are going.
The problem we have is that alternative policy scenarios, such as high renewable energy targets, are being junked on the basis of assumptions – on solar costs in particular – that are so out of whack with reality and present day experience that it beggars belief.
We took Jacobs to task last year in this piece, Garbage in, garbage out when we wondered what sort of hallucinatory modelling resulted in their predictions that a high RET policy would result in new coal-fired power stations being built in the 2040s!!!!!! Hadn’t they heard of storage?
The consequences of taking this sort of modelling seriously, could be, well, serious.
Blindly adopting an EIS will likely favour gas, place unrealistic hopes on other low emission technologies such as carbon capture and storage, geothermal and even nuclear, and put a potentially crippling brake on the solar industry and other renewables.
Both modelling reports – one by Frontier Economics, for the arch conservative rule-maker, the Australian Energy Markets Commission (see our story Australia’s energy rule maker hasn’t a clue about renewable energy), and the other by Jacobs – assume that gas generation will be the biggest beneficiary from an EIS.
Little wonder, then, that the gas lobby is right behind it – as are the owners of gas generators, the Energy Supply Council, AGL, Origin Energy, EnergyAustralia, BHP, and others.
On the basis of this modelling, investment in renewable energy will be pushed out beyond 2030 – under Frontier’s modelling basically nothing will be built between 2020 and 2030, and under Jacobs modelling renewables will account for just 48 per cent of total generation in 2050.
The most arresting assumption, however, is on the profits delivered to incumbent generators. The Jacobs modelling suggests that of all the scenarios to meet the 2°C climate targets, the emissions intensity scheme is the least damaging to the profits of incumbent fossil fuel generators.
Their profit take would fall by only $20 billion, compared to a loss of up to $50 billion in the other scenarios.
Why is that? Quite simply, as Jacobs notes, because having a high renewable energy target and more renewables would deliver much lower wholesale electricity prices.
And they come to that conclusion even with their out-of-date technology cost assumptions, which as we pointed out in that Garbage in, garbage out story, had technology cost assumptions more conservative than the widely discredited AETA report from 2012, and nearly twice as expensive as the more credible 2015 APGT version.
“The loss in profits in the technology pull scenarios is due to lower wholesale prices and low generation levels (for fossil fuel generators,” it writes.
And here is a graph (above) to illustrate it. The blue line is the wholesale price under high renewables targets, the dotted red line (look up the graph where the prices are really high) represent an EIS.
And, of course, there is no great benefit to consumers in this. Their bill will be little different under an EIS to a high renewable energy target, according to the Jacobs modelling, which, remember, grossly inflates the cost of solar in particular.
Indeed, their modelling actually suggests that a high RET target will deliver bigger savings for consumers in the short term – to 2030 – and be about the same with an EIS over the long term. (Just remember, that Jacobs assumes solar and wind cost a lot more than they actually do).
The Frontier modelling agrees. It also finds on its “cheaper renewables” scenario, the high renewable energy target policy delivers as much savings to consumers over business as usual as an EIS. And even those cost estimates of wind and solar – set for 2030 – are well beaten by actual costs today.
So, presumably, if both Frontier and Jacobs managed to get a grip on reality with technology costs – or the CCA and the AEMC encouraged them to – then the costs of the high renewables scheme would be much lower and the savings to consumers even greater.
Jacobs, readers might remember, produced a report last year that predicted that only around 400MW of big solar would be built across Australia out to 2020 and none – that’s right, zero – from 2020 to 2030.
That prediction looks less than prescient now (actually, it looks really, really stupid) given that 1,000MW of large-scale solar is already under construction in Queensland alone this year, and another couple of gigawatts is expected to follow.
But in its report for the CCA, Jacobs uses similar out-of-whack solar cost assumptions, suggesting only minimal build between now and 2030 – before apparently being run over by geothermal and CCS after that. They might as well predict a comeback for the horse and cart.
“Renewable generation is lower in the emissions pricing scenarios, where gas plays a more significant role in the early years, and low emission technologies (such as CCS and nuclear) play a role later,” it suggests.
So why is an EIS – which encourages less renewables, is no cheaper to consumers, and results in higher wholesale electricity prices (bad for manufacturing) – being prosecuted so enthusiastically by Labor and others?
From Labor’s perspective, it is all about politics. They once called such a scheme a “magic pudding” and a “mongrel” when it was first proposed by Malcolm Turnbull and Frontier Economics.
But they now think they can wedge Turnbull, just as they did in 2009 on the CPRS, because they know that the Far Right of the Coalition won’t countenance anything that looks like carbon trading.
That pursuit of Turnbull in 2009 was all about politics than policy. It resulted in Turnbull being turfed by Abbott and Co and then Labor presented a diluted and heavily compromised scheme to Greens and refused to negotiate. The result was no policy at all.
Now Turnbull has been cornered again. He has no mechanism to reach the Paris climate goals, given that he has taken such an aggressive dislike to wind and solar, and the Far Right won’t like the other option, government regulation. And he has no plan to reduce electricity bills.
The incumbents are happy following through with Labor because it means more money for them. Their over-riding strategy is to bleed their existing assets for as much cash as they can. And this lets them do it, by putting a big delay mechanism in the way of their principal competitors – wind, solar and storage.
This graph below illustrates how. It’s from Jacobs, and it shows the build out of renewables under the high renewables scenario (in blue) – which, remember, doesn’t cost consumers any more but brings down the cost of wholesale power – and under the EIS, in the dotted red line.
Yes, it is important that Australia reaches bipartisan agreement on policy. But even if that commonality could be found with an EIS, it doesn’t mean ditching good options on the basis of bad modelling. That’s not progress at all.
The voices urging caution about an EIS are few. Bruce Mountain has raised concerns, calling it another tragic episode in the policy “comedy of errors”, and the CEFC has suggested a renewable energy auction scheme could be the most effective mechanism.
That’s because – as just about everyone knows – the dream of “cheap” gas is just that, a dream – a point made abundantly clear by the Australian Energy Market Operator in its report on Thursday.
And the Clean Energy Council came out on Wednesday with a carefully worded document that suggested an EIS “could be a viable foundation policy” but something more was needed to lead the transition from out-dated coal-fired power to renewable energy and storage technology.
Finkel, so far, has been verballed on the benefits of an EIS – he merely noted in his preliminary report that the AEMC and the CCA were in favour of one.
Hopefully, someone at the Finkel Review, with a more realistic grip on technology costs, and the possibilities of battery storage and other smart software barely countenanced by these other reports, can see through this.
Hopefully, they can come to their own conclusions – which may just be an EIS, as a foundation, but only in partnership with schemes that encourage new technologies, and don’t leave the grid hopelessly reliant on last century’s technologies and wet dreams about steam turbines.
Note: To hear Giles Parkinson and David Leitch dissect the week’s events, including the Tesla vs gas, and questions about who is in charge, please click on the Podcast link below.
Giles Parkinson is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.