The Queensland government has declared its hand in the upcoming review of the renewable energy target with an extraordinary – and in many places misinformed – attack on the costs of renewable energy.
The Queensland Energy Minister Mark McArdle wrote an opinion piece in The Australian on Monday challenging an assertion by Miles George, the head of Infigen Energy and a director of the Clean Energy Council, that renewable energy has a dampening impact on electricity prices.
“This unfortunately does not bear any semblance to reality,” McArdle thundered. “In fact the reality is absolutely otherwise.”
No, it’s not. The impacts of renewable energy on wholesale energy prices – the point that George was making – are well documented both here in Australia and elsewhere. It has been documented by by the Australian Energy Market Operator and on Friday by a huge report from the Australian Energy Market Commission, which noted that renewable energy was one of the factors pushing wholesale prices down to record lows.
It is even documented by Stanwell Corp, the coal and gas generator that the Queensland government owns and McArdle is supposed to supervise as part of his portfolio. Its annual report blamed the impact of rooftop solar electricity for the fall in wholesale prices which is ruining its returns. The AEMC noted on Friday that the biggest drop in wholesale electricity prices has occurred in South Australia, which has the largest penetration of renewables.
McArdle says the direct cost of the renewable energy targets to consumers are about $81 in 2013/14, courtesy of the tariffs that are added to bills from the large scale renewable energy target (mostly wind power) and the small scale target (SRES, mostly rooftop solar).
He could, for instance, have chosen the recommended price changes for 2014/15 published just last week by the Queensland Competition Authority. This showed that the cost of the SRES scheme in 2014/15 will actually fall by 40 per cent, and the cost of the large scale scheme will fall by 5 per cent – and the combined cost of the renewables target by 25 per cent. Queensland electricity consumers may ask why almost all of their money goes to fund projects in other state – Queensland is building virtually no large scale renewables projects at all.
As the Climate Change Authority concluded in its review of the RET last year – and as George pointed out – the benefits of wholesale price reductions pretty much outweighs the extra retail cost of the scheme. But even on the sensitive issue of retail costs, the CCA said the difference in household bills could be as little as $25 a year, or $1/MWh over the period of 2012 to 2030. To put that in perspective, most retail customers pay more than $260/MWh for their grid-sourced electricity now.
The large scale renewable energy target is probably the smallest component of the electricity bill. It’s interesting that McArdle chooses to attack this, and not the network costs, which account for around half of consumer bills. Those network assets are owned by the Queensland government and deliver a healthy return of government coffers – a recent survey suggested the government’s financial bonanza from its network assets had leaped from $46 million in 2007/08 to nearly $1 billion in 2011/12 – all at the expense of consumers.
McArdle then goes on to quote Bjorn Lomborg – the new pin-up boy of conservatives in Australia and the US, because he advocates not building any renewable energy until its cost is “proven” in the laboratory – ignoring the fact that most cost reductions are achieved through manufacturing, installing and financing at scale.
It is nothing but a delaying tactic to protect the interests of fossil fuel generators of the type that the Queensland government owns. The fact that Lomborg is now quoted and embraced by federal and other state governments, and conservative media commentators, should be of great concern to the renewable energy industry in Australia.
As the QCA report makes clear, fossil fuels are doing a pretty good job of pricing themselves out of the market. The boom in LNG is cited by the QCA for a big lift in wholesale energy costs – the biggest single contributor to Queensland’s rising electricity bills next year. Indeed, the rise in gas prices will add $68 to the average household bill, and would have been higher were it not for the dampening effect of renewables. And that is just a foretaste of what is to come from rising gas bills.
A renewable energy target is needed because it is proving to be an effective way of reducing emissions and forcing dirty power stations out of the market. As Bloomberg New Energy Finance reported at the start of the year, it is probably more expensive to build a new gas or coal plant in Australia than a wind farm. And solar will be able to compete soon enough.
The problem is however, that generators such as Stanwell have built so much capacity that they would prefer to protect their profit margins by not building any new plants. Left to their own devices, the generators and state government owned utilities would not build any new generation at all – and leave consumers with the dirtiest and most expensive grid in the world.
It’s all about self-interest, and McArdle has just underlined the untenable conflict of interest in having governments acting as owner, regulator, price-setter and policy developer.
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.