Forget CET, scrap subsidies first

Forget CET, scrap subsidies first

James Paterson — Australian Financial Review — 16 October 2016

 

The fact that the cost of renewable energy is falling is a good thing. But it raises big questions about the future of energy policy.

Globally, the cost of wind-powered generation has halved in the past seven years. Here in Australia, the cost of solar has dropped by more than 50 per cent. Advocates claim the cost of battery technologies will fall by 40 to 60 per cent by 2020, and by 70 per cent by 2030.

Renewable promoters even claim they are now cheaper than conventional sources of energy, with promises of further falls to come.

For example, Clean Energy Council chief executive Kane Thornton has said, “Renewable energy is now the cheapest kind of new power generation that can be built today – less than both new coal and new gas-fired power plants.”

We’re told renewables are not just cheaper, but are obviously cleaner and greener too, and that consumers prefer them. There’s no stopping the transition to this newer, superior technology, we’re assured.

The technological change and innovation driving this is unquestionably a positive development. But it raises the question: why are we continuing to subsidise technologies that are supposedly capable of competing in an open marketplace?

If renewables are able to deliver the benefits that their proponents claim, then they will play a large and growing role in our future energy mix – without further government assistance.

While the cost of renewable energy has been falling, integrating them into our electricity grid has had the opposite effect on power prices for households and businesses. As renewables have come in, and traditional power sources like coal and gas have come out, prices have risen.

Because of the inherently variable nature of renewables, due to their reliance on weather factors outside our control, an increasingly heavy load is born by a dwindling number of traditional energy providers, often at short notice, and high cost. This will continue at least until storage of renewable-generated energy becomes economically viable on a commercial scale, which may be many years off.

And yet it is the preferential regulatory treatment renewables receive from schemes such as the Renewable Energy Target – and the expectation that these highly favourable policy settings will continue for the foreseeable future – that is scaring off investment in newer, more efficient coal and gas generation. The assistance from just the RET alone is estimated to be worth as much as $3 billion per year.

Why would an energy industry investor contemplate building a new coal or gas fired power station when their main competitor will benefit from massive government assistance? Worse, in the thirty years they need to recoup that investment they run the very real risk that a future Labor government will hit them with some form of carbon tax.

That’s why there’s been next to no investment in the last decade in traditional sources of energy production – and record investment in renewables. No coal fired power station has been built in the national electricity market since 2007. The last gas-fired power station built was in 2010. The fact that the Weatherill government is using taxpayers’ money to build their own gas-fired power station says it all.

In 2016, investment in large-scale renewables hit all-time high of $4 billion, a fivefold increase on 2015. The Clean Energy Council boasts of a “huge 2017” with an “unprecedented $8.8 billion” of investment expected.

The lack of certainty often complained about is clearly not in the renewable sector, but coal and gas. It is not caused by the absence of a utopian fix-all policy like a clean energy target, but by the existing government interventions we have today.

This is why Australia’s retail electricity prices are now among the highest in the world.

It’s time we took renewable advocates at their word. If they are right about the progress renewables have made, we shouldn’t need renewable energy mandates, or renewable energy agencies, or a government-funded clean energy bank.

Of course, we are also entitled to expect that renewable energy providers are able to offer electricity into the grid on the same basis as traditional sources – reliably and consistently.

Renewables should be able to freely compete in a competitive market, and will naturally, over time, replace less efficient alternatives. If renewable energy is already really cheaper today, we should be able to easily meet our climate targets in more than a decade’s time, without any grand government schemes.


This article originally appeared in the Australian Financial Review.

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