You know you have a dog of a policy when the government, opposition and various minor parties agree it should be reformed, but the Greens and their cheer squad think it’s great.
That policy is the Renewable Energy Target. What seemed like a good idea – to encourage renewable energy – is now a mess of rising energy costs and a distorted electricity market.
Renewable electricity generators have received $9 billion in industry subsidies over the 15 year life of the RET, in addition to the price they receive for the electricity they produce. Without change, a further $22 billion will be paid by 2030. In the words of the Warburton Review, the RET is ‘a cross-subsidy that transfers wealth from electricity consumers and other participants in the electricity market to renewable energy companies’.
The renewable energy legislation was designed to ensure renewable energy makes up 20 per cent of the energy market by 2020. Electricity retailers must purchase Renewable Energy Certificates – from power companies that generate renewable energy – for at least 20 per cent of the power they sell. Each certificate (representing 1 megawatt hour (MWh) of electricity) currently trades for around $40, which retailers then add to your electricity bill.
However, the legislation also contains a hard target for renewable energy of 45,000 gigawatt hours (GWh), which at the time was assumed would equate to 20 percent of the market. Due to falling consumption, this is now expected to be closer to 30 percent. The problem is – leaving aside small scale solar (ie rooftop panels on houses), which is allocated 4,000 GWh of the target – we currently generate just 16,000 GWh of large scale renewable energy towards satisfying the target.
Put another way, in 15 years we have incorporated 16,000 GWh of new renewable energy into the RET, leaving just five years to generate another 25,000 GWh to meet the large scale target of 41,000 GWh. Nobody believes this is possible.
If retailers cannot purchase enough certificates, the legislation requires that a penalty charge of $65 per MWh be imposed. With retail margins added, this will nearly triple the cost of the scheme to electricity retailers, who will pass it on to consumers. Electricity prices will skyrocket.
Everyone with knowledge of the electricity market knows this is a political time bomb about to go off, most likely within 18 months when interim targets are not met. Electricity retailers have for some time been refusing to enter new long-term agreements to purchase power (and Renewable Energy Certificates) because they know the scheme will implode due to bill shock and political pain. The public will not stand for increases in electricity prices of up to 20 percent.
With this problem looming and negotiations between the Government and Opposition stalled, late last year I developed a detailed reform package for the RET. Since most opposition to reform is based on cuts to the 41,000 GWh large scale target, my plan is to maintain this but to recognise established hydro generation in the calculations – essentially Snowy Hydro and Hydro Tasmania – which together produce about 15,000 GWh. There would also be no cap on small scale solar generation, which is expected to grow to 13,000 GWh.
My proposal would ensure the renewable target is achieved, with no penalty charges kicking in. Australia could legitimately claim that more than 20 percent of its energy originates from renewable sources, with hydro equally as renewable as wind and solar.
There would be strings attached for existing hydro generators, though. To be allowed to produce valuable Renewable Energy Certificates they would have to commit to upgrading their existing generators, thereby introducing around 3,000 GWh of new renewable generation into the grid.
The only losers would be the major wind energy generators, which are eagerly waiting to build dozens of new wind farms in an effort to meet the target and get on the subsidy gravy train. Against that, many people are hoping these are never built, among them those who suffer adverse health effects from the inaudible infrasound they generate, plus those (like me) who hate to see our majestic eagles and hawks splattered all over the countryside.
The importance of reasonably priced electricity cannot be overstated. My plan will reinforce Australia’s commitment to renewable energy while solving the RET problem before the time bomb goes off.