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Renewable energy evangelists preach a fact free utopia

By John Slater - posted Friday, 28 August 2015

It has long been the standard fare of green evangelists to prosecute their cause with persuasion by emotion rather than sticking to the facts at hand. Labor's recent decision to opt for a 50% renewable energy target by 2030 without undertaking any economic modelling is a case in point.

The arguments in favour of renewable energy are well rehearsed and morally compelling. Renewable energy is not just necessary to abate dangerous carbon emissions that threaten the planet with extinction. Australia would be crazy not to reap the benefits of what promises to be one of the world's major growth industries of tomorrow.

As appealing as this may sound, a cursory glance at the economic implications of a government imposed renewable energy minimum should be enough to dampen the enthusiasm of even the most zealous green-eyed apostles.


Thankfully, a few boffins outside the Labor party hive mind have crunched the numbers. Building enough solar and wind power to meet Labor's new target would cost the country 80 to 100 billion dollars.

To give this figure some context, it equates to any one of the following: three National Broadband Networks, four National Disability Insurance Schemes or forty eight years worth of the Gonski education funding. It is little wonder numbers are seldom mentioned in sermons about the virtues of wind power. Once they are, a government mandated renewable energy revolution starts to look more like a fiscal suicide note.

Given that wind energy is currently more than twice as costly as coal and solar more than four, this news should not be all that surprising. So who will pay the price of making Labor's green energy utopia a reality?

Because of increased energy supply brought on by new wind turbines and large-scale solar, the cost will initially be reflected in government expenditure rather than the electricity bills of consumers. In other words, people will pay through higher taxes, cuts to other government services or a growing debt burden. As Australia's renewable energy capacity grows however, the 50% target will see the crowding out of cheaper sources. This is because reaching Labor's lofty target alongside Australia's existing energy capacity is certain to exceed Australia's demand for electricity. In the long run, excess supply coupled with a compulsory cap on non-renewables will lead to the closure of coal fire and gas power stations.

While this outcome would undoubtedly leave our green apostles misty eyed and morally contented, this will also inevitably see electricity prices reflecting the higher costs of generating renewable energy. Consumers and industry will not only foot the bill for Australia's renewable energy utopia through their taxes. They will continue to pay every time they receive their power bill.

The eventual correction in excess supply would also mean electricity prices would start to reflect the higher costs of generating renewable energy. Consumers and industry will not only foot the hefty bill for creating Australia's renewable energy capacity. They will continue to pay every time they receive their power bill.


But isn't it possible that as Australia pours ever larger swathes of public funds into renewable energy, innovation and improvements will see the more than two-fold gap in cost between renewables and other energy sources narrow? As long as 20 years ago, solar energy was touted as being on the verge of being competitive with coal. More than $20 billion in government financed investment in renewables later, the gap remains vast. The story worldwide is no different. Last year alone, government's around the world spent $270 billion on renewable energy.

It is fashionable to claim that investing in wind makes economic sense based on the seemingly self-evident logic that renewables are the future of energy production. If that is so, why are private investors not lining-up to purchase their stake in Australia's wind power revolution?

Last year Warren Buffet said that government subsidies were the "only reason" to build wind farms. Without tax credits, the investment simply "didn't make sense."

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About the Author

John Slater is a student and an intern at the Cato Institute.

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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