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What must we pay for our renewables protection policy?

By Geoff Carmody - posted Wednesday, 13 June 2018

Renewables are heavily protected. Yet supporters say they're as cheap as, or cheaper than, fossil fuels. Supporters still want all the government protection they can get, and even higher renewables targets, too.

Is renewables protection efficient, technology-neutral, or fair? Politicians imply 'yes'. In addition to 'green' supporters, energy businesses eyeing the subsidy dollars are also lining up saying 'yes'. They either don't mention, or dissemble about, renewables' full cost, and who pays (ie, the power user and/or taxpayer).

Our motor vehicle and textiles, clothing and footwear industries once sheltered behind high tariffs, quotas and subsidies. This protectionism cost Australian punters heaps. Today, 'new protectionism' in Australia cossets superannuation, the finance sector generally – and, not least, renewable energy targets (RETs).


Some governments pay lip-service to technology-neutrality. Pure 'spin'. Theyalso support RETs. RETs are not technology-neutral. They skew power supply towards renewables, and away from everything else.

Governments want more renewables and also affordable, reliable, power. They support 'new protectionism'. But even if renewables' $/MWh prices match those for fossil or other fuels, they must also supply the same reliable power 24/7, their intermittent generation notwithstanding. How can they?

Using the arithmetic behind my opinion piece, we can compile tables showing the renewables dollar subsidies needed for competitive reliability-equivalence between different costs for solar and wind power, versus those for fossil fuels, or indeed any other energy sources. Four such tables follow.

In these tables, plug in any fossil fuel unit cost, plus any wind or solar unit costs, and the subsidy numbers in the table can be adjusted proportionally. For example, if wind power is $75/MWh, the reliability-equivalent wind subsidy is half-way between the subsidies assuming wind unit costs of $50/MWh and $100/MWh. If fossil fuel costs $60/MWh, subsidy costs are based on those for $50/MWh plus 20% of the subsidy difference between fossil fuels at $100/MWh less $50/MWh (for both wind and solar power).

For the National Electricity Market (NEM):

1. Electricity consumption in 2016-17 was 196.5 TWh (Australian Energy Regulator estimate).


2. In the four tables below renewable power is assumed to be supplied either by wind or solar energy.

3. NEM subsidies for wind and solar for 2016-17 are shown. Costs are higher if we add WA and NT.

The four tables are based on 25%, 50%, 75% and 100% RETs, respectively.

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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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