The Chairman of Infigen, former senior bureaucrat Mike Hutchinson, has a letter in today’s Fin criticizing my piece last week, accessible here.
In that piece I demonstrated that renewable energy, 20 years ago touted as the future of low cost supplies, remains two to three times more expensive than conventional coal gas and hydro supplies. It is also inherently unable to provide supply when it is really needed (and most valuable) and therefore earns less on average than other sources in the electricity spot market.
Infigen is one of the most successful rent-seeking firms in the renewables scam, being responsible for getting government grants and regulations to cover 80 per cent of its production costs.
Alan Moran (“Renewables are just a power failure”, AFR, January 23), in his usual messianic zeal for free markets without responsibility, misses important points in his campaign for polluting energy sources.
Yes, the average financial cost of power generated by current renewable technologies is higher than that of the polluting alternatives.
But, demonstrably, the lower short-run marginal cost of renewables has been instrumental in curbing – not increasing – the wholesale price of electricity in relevant markets in this period of over-supply of generation capacity generally.
Further, the average cost of polluting generation is in effect subsidised by the free access it enjoys to the atmosphere for its gaseous waste products – products that are now scientifically proven to be harmful with highly probable damaging long-term consequences.
The parallels with historical river pollution by noxious heavy industry, and the prolonged vested interest opposition to remediation, are self-evident. Regulatory support for renewables was established with then-bipartisan political support in recognition of these externalities.
Markets have relied upon this government commitment in good faith in making long-term investments in renewables. Subsequent material adverse change to the relevant government policies would manifest significant sovereign risk – the stuff of banana republics.
Hutchinson’s naïve green left likening of river pollution to carbon dioxide emissions hardly needs addressing.
His other strand, that the subsidized power has reduced prices across the market, is less well known.
The influx of subsidized renewable power lowers prices across the market, has several effects. It raises prices because all electricity supply faces the regulatory penalty necessary to finance the renewables through a hidden consumer charge. The higher prices do not, of course, benefit the non-subsidised supplies.
But the lower short run marginal costs of renewables do suppress prices, at least in the short term. This is because the taxpayer/consumer has been forced to cover up to 80 per cent of the costs of the outrageously inefficient technology. The power output of this is then offered in the market at its zero marginal cost (though operating costs of wind where maintenance is included are higher than those of brown coal power stations).
The effect is similar to that if government subsidized Mars Bars were to be offered. Such must-sell subsidised product would drive down the price of all Mars Bars. It would also suppress the price of other confectionary. But the subsidised product does not meet its commercial costs and in artificially suppressing prices makes replacement capacity unprofitable. In the electricity supply industry, this is especially so for the baseload high capital cost coal (and nuclear) plant.
Such intervention is the real path to the banana republic.