Renewable subsidies: beginning of the end or end of the beginning?

The Renewable Energy Target review panel, headed by businessman Dick Warburton, is in the final week of taking submissions.  The carpetbaggers in the renewable space have been urging their affiliates, dependents and soul mates to get the submissions in, gambling that volumes of flatulence will be persuasive to the panel.

I have put in the IPA submission.  Its summary is

Renewable energy in the form of wind and solar, the two major subsidised supply types, remains non-commercial, at threefold the cost of electricity sourced from coal.

Globally, these and other subsidised renewable sources have shown considerable growth and now account for around three per cent of electricity supply.  In Australia they amount to some four per cent of supply and are scheduled to reach 17 per cent by 2020. 

Australia’s coal wealth provides the nation with perhaps the world’s lowest cost electricity.  Australia has, however, been relegated from being among the world’s cheapest locations for electricity supply into becoming among the dearest.  The renewable program has been a major contributor to this. 

Assuming the carbon tax is repealed, next year will see non-commercial renewables, together with feed-in-tariffs and “energy efficiency improvements schemes” bringing about an increase in the wholesale electricity price by 75 per cent.  This is an average increase in household prices of 11 per cent.

The expense of wind’s mandatory inclusion within electricity supply results in a serious dilution of the domestic capital stock’s productivity.  There is some $18.5 billion spent on renewables that require a subsidy to cover most of their costs. 

Wind and other renewables should be left to stand on their own feet commercially.  They have achieved their current market position only through subsidies and show no sign of reaching commercial viability without them.  Their on-going subsidisation severely weakens the national economy and imposes significant penalties on consumers both directly and indirectly.  This is of added importance in the context of Australia’s acute budgetary problems and stringent measures are required by the federal and state governments to redress the spending excesses of recent years. 

Australia’s renewable program is ostensibly targeted at a reduction in carbon dioxide emissions.  But whatever the merits of such a reduction, it is clear that the contribution Australia might make is negligible. 

Those arguing for the retention of the subsidies to renewables claim that the program reduces overall electricity prices.  It is however impossible for a subsidy to bring about a sustained reduction in prices without its rate continually increasing.  In the process not only does this mean high costs to consumers who are required to fund uncompetitive renewable energy suppliers but it also would entail bankrupting the formerly commercial, unsubsidised providers. 

It is also claimed that early termination of the renewables program would introduce an element of sovereign risk into Australia’s investment environment. This is untrue. The withdrawal of a privilege does not constitute a government “taking” of property which would undermine investor confidence. 

The privileged position of beneficiaries from renewable energy subsidies is so onerous that it is having an economically debilitating impact on the economy at large.  The renewable regulations perform no positive function and therefore should, accordingly, be discontinued with immediate effect.

The renewables have been a lead weight around the economy and are more prominently so once the carbon tax is removed.  Their beneficiaries have done wonders in lobbying to force consumers and other producers to pay two thirds of the costs of their products so that they can turn handsome profits.

They are now trying to retain the tap to their loot by claiming that the low marginal cost of wind means it is bid in at a zero cost and this lowers the price of all electricity.  That might partially offset the hidden slug for the renewables’ subsidised but can only last until the commercial producers are bankrupted.

Having tricked hapless politicians with the help of a militants to give them a massive subsidy, the rentseekers are also trying to cement things in by claiming that a withdrawal of their scam would impose “sovereign risk”.  Hopefully the panel won’t buy that furphy.

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21 Responses to Renewable subsidies: beginning of the end or end of the beginning?

  1. Infidel Tiger

    Let me predict the future:

    1. Wealth Tax
    2. Fuel Excise Indexation
    3. No Change to RET

  2. Sir Fred Lenin

    Instead of the cowboys in the renewable scamusing the massive sums given to them by alp/green political crooks,stolen from consumers ,spending money ti try to become more competative hrough research,they have been pocketing the money ‘, after “donations” to the Guilty Parties.probably socking it away in overseas bank accounts.this is theft,clear and simple and warrants investigation of the finances of the cowboys and their political mates,get the cells ready if that happens!

  3. brc

    I am hopeful of the unwinding of the wind scam inight of hockeys recent comments.

    But If they dont have the stones to dump direct action they are hardly going to switch off the tap to the windmill subsidies.

    Until the public makes a connection with windmills and higher electricity prices, and stops thinking of them as free energy, nothing is going to change.

    It has to be framed as a way to ensure success of the wind industry by releasing them from the shackles of government subsidy. That is complete rubbish, of course, but so is every other word that has ever been printed about windfarms.

    The precedent has been text with qantas and Holden. Lets hope they have the guts to go through with it.

  4. Notafan

    Hockey has cancelled ethanol subsidies (apparently) so there is hope that more and especially windmills will go, have to keep repeating that the Greens keep claiming that Mr Abbott wants to take us back to the 1950s while they want us back in the 14th Century.

  5. Andrew

    The same people who are now squealing “sovereign risk” sneered when the Kevin twins tried to confiscate 40% of already built and financed mines. While I’m not a fan of changing the rules after the money has been spent (including on my accrued SMSF balance), in this case it couldn’t happen to a more deserving group.

    Interestingly, since Spain inflicted sovereign risk on its bunch of carpetbaggers by levying new taxes (incl a sun tax LOL), their 10YB yield has fallen to a remarkable 2.9% – almost 1% cheaper than ours. It doesn’t seem like a foreign capital flight occurs when applying rational policies – who’d have thunk it??

  6. Andrew

    Notafan, if you ever want to beat the progressives with that line

    Abbott666 wants to take us back to the 1950’s? Well the Lemonsucker wants to take us back to the 1590s:

  7. Andrew

    Looks like the link doesn’t want to show up.

  8. manalive

    That might partially offset the hidden slug for the renewables’ subsidised but can only last until the commercial producers are bankrupted …

    That looks to me like “sovereign risk”.

  9. David Brewer

    Quite so, manalive. The sovereign risk argument was far more appropriate when the government introduced the RET and put existing commercially viable investments at risk. Sovereign risk arguments should be used against governments that distort the market with subsidies that in the long run are unsustainable. There is no sovereign risk in a market in which the government never interferes.

  10. stackja

    Will ALP/Greens refund the money?

  11. Baldrick

    The protected species status of renewable energy should be removed forthwith, but seeing the review panel is still in the submission stage, don’t expect anything to change in the Budget.

  12. egg_

    Let me predict the future:

    1. Wealth Tax
    2. Fuel Excise Indexation
    3. No Change to RET


  13. cohenite

    Alan, good work and thank you for the submission.

  14. Combine_Dave

    Will ALP/Greens refund the money?

    Arent they currently using their funds to try and ‘legally’ block and challenge each and every development currently underway in Australia (esp. those involving evil coal).

  15. Aussieute

    This chart always get’s the naysayers
    “Oh it’s more than that”
    “Can’t be, wind generates heaps more than that?
    The next killer is sending them to Wind Farm Performance
    And look at the Capacity and the efficiency
    Would you invest in something 75% inefficient?
    “Ah but it’s soo good for the viroment”

  16. john constantine

    the sharpest lawyers and operators skun the upfront profits out of windfarms, and then handballed the risk and responsibilities on to suckers.

    all that’s left holding the bag of wind now are suckers,taxpayers, dreamers, super funds and power companies that average her out anyway.

    time to draw the curtains around the poor crippled beast, and have a moments silence when the rifle shot rings out. trouble is the vast decommissioning liabilities that will be reaming out the suckers that didn’t read the contracts they signed properly.

  17. Aussieute

    May be the beginning of the end … but the pain continues.

    Businesses in Australia have an R&D support facility which allows either credits or cash relief for the businesses who invest in their technologies.

    Why therefore is the following required?

    The Australian Renewable Energy Agency has invested $1,398,615,394 into 48 enterprises.
    The critical issue is that that bought them 61% of those projects.
    Private equity/ Venture Capital didn’t fund it and they an average 25% return on investment
    What’s the chance of these in total achieving anywhere this return?

    Given the higher risk the the return should be greater?
    Likely … ?
    Watch this space
    Oh I forgot this is about globall warming all of that matters nought

  18. James B

    Another great piece, Alan. Keep up the good work.

  19. JohnA

    Andrew #1302300, posted on May 12, 2014 at 3:02 pm

    Abbott666 wants to take us back to the 1950?s? Well the Lemonsucker wants to take us back to the 1590s:

    Well said, that man! +10

  20. Andrew

    LOL that it was windy and caused Scotland to black out as relays protected the grid.

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