I have a piece in The Spectator about the government’s leaked release of the Frontier Economics report it commissioned. The Government plans to retain the increased availability of the Renewable Energy Target (RET) subsidies until 2020 and then maintain payments to installed plant until 2030.
Currently the subsidies, which are direct transfers from consumers, pay wind/solar $85 per MWh in addition to them receiving the spot price now at $80 per MWh (double the price prior to the Hazelwood closure).
Although Frontier’s modelling is not to be released until Friday, the information now on the public record shows that it forecasts:
- Cost savings to households of $120 a year by 2030 with a 23 per cent drop in wholesale electricity price in the decade between 2020 and 2030 compared to business as usual.
- The requirement of renewable energy retailers to “firm up” the supply under the National Energy Guarantee will result in an extra 3,600 megawatts of dispatchable power during the decade, equivalent to the generation capacity of two and a half Hazelwood’s capacity.
- “The 2030 share of renewables is likely to be about 32-36 per cent, of which about 8 per cent comes from hydro that has the characteristics of baseload power”. That is 26-28 per cent will be exotic currently subsidised renewables up from 16 per cent (plus 8 per cent hydro) in 2020
Of course, any forecast 13 years ahead in the changing energy theatre are to be taken with a grain of salt, all the more so when the forecast is by a consultancy which has been hired in the knowledge that its answers will be helpful to the government which commissioned them.
Some implications of the report are:
First, the 23 per cent forecast wholesale price reduction comes after an increase of 100 per cent due to the renewable energy subsidies. So even if the forecasts prove accurate they still leave the nation with an increased electricity cost base compared with 2015.
Secondly, the “extra 3600 megawatts of dispatchable power” comprises high cost facilities like the mythical Snowy pumped storage facility designed to even out the daily price and all those batteries designed to provide very short term reliability. These expenditures are not necessary with coal generators.
Thirdly the 2030 level of exotic renewables must displace some further coal power stations, at least three others of Hazelwood’s size (only the 2000 MW Liddell is presently scheduled for closure by 2030 and the government is seeking to have AGL keep it open)
Driving the forecasts is a projection of renewable energy costs. These latest forecasts are predicated on 2020 cost of wind and solar costs at $73-75 a megawatt hour, falling to as low as $57 a megawatt hour by 2030.
These prices remain well in excess of those that are available from new coal facilities (less than $50 per MWh according to estimates in a report commissioned by the Minerals Council), and also require firming capacity payments. Moreover, although some contracts have apparently already been signed at around $60 per MWh, prices of these contracts do not seem credible. The renewable subsidies have caused the market price to increase from its previous $40 per MWh to $80+. But, in addition, wind still receives a subsidy of $85 per MWh. This, on market information, is estimated to fall to around $45 by 2022, (the latest date at which any information is publically available).
If wind/solar is genuinely available at $73 falling to $57 per MWh, this being close to the spot price means competition would drive the subsidy to zero. All of the interested parties are vehemently opposed to that!
Even under the present plan the RET subsidy will likely cost at least $3 billion per year up until 2030.
And the lobbying pressure from greens and rent-seekers is hardly likely to acquiesce in a standstill of subsidy payments to wind, solar, pumped storage, batteries and other products doing so much to undermine the once world-beating Australian electricity industry.