Electricity subsidies beget further interventions bringing additional inefficiences

Unusually, Energy Minister Angus Taylor has some pre-politician expertise in the sector and is fully aware of the deficiencies of renewables (the exotic wind/ solar ones, not hydro) and the damage done to Australian prices and reliability by subsidised wind/solar.

Back in August of last year, as a newly minted minister, he basked in the PM’s invested title of Minister for electricity prices down.  Conceptionally, the task this entails is not very difficult in the context of Australia having an abundance of cheap well-situated coal that has in the past allowed us to have the cheapest electricity in the world and could again do so.  However, timing is of the essence and the program had to be achieved in the nine months gestation period ending in this year’s May election.  This was a tall order, seeing as the collapse of the low prices occurred in 2016/17 (when Hazelwood closed) some 15 years after the renewable subsidy venom started to be introduced.

By November of last year Angus Taylor was trying to jaw-bone electricity retailers to reduce their prices.  The pressure was intensified and by January this was converted into a rather more prescriptive form of price regulation followed by censorious comments about electricity company profits; these have grown tumescently not because of retail margins but as a result of the high wholesale prices caused by renewables (plus state government actions) knocking out Hazelwood and the SA Northern Power Station.

Finally the white flag has been hoisted. Unable to address the cause of high prices, the government has instead decided to subsidise consumers with Energy Assistance Payments to pensioners, veterans, single parents and the disabled.

Far from addressing root causes, Minister Taylor is not proposing removing the support for renewables. Perhaps this illustrates the impotence of any politician operating in an environment where voters are deemed to want cripplingly costly subsidies that wreck reliability and politicians are unable to persuade them of the deficiencies this policy brings.

However, the Minister himself suggests the subsidies are becoming less important.

This may be the case with the subsidies for wind farms and large scale solar.  Due to a supply glut, the subsidy for these, as reflected in the price of LGC’s, has fallen from the equivalent of $80+ per MWh to a present price of around $35 per MWh and a 2023 forward price of $10 per MWh. The pre-crisis average price of electricity in the national market was about $40 per MWh and, though costs have fallen, it is difficult to see how wind/large scale solar can be profitable at less than $80 per MWh once they have an increasingly expensive “firming contract” that retailers will need to marry with intermittently available renewable energy.  That means either the subsidies will continue or the electricity price will remain high.

Regarding the second subsidy scheme, that for roof top renewables, even the hyper-interventionist Rod Sims of the ACCC, Angus Taylor’s former colleague at Port Jackson Partners, favours removal.  The cost of this subsidy (like that for wind farms paid for by consumers rather than the Budget) is estimated at $1.5 billion this year – astonishingly, four years ago, prior to the renewable induced tripling of wholesale prices, the national market turnover cost of electricity was under $8 billion.

One crumb of comfort is that collateral benefit from the Berejikliean victory in NSW is that Energy Minister Don Harwin is tipped to be relieved from inflicting additional poisonous policies on the sector.  Harwin, with his personal crusade for low emissions, brought unwanted further dimensions to the already formidable task Taylor faces.

But the latest retail subsidy on top of those for renewables, the Clean Energy Finance Corporation, and a host of additional state taxes, (cross subsidies to renewables, energy saving requirements and regulatory restraints on fossil fuels) leaves the industry utterly marooned from the market forces that created its low cost competitiveness. It will not recover under the even more aggressive renewables policies an ALP government would introduce and it is difficulty to see how the Coalition, should it be returned to power, can reverse the current direction.

This entry was posted in Uncategorized. Bookmark the permalink.

20 Responses to Electricity subsidies beget further interventions bringing additional inefficiences

  1. Rafe Champion

    See Alan’s April Climate News that has appeared a bit early! A roundup of energy and climate related matters around the world including the German realization that they are on the brink of recession due to power prices.

  2. Roger

    Is there a more spectacular example in modern history of the political class of a country surrendering its chief competitive advantage and wrecking the future prosperity of its people?

    Perhaps only Venezuela.

  3. Shy Ted

    Because poor people always vote liberal. Expect to see ScoMo explaining it on gogglebox.

  4. For a political party which supposedly promotes free markets, the current mob has proven beyond doubt that they are no different from Labor. The electricity market is entirely artificial. And shovelling out subsidies to correct the catastrophe caused by wind and solar subsidies is just insane.

    It was Greg Hunt who persuaded the Howard government to introduce renewable energy targets back in 2001. Any fool knows, or should, anyway, that once a government sets a target it moves in only one direction: UP, driven by the “mine is bigger than yours” syndrome at both federal and state levels. Hunt wasn’t intelligent enough to recognise that, though. And apparently none of the rest of that cabinet had the wit to challenge him.

    The NSW election indicates how fed up the electorate is, since the coalition and Labor lost votes. It may well happen again federally, with yet more votes for minor parties.

  5. stackja

    NSW Matt Kean – Energy and Environment
    In 2001 Flannery was ‘god’. Gore was another ‘god’.

    Timothy Fridtjof Flannery is an Australian mammalogist, palaeontologist, environmentalist, conservationist, explorer, and public scientist. Wikipedia

  6. NB

    I am sure every climate activist would support further development and use of 4th generation nuclear power in order to save the world. If not, why not?

  7. TFX

    There is a simple technical solution to achieve reliable, relatively cheap electricity with no carbon dioxide emissions. It is called nuclear.

    Coal-fired electricity generators have a design life of 40 years and a tax depreciation life of 30 years. Would you trust governments for the next 30 years on electricity policy?

    From the example of France, the largest electricity exporter in the world, it would take about 15 years to go completely nuclear.

  8. I really don’t understand why government can’t simply say that because renewables are now fully competitive with fossil fuels, (as they have been told by the experts) that subsidies will now be halved and further reduced in subsequent years to zero.

    If industry howls over this, the government can put it right back at them, on behalf of the taxpayer, with an innocent query of ‘What do you mean?’ Will energy companies and financiers publicly now start moaning that renewables aren’t cheaper than fossil fuels and never will be without subsidies?

    Maybe the public will then ask, WTF!

  9. min

    The problem is that humans who are inclined to suffer from existential dangers have had their heads filled with propaganda. Stories , fables and myths from the past were about these existential threats regarding the two main ones today ,according to Jordan Peterson , the demise of social structure and climate change. Since we were hunters and gatherers and our survival depended on the weather, that is in case it was too hot ,too dry , too cold , humans have invented gods to protect them . Unfortunately these days it’s the politicians promising to save us whilst trying to change complex social structures. Disaster is real .By the way conservatives are less neurotic than liberals.

  10. PB

    Conceptionally, the task this entrails…..

    Is even spellcheck against us all? Mind you, entrail reading would probably lead to some better policy outcomes.

  11. min

    The problem is that humans who are inclined to suffer from existential dangers have had their heads filled with propaganda. Stories , fables and myths from the past were about these existential threats regarding the two main ones today ,according to Jordan Peterson , the demise of social structure and climate change. Since we were hunters and gatherers and our survival depended on the weather, that is in case it was too hot ,too dry , too cold , humans have invented gods to protect them . Unfortunately these days it’s the polimm:ticians promising to save us whilst trying to change complex social structures. Disaster is real .By the way conservatives are less neurotic than liberals.

  12. Bruce of Newcastle

    Angus Taylor should pass legislation to fix wholesale electricity prices to $40/MWh, which is what it was before Hazelwood closed.

    The Left loves fixed prices set by government so they should support the legislation.

    All electricity suppiers would get $40/MWh irrespective of the method that they use to generate it. Are not all electrons equal?

    It would be awesome. Every single generator in Australia would be bankrupt within two years.
    Deservedly.

    Unless they build HELE plants…

  13. Rossini

    Bruce of Newcastle
    #2976020, posted on March 31, 2019 at 9:12 pm

    Two years you say………why so long?

  14. Bruce of Newcastle

    AGL has built up quite a nice pillow…

  15. Since my comment is still in moderation for maybe using an acronym at the very end and not swearing, I’ll repeat it.

    I really don’t understand why government can’t simply say that because renewables are now fully competitive with fossil fuels, (as they have been told by the experts) that subsidies will now be halved and further reduced in subsequent years to zero.

    If industry howls over this, the government can put it right back at them, on behalf of the taxpayer, with an innocent query of ‘What do you mean?’ Will energy companies and financiers publicly now start moaning that renewables aren’t cheaper than fossil fuels and never will be without subsidies?

    Maybe the public will then ask, What The …!

  16. Herodotus

    I’m with Bruce!
    But we need step 1, how to elect people willing to do it.

  17. Mark M

    Green Grifters on steroids …

    “The Delburn Wind Farm intends to utilise hybrid concrete and steel towers up to 160m tall supporting the 5.6 MW turbines expected in the market in the early 2020s.”

    What better replacement for dirty Hazelwood than a windfarm?
    by Simon Holmes à Court

    https://www.theguardian.com/environment/commentisfree/2019/mar/29/hazelwood-windfarm-promises-green-shoots-in-a-coal-valley

    Hybrid Concrete?
    Steel towers 160m Tall?
    Thanks CO2!

    Clean energy?

    Tell him he’s dreamin’!

    Transporting the world’s longest wind turbine blade:

  18. Singleton Engineer

    Australia, if there is such an entity, needs to take a few steps away from the fire, take a few deep breaths and then focus on what works, eschewing that which has been demonstrated not to work.

    But first, set the goal.

    If it be low CO2 electricity, then forget 4th Generation for the time being – it is not available commercially at the required scale.

    A fleet of, say, ten PWR nuclear power plants, designed as per France’s experience 40 years back, will get the show on the road. Don’t worry about safety – the global fleet of commercial Western reactors has never never resulted in a single death due to radiation. Not one. So, fear not – we are talking about a huge 300+ strong armada of power stations, operating over ~10,000 reactor-years. That must be the best safety statistic recorded on God’s earth for large scale industry ever.

    So, when only the best will do, go for proven, slightly old, demonstrably cheaper, safer, pressurised water (PWR) power and enjoy the low carbon feel. Wind and solar are welcome to contribute, of course, but only if suitably “firmed” with sufficient market-ready electricity to ensure that the NEM is not disrupted. Wholesale prices: precisely as determined by a fair and open market for energy and services.

    If low CO2 emissions are not the goal, then go for black coal and plenty of it or do as the Germans and include lignite in the mix. Germany is a country 3 or 4 times the size of Australia. If lignite is good enough for the largest economy in Europe, then surely it is good enough for little Australia to follow suit.

    How to pay for all this? I recommend starting by removing the billions of annual dollars that are skimmed from private and public coffers to subsidise wind and solar power in all their forms in Australia. Do it immediately, if not sooner – but phase it in over a few years if you wish.

    Most of all, remember that Australia’s highly successful, reliable and cheap coal fired power stations of the 1970’s and 1980’s were not test beds for unproven foreign designs. They used only the best of then-current British, American and Japanese designs. All proven and pretty much ready to go.

    There. Job done.

    Over to you, Mr Prime Minister, whoever you are.

  19. Dan the Man

    There are 30,000 wind turbines in Germany that have long been a thorn in the side of nature conservationists. The following has now been reported in a major German daily newspaper. The article is behind a pay barrier and in German, which is why I don’t set a link, but only a rough translation of the most important points.

    Scientists have identified another suspect for insect mortality. Nature conservation associations such as BUND or Greenpeace should not like the new look at the question of guilt at all.

    This time, the usual suspects from the agricultural industry are not being pilloried with their pesticides. This time, the focus is on an industry that is one of the favourites of organic associations: The wind power industry.

    According to a model analysis by the German Aerospace Center (Deutsches Zentrum für Luft- und Raumfahrt; DLR), the approximately 30,000 wind turbines in Germany could be responsible for the death of 5.3 billion insects a day during the warm season.

    However, if DLR’s analysis proves to be accurate, a reassessment of the most important energy system transformation technology by far would be unavoidable.

    The fact that there are conflicts between wind power and nature conservation is nothing new: the killing of birds and bats by rotor technology has already led to restrictions on the operation of wind turbines in many places.

    However, should it now become apparent that wind turbines also play a substantial role in the extinction of flying insects, this would have a new quality.

    From DLR’s point of view, the loss of insects by wind turbines may be of a magnitude that could be relevant for the stability of the entire population.

    In a recent lecture to the German Physical Society in Berlin, Trieb described the state of insect research, i.e. entomolgo research. According to this research, insects fly in high, fast air currents for the migration that serves reproduction.

    In the meantime, an entire industrial sector has developed that specialises in the cleaning of rotor blades, including the scraping off of dead insects.
    A company called Helitechnics even uses helicopters for this purpose. The Spanish company Blade Cleaning warns wind power operators of losses of 20,000 euros per year if they do not have the blades cleaned regularly. The Spaniards illustrate the danger of a yield-reducing stall with photos of leaf edges covered with brown crusts of dead insects.

    Every citizen who is caught killing a wasp or specially protected insect species must expect a fine of between 5,000 and 50,000 euros according to the fine catalogue. The daily five to six billion insect killings of the wind power industry, however, were not an issue for the nature conservation authorities: Nobody had that on their screens so far.

    After all, the damage could be much higher than DLR’s calculations show. DLR researcher Trieb did not take a number of potentially fatal effects into account. For example, wind turbines could have an attractive effect through lighting, colour and heat. The insect residues on the rotor blades could have a hormonal attracting effect on other animals. The negative pressure on the back of the rotor towers, which causes bats to burst their lungs, could have a similarly deadly barotrauma effect on the tracheal system of flying insects.

  20. Dan the Man

    Rafe Champion I am originally from Germany and I follow very closely what is going on there.
    “on the brink of recession due to power prices” is not something the Germans are aware of (yet). The German Green Party is at unbelievable 20% of the votes and has confirmed they are dreaming of a Green Chancellor. They have only one thing in mind which is CO2, and each Friday many students do not go to school but demonstrate against the Government and ask the Government to do more against climate change. Ironically both Merkel as well as the German President encourage those demonstrations against themselves.

    If the Greens and the climate children would get what they want there would be no more sufficient electricity supply for Germany and that would mean going back hundreds of years. Even the Government controlled newspapers are saying that a large and long blackout is inevitable, only when is unknown.

    See https://www.welt.de/vermischtes/plus189156979/Stromausfall-So-bereiten-Sie-sich-auf-einen-Blackout-vor.html “The people are not aware of the threat.”

    So in Germany they have a situation where a large part of the population is scared of 2 degrees warmer in 50 – 100 years, but the very real danger of the whole society collapsing because of a long blackout does not seem to scare anybody.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.