The RET issue is coming to a head. Bear in mind, the rationale for the scheme is a reduction in carbon dioxide emissions but it does this to a trivial extent and at a very high cost. The real rationale is now how to soak consumers for a dud product that could not survive in the absence of subsidies.
Today in the Fin David Leyonhjelm points out
Renewable electricity generators have received $9 billion in industry subsidies over the 15-year life of the RET, in addition to the price they receive for the electricity they produce. Without change, a further $22 billion will be paid by 2030. In the words of the Warburton Review, the RET is “a cross-subsidy that transfers wealth from electricity consumers and other participants in the electricity market to renewable energy companies”.
The renewable permits currently cost about $40 per MWh (roughly doubling the cost of raw energy available form fossil fuels) and the Senator notes that the fall back is a penalty charge of $65/MWh. (Actually that cost is $91 per MWh since it is not tax deductable). The more renewables are required the closer the price moves towards its $91 de facto ceiling.
Originally the plan was to have 41,000 GWh of renewables which was posited on a forecast 20 per cent renewable share of supply, including the commercial Tasmanian and Snowy Hydro, by 2020. As the carbon tax, renewables and other imposts have sharply reduced electricity demand, the 41,000 GWh level (45,000 including the roof-top installations) would now amount to a 27 per cent share. Given that we are only at 16,000 now with just five years to go it is probably not possible to get to 41,000 GWh . The rent seekers are therefore reconciled to some reduction.
Leyonhjelm has his own plan, which involves some sleight of hand. He advocates retaining the 41,000 but conditionally including within it hydro. This amounts to a reduction to about 26,000 GWh. He argues the small scale (rooftop) solar is likely to expand to 13,000 GWh (provision is in place for only 4,000 GWh) so wind is suddenly squeezed out.
Maybe. But the notion of 13,000 GWh small scale is dependent on the subsidy to renewables (it is paid up-front on the notional savings and goes to defray the installation costs).
Meanwhile over at Business Spectator, Tristan Edis, the chief spruiker for the renewable rent-seekers, is suggesting that Minister Macfarlane is isolated – the Minister has said he’d settle for 32,000 GWh as the upper limit. According to Edis the Business Council of Australia; the Aluminium Council; the Australian Industry Group; the Energy Users Association; and the cement industry have all got behind a proposal for 33,500 GWh. All have been bought off with concessions or have firms within their associations that are feasting off the swindle being perpetrated onto the consumer with the crippling costs this impost means for businesses that are not beneficiaries.
In a nutshell the options are:
- Abolish the scheme altogether with no further costs – this is my favourite and the Warburton report toyed with it but baulked. It would remove all costs.
- Freeze requirements at the 16,000 GWh, the Warburton recommendation. This would mean a cost, at $40 per GWh, of $600 million a year.
- Shift to something like the Leyonhjelm plan of 26,000 GWh at a cost of about $1 billion a year.
- Go to the Minister’s proposed 32,000 or the industry “compromise” of 33,500 and the costs escalate, partly because this would push the permit prices up – probably to $60 plus, especially since the better understanding of the nature of the rort leaves it vulnerable to being cancelled in future years, something that requires a risk premium. Costs to consumers and other users become over $2 billion a year.
There is considerable money resting on the outcome and, as the product is intrinsically valueless, the marketing effort is focused on the political dimension. There are a great many politicians gullible enough to lap up the message and others happy to receive financial support from the looters who are wearing out the floor tramping through Parliament House.
One option is for the Minister simply to say that he will not issue any new permits for the current year as they are not needed and to keep on saying that indefinitely.