Each year the energy regulator, the Australian Energy Market Commission (AEMC), publishes data on the make-up of electricity costs for households. This breaks down costs into three categories: environmental, regulated networks and wholesale/retail.
In Queensland federal environmental policies cost the average household $63 and state based schemes a further $128, adding 7 per cent to household electricity bills. NSW consumers get off more lightly: Commonwealth environmental schemes cost them $72 with state schemes a further $37. Victorians pay only $48 in subsidies for the Commonwealth schemes and $33 for the state schemes, while South Australians pay $62 for the Commonwealth schemes and $93 for those of the state government.
But these are only the direct costs. The environmental regulations bring three other classes of cost. The first of these is resulting in the closure of coal-fuelled power stations because increasing amounts of volatile subsidised “must-run” wind forces them into stop-start operations.
This undermines the economics of generators designed to provide stable supplies of base load power. The latest forced closure is the Victorian Hazelwood facility. Hazelwood’s shut down is estimated by the AEMC to bring about wholesale price increases of 55 per cent next year in Victoria and Tasmania, and lesser price rises in other jurisdictions. That comes to about $200 per Victorian household. The renewables subsidies will drive further such closures which will add to these costs.
The displacement of fossil fuel supply by more expensive wind and solar is causing other problems. The progression of the South Australian system to third world reliability standards is just one of these.
But further costs are entailed. Among these is spending to augment transmission in order to link remote wind installations and to allow the remaining stable supplies of fossil fuel generated electricity to back-fill the reliability of increasing amount of unreliable wind and solar.
AEMO estimates it must spend $2.2 billion to allow the Victorian renewable energy scheme to operate. The wind generators want to locate in areas where there is very weak transmission capacity at present. Gone by the board is the original national market plan under which new generators would be required to pay any additional transmission costs their location entailed. Hence, the costs will be charged to consumers.
The AEMC also foreshadowed additional new costs from a new ancillary market that is to be created to provide system stability. This is needed to counter the effects of wind and solar’s intrinsically inability to provide the same flexibility as the fossil fuel generators they displace. In South Australia, the government is already paying Engie to keep open its Pelican Point gas plant to enable this.
Yesterday, Victorian energy Minister, Lily D’Ambrosio, acknowledged that Victoria’s electricity prices would rise as a result of the Hazelwood closure but said they would fall again as new renewable energy came on stream. This is (perhaps intentionally) misleading. The AEMC forecasts only a slight fall in later years and this is dependent upon no other fossil fuel generator being forced out of business. Moreover, the minister’s statement took no account of the $2.2 billion in increased costs of transmission lines and of the additional ancillary costs.
Compounding these problems are the measures introduced by politicians in NSW and Victoria (and to be introduced in South Australia if the state Liberals prevail) to ban or restrict the search for additional gas, the fuel that might replace coal, albeit at a premium.
Unfortunately we are still going backwards. The regulators are working on how to achieve the 26-28 per cent reduction in emissions that Australia agreed to in its ratification of the Paris Climate Agreement. To this end, Mr Turnbull’s attempts to railroad through an emissions intensity form of carbon tax via his hand-picked Finkel review of electricity have been forestalled temporarily. However, not coincidentally, there was another AEMC review was also released last week. This looked into achieving the Paris Agreement’s 28 per cent reduction from electricity emissions; it estimated the costs were $66.6 billion if the approach were to use renewable requirements and that this would be reduced to a mere $55.4 billion through the emissions intensity carbon tax.
Political meddling from ministers bowing to green ideologues and enjoying the patronage of renewable businesses that can exist only on the back of political favours is forcing Australians to pay a high price. At the turn of the present century, reform had meant Australians enjoyed the cheapest electricity in the world. Even though other developed countries have become infected with the same green poison that is raising Australia’s prices, none have the same severity of sickness. American and French consumers now pay half our average of around 30 cents per kilowatt hour, even Japanese households, in a country with negligible domestic energy resources, have electricity cheaper than Australians.
This week Eddie Obeid was jailed for misconduct in office but the costs of his crimes are chicken feed compared to those of the nation’s energy ministers.