Renewable subsidies and the destruction of Australian energy competitiveness

Yesterday I was the token rationalist speaker at the Australasian Agricultural and Resources Economics Society’s “The Future of Australian Energy Symposium”.

Two other speakers were Tony Wood (from the ALP’s think tank Grattan Institute recently rewarded for the damage his advice has done with an AO) and Danny Price from Frontier Economics (also an ALP consultant).

In so far as their advice has been followed, these two prominent characters have been instrumental in forging the taxing policies on fossil fuel generators that have destroyed our energy market.  They now acknowledge the market is broken, it being impossible to shrug off the line ball reliability and doubling soon-to-be trebling of prices that is illustrated here.

Not many attendees  understood the importance of this graph demonstrating an international correlation (perhaps it is just chance!) between high wind penetration and high electricity prices.

But the politicians’ favoured consultants’ solution is one further attempt to get the interventionary policies right.  Like the fans of socialism, they say its failure is because it has never been done properly!

The other speakers were operationally oriented – largely consultants – who proffered ways that the renewable target, now sanctified by the Paris Agreement few recognise as dead and buried, could be operationalised.

We have seen the wholesale price for electricity rise from under $40 per MWh with very little trend up until 2012, and was still $40 in 2015, to its present level of around $90 per MWh

Wind has risen from nothing in the early part of the century to a share of over 10 per cent today.  All of that wind is dependent on subsidies currently around $85 per MWh.  In addition, there is the roof top solar (subsidised at $40 per MWh plus advantageous export tariffs).  

Due to its abundant coal supplies, Australia had perhaps the cheapest electricity in the world ten years ago.  As a result of the renewable subsidies it is now among the most expensive.  Aside from increased direct costs to households, this has immense adverse consequences for the competitiveness of Australian industries and hence the nation’s living standards.

We can reverse direction and perhaps the demonstration effect of the US will provide the catalyst.

Here is the address I offered.


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31 Responses to Renewable subsidies and the destruction of Australian energy competitiveness

  1. DD

    Alan, I think you need a second graph to illustrate the base line case before the windmill penetration started to destroy stability, shown side by side. Follow with one or two individual country graphs showing cost vs penetration will to make the message personal to the audience will be useful. Say Australia and NZ, again side by side. The international graph is too complex for the wider audience with only lower secondary mathematics or hard science training and takes longer to read and interpret. DD.

  2. Rafe Champion

    Interesting to see how long it is taking for the punters to make a connection between the push for unreliables and their power bills. How much longer can they be kept in the dark? Maybe the penny will drop when the lights go out a few more times and they are really in the dark.

  3. Entropy

    The solution to the problem is obvious to interventionists. MOAR subsidies for renewables; paid for with MOAR, higher tariffs on evil energy. Only then will energy utopia be reached.

  4. RobK

    Well done Alan.
    With ref to above comment; comparing to NZ is not a good comparison because NZ is big on hydro capacity.
    Other comments;
    There is a cost and operational difference between buffering and load shifting storage. E.g. the SA big battery is essentially buffering. It helps to ease strains and surges in the order of minutes. Proposed snowy 2.0 can do some load shifting and peak shaving over a longer period. Investment in both these expensive areas will need to be ramped up significantly, then kept in proportion to RE penetration if idle investment in fossil fuel back up is to be avoided. Idle FF, especially diesel, is obviously a sad joke but the truth of the matter is that load shifting storage is much the same when it is operating in a random supply environment. It will suffer the same difficulties that fossil fuel generators have because they play second fiddle to RE. An example of this is the experience in Germany with established pumped storage no longer being able to run on the model that served it well for a hundred years. The upshot is there will be a lot of money yet to be sunk over and above merely the replacement of old reliable generating stock with short lived intermittant subsidised RE stock.
    The atrophy of coal via the RET has been paying upto now. The bill for changing over the grid to facilitate increasing RE will increase a a rapid rate. I doubt that coal derived subsidies can cope in the future. Im not sure the tax payer can either. There’s a lot more heart ache to come, given our present path.
    We are indebted to your eforts Alan. Thanks.

  5. We will be in this downwards spiral for some time. Those pushing for more ruinables, despite all the evidence to the contrary, are like the Black Night in this Monty Python movie, they won’t give up until someone like Arthur arrives:

  6. DD

    You are right about NZ. I chose NZ as they use so much hydro and thermal but there are now 19 wind farms in production or under development. This disqualifies them for comparison as a non wind example is needed. DD

  7. RobK

    In sumary; batteries buffer in the order of minutes. Pumped hydro can peak-shave in the order of hours. A coal stockpile can cheaply guarantee continuous feed for weeks or months. Cost and reliability wise-chalk and cheese. (….and nuclear is in a class of its own)

  8. Mark M

    Thanks to Alan for his work.
    He battles the trolls on twitter as well.

  9. Never forget that all of this stems from the global warming hoax. These days, the destruction of the national energy system seems to have become an end in itself and the phoney global warming rationale is rarely even mentioned.

    To put that into perspective, there have been recent media reports that “scientists” fear Earth’s magnetic poles are about to flip (again), with numerous disastrous consequences.

    Obviously we need a new tax to prevent this.

  10. RobK

    The less obvious and insidious problem is RE can be absorbed cheaply by the grid(all be it that the RE is subsidised and FF penalised) to a level of about 10-15%, about where we’re at, after that costs start to kick in and escalate and a lot of capital is going to be required. It will be a high price.

  11. David Bidstrup

    With respect, we all know this is a disaster. Until people agitate and get politicians to untie themselves from the “saving the planet” scenario nothing will change. Here in SA we go to the ridiculous with a proposal to put 50,000 roof top solar/battery systems that will produce 3% of our annual consumption for a cost of $1 Billion.
    Below is a letter I had published today in The Advertiser.

    The “virtual power plant” proposed by the government needs to be challenged, (“Solar brainwave” February 5 2018).
    The 24,000 “free”, (but taxpayer funded), systems for Housing Trust properties will cost $504 million and produce 1.6% of the state’s annual power consumption. The 25,000 private home units will cost a further $525 million and add 1.7% of annual consumption. The total “investment” of around $1,008 million will produce 3.3% of the state’s annual power consumption and be will recouped from consumers and taxpayers.
    Solar output reduces by 60% during winter, (and is zero every night), so there will not be enough “winter sun” to charge the batteries and provide “free” power. The modelled $80.00 reduction in bills will cost participants about $21,000.00 up front and they will cede control of their power to others.
    It is an act of desperation from a government that destroyed our power system and hopes to fool us into believing they have a fix for the mess they made.

    It is complete bullshit and none of those vying for a seat in parliament makes any noise at all.

  12. Dr Fred Lenin

    Abolish all subsidies ,renewables are cheaper according to the scammers , remove government imposts on coal and gas ,let the industry sort its self out by ]competition . When renewables can’t compete make a law that sites have to be restored to pristine condition,at the expense of the carpetbaggers ,failure incurs confiscation of family assets and a long jail term The union mafia superfunds will gave to go into administration due to the vast amounts they have invested in the scam ,sorry workers but the people who stole your money are in jail and they have no family assets ,you can remonstrate with them in thirty years when they are released from jail.

  13. Tim

    Could someone please grab Malcolm Turnbull by the scruff of his neck and make him read and repeat this 100 times….in an effort to get through his thick skull……that the only way to win the next election is to stop all subsidies to renewables, and get out of the Paris agreement and the R.E.T.

  14. Rob

    Earlier today the AEMO’s Data Dashborad showed all interconnectors running at full capacity.
    Should the current light winds drop even further, or there is a single generating unit outage, somebody’s lights will be going out.

  15. jupes

    Thanks Alan.

    Keep it up mate a lot of us here at least appreciate it.

  16. egg_

    Interesting to see how long it is taking for the punters to make a connection between the push for unreliables and their power bills. How much longer can they be kept in the dark? Maybe the penny will drop when the lights go out a few more times and they are really in the dark.

    Presumably, the slimy likes of Dastardly Dan from Victoriastan are prepped for when the lumpenproletariat finally wakes up?

  17. Art Vandelay

    Earlier today the AEMO’s Data Dashborad showed all interconnectors running at full capacity.
    Should the current light winds drop even further, or there is a single generating unit outage, somebody’s lights will be going out.

    That perhaps explains why the diesel plant in SA is currently being used (124MW).

    As you note, wind generation in SA has also dropped off (as it always does on hot days)

    Wind generation: 219 MW
    Registered wind capacity: 1698 MW

  18. David Bidstrup

    3 p.m. Today: Load 28,000 MW.
    Coal/gas: 24,000 MW (86%)
    Hydro: 3,400 MW (12%)
    Wind: 600 MW (2%).
    SA Wind (included in the 600 above) 150 MW (0.5%)

  19. In the last hour or so both SA and Vic AEMO prices have been +$10,000 per MWh –

  20. In the last hour or so both SA and Vic AEMO prices have been +$10,000 per MWh

    Maybe the graph to present is the the hourly price per kwh.

  21. Squirrel

    There’s nothing to worry about – the now bi-partisan (apparently) policy of “demand management” through “smart meters” will save the day.

    Of course, the only thing smart about these contraptions is that they will allow energy suppliers to charge more for less, with less reliability, and distract a dim-witted populace which has been conditioned to get pleasure from looking at and tapping little electric screens. How smart is that!

    They are not smart meters, they are misery meters – particularly for those living in the cramped, airless, heat-absorbing dog-boxes which are multiplying across the landscape like a mad virus.

  22. Rob

    Unless it’s raining in Tasmania their dams must be getting low – propping up the mainland’s need for extra electricity.

  23. JC

    Great piece Alan and thanks for your tireless efforts focusing on this vital issue. Great work.

  24. Robert Lyman

    This is a very interesting presentation, with several excellent illustrations of how the increased subsidization of renewable energy is affecting the cost and reliability of electricity in Australia. Here is an analysis of the comparative costs of renewable and conventional energy supplies in Europe and North America that I recently posted on the Friends of Science blog in Canada.

  25. manalive

    Wind (included in the 600 above) 150 MW (0.5%) …

    That figures, it’s only the exposed south coastal zones that are anywhere near useful for wind generation.
    Hot weather in SA and Vic is usually associated with the passage of high pressure areas bringing hot north-westerly or north-easterly winds from the centre that moderate near the coast.

  26. gbees

    Energy Australia is late with my December quarter bill. When I get it, I’m not paying any price rises. It’s pure theft now. Someone needs to be held accountable.

  27. Rafe Champion

    Power 210 in SA. Not enough windmills?

  28. NB

    Rae champion’s uses the term ‘unreliables’ above. Great term. I will adopt it.

  29. Chris M

    Just got a letter from my supplier this week, 38% price rise effective March.

    What other industry could do this, outside of Venezuela?

  30. Alan Moran

    Thanks everyone. We need to keep up the pressure but Abbott , the Conservatives and Craig Kelly apart there seems little interest among politicians in getting across the issue – many Libs who might know about it are keeping mum to advance their careers in the Turnbull age.

    INTERESTING about Tasmania, which has really left the national market and isolated itself – often its price is negative but that matters little since Hydro has a monopoly and controls the interlink. It is taking advantage of high prices on mainland and is gaming the market to squeeze out Vic brownies when it looks like the price is favourable. Difficult (for me at least) to see what the net water usage rate has been and whether the state might become vulnerable

  31. Irreversible

    as usual moran ignores the reality of capital cost in the pricing of power

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