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How the coal industry hoodwinked us all into higher electricity prices

The dirty coal industry has won a victory over renewables with the recommendations of the RET review panel to neuter the target. The losers will be consumers — and the earth.

Next time a media company produces one of those “power” issues, a list of people who effectively run the country, perhaps it should think laterally and include a picture of a coal-fired power station. Any old one will do, but the bigger and the more polluting the better.

In Australia, the fossil fuel industry appears to hold absolute power. A decade ago it succeeded in stopping John Howard’s mandatory renewable energy target in its tracks, and it then helped kill Kevin Rudd’s Carbon Pollution Reduction Scheme, the mining tax and Julia Gillard’s carbon price. Now, it has another victory, winning endorsement for a plan to bring the Renewable Energy Target to a halt for the same reason that the MRET was stopped a decade ago: it was way too successful.

After failing to convince former Reserve Bank of Australia governor Bernie Fraser and his team of experts at the Climate Change Authority in 2012, the fossil fuel industry finally got from Tony Abbott the judging panel it had craved — a mix of climate change deniers, fossil fuel executives and lobbyists under the leadership of sceptic and pro-nuclear advocate Dick Warburton, and under the close supervision of the policy zealots within Abbott’s inner advisory circle.

The recommendations of the RET review panel for an immediate closure, or a massive scaling back, of the hitherto bipartisan 41,000GWh target will have massive implications for the renewable energy industry in Australia. Bankruptcies are inevitable, and according to Bloomberg New Energy Finance, the market for large-scale renewable projects — either wind farms, solar farms or other —  will be dead for up to a decade.

The roll-out of rooftop solar systems on households will be slowed dramatically as prices for rooftop systems rise by about one-third. Installations on businesses and farms could be severely curtailed if it follows through with recommendations to cut eligibility from 100kW systems to 10kW systems. The new metering required of systems bigger than 10kW would offset any benefits.

All in all, the recommendations will deliver a massive windfall to the fossil fuel generators. Independent analysis suggests $10 billion to $13 billion — mostly at the expense of consumers.

But while the generators have won a key battle, it is by no means certain that they will win the war. Each of the big three retailers have recognised that their own “Kodak” moment is looming as the cost of rooftop solar and other technologies fall, threatening a mass defection from the grid that would be catastrophic for their business models, as well as social equity.

They will feel that the RET ruling will give them time to adapt and refine their business models to include battery and storage. They will be confident that regulatory rulings — often staffed by people of similar views as Warburton — will afford them regulatory protection for years to come. But time is not on their side. UBS has warned that mass grid defections could happen as early as 2018, and that centralised generation could be largely extinct in a decade.

To make matters worse for the utilities, they have the worst brand loyalty of any customer-focused business. Analysts repeatedly warn of the perils of artificially protecting their assets. Even the International Energy Agency said overnight that utilities should be doing all they can to remove barriers to these new technologies.

Not in Australia, though. Analysts such as BNEF have said that the potential solutions recommended by Warburton’s panel — changing the target each year to respond to changes in demand — are laughable and totally unworkable. The Greens and others have dismissed it as “climate denier drivel” and the work of economic vandals. Mostly, it is a triumph of ideology and short-term interests over the long-term benefits.

In the end, the conclusions should come as no surprise. The findings were obvious when it released the results of the modelling in June. In fact, from the moment the panel was picked in February, the outcome was more or less clear. The Clean Energy Council had bravely declared “bring it on”, and the industry was convinced that the facts would speak for themselves.

That was never going to be the case. After its own modelling demolished the two main arguments presented by the fossil fuel industry — that it was too expensive and that target couldn’t be met — it found another one: that it amounted to a transfer of wealth from fossil fuel generators to the consumers. (As opposed to a transfer of wealth from consumers to network operators who have gold-plated their networks).

Warburton argued on radio this morning there was no need for more renewable energy when there was so much (coal-fired) generation supply in the market. What else would you expect a climate sceptic to say?

Warburton also described the cost of the RET as a $22 billion hit against taxpayers. It’s not; it’s a subsidy paid for by consumers, who — according to the panel’s own modelling  — get their money back from the fall in wholesale prices.

His calculations for the $22 billion cost are over 16 years to 2030. Over the same period, the Western Australian and Queensland governments will each likely have to pay $8 billion subsidising the delivery of fossil fuel generation to their consumers. Now that is a direct cost to consumers.

The Climate Institute pointed out that including broader negative health and climate change effects, an International Monetary Fund analysis found that subsidies to the coal, oil and gas industry in Australia amounted to around $23 billion in 2011 alone.

As Warwick Johnston, head of solar research firm Sunwiz, told RenewEconomy, the RET panel is effectively telling the public that the most efficient way of reducing emissions is to get them (the public) to pay more for their electricity so the coffers of the coal-fired generators can be inflated — and inflated once again when they seek grants from the government under the Direct Action program.

Alan Pears from RMIT says the argument that RET is leading to a reallocation of costs within the energy sector — from the incumbent coal and gas-fired generators to renewables — is very fragile.

“Much of the claimed ‘asset value’ of existing power stations and networks came from upward revaluations during privatisation and energy reform. This was not based on their historical value, but on estimates of large profits by financial advisers. So such a shift would simply redress a distortion that has led to higher electricity bills for consumers.”

In the energy industry, there is a saying that confusion is profit, and this industry is mighty confusing. The Sydney Morning Herald, which earlier this week scolded the government for not supporting renewables and then advocated the very policies that would destroy the industry, couldn’t find a more prominent spot to report the panel’s findings than page 7. The Australian Financial Review had the story on page 6. The Daily Telegraph had it on page 20. Only The Australian, gloating, had it on page 1.

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  • 1
    Mark Duffett
    Posted Friday, 29 August 2014 at 3:29 pm | Permalink

    the market for large-scale renewable projects — either wind farms, solar farms or other —  will be dead for up to a decade”

    mass grid defections could happen as early as 2018, and that centralised generation could be largely extinct in a decade”

    It seems exceedingly unlikely that both these statements can be true. Any chance that Parkinson might actually deploy some dispassionate critical analysis to tell us which, instead of relentless tendentiousness?

  • 2
    Dogs breakfast
    Posted Friday, 29 August 2014 at 5:43 pm | Permalink

    A beautiful synopsis Giles.

    It costs the consumer bugger all, it deepens and broadens the market, it destroys much of the worst of rent-seeking by entrenched industries.

    And it costs the government nothing.

    I may well find myself working to get off the grid by 2018. I resent mightily my electricity bills, the electricity market, the huge social costs which will become more apparent and their undeniable ability to socialise the costs and privatise the profits.

    These are the most government dependent industries in Australia. Who else receives so much?

    I’ll stand side by side with you pissing into the wind as this government just bends us all over in front of the rich and powerful and old white male led industries. I’ll bring the raincoats.

    But as soon as I can get off the grid I’m going to give it a red hot go.

    Declaration, I am a not quite but well on my way to becoming an old white male.

  • 3
    Brian Melbourne
    Posted Friday, 29 August 2014 at 7:23 pm | Permalink

    Hear hear, dogs breakfast. As others have said the government is not open for business unless it’s their backers in the coal industry. Stranded assets anyone?

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