Facebook Google Menu Linkedin lock Pinterest Search Twitter



Jan 15, 2014

Tony Abbott's half-baked war on renewable energy

The Abbott government seems to hate renewable energy, but the march of progress is unstoppable at this point. The only question is, when will the government get out of the way?


solar panels

Last week it was quietly announced that the Australian Cleantech Competition would henceforth be known as the Australian Technologies Competition. It was another subtle reminder of how the new Australian conservative government is going about the rephrasing of Australia’s energy future. Anything that involves the words climate, clean energy, or cleantech are considered projects or institutions non grata.

In the public arena, it’s not just a renaming that’s taking place, but a concerted attack on renewables. For the second time in as many weeks, Prime Minister Tony Abbott has criticised renewable energy, its intermittency and its supposed costs — repeating the force-fed lines from his main business adviser, Maurice Newman, extremist blogs and some mainstream media, and encouraged by the fossil fuel incumbents, whose greatest fear is that their coal- and gas-fired generation is being sidelined and rendered unprofitable by the growing capacity of wind and solar.

Abbott’s complaints fail on numerous counts. For a start, the Renewable Energy Target is having little impact on retail prices. The Queensland Competition Authority notes in its latest finding that the large-scale renewable target (the apparent subject of the new government’s attacks) will cost Queensland households $26 a year, or about 1.3% of their bills — about half the rise in retail bills caused by soaring gas prices.

Wind and solar do not need new back-up power. South Australia has got to 31% wind and solar without the need for any new equipment. That’s because most of the peaking plants that respond to changes in demand — and supply — already exist to cope when a whole bunch of people switch on air-conditioners at the same time, or when coal- or gas-fired generation has unexpected shutdowns, such as when the Millmerran coal-fired generator shut down last March, or the two major gas generators lost large amounts of capacity in South Australia. The difference with wind and solar is that at least their output is predictable.

Abbott’s outburst are cheered, and sometimes inspired from the sidelines, by elements of the mainstream media. The Australian took another bash at Germany last weekend, which it likes to cite as what happens to a country when it moves away from baseload — coal and nuclear — and towards renewables. The newspaper’s principal complaints were there were more coal plants, more emissions, and more costs.

Germany is the nightmare scenario for the fossil fuel industry because if the biggest manufacturing economy in Europe can wean itself off nuclear, coal and gas, then so can everyone else — which is why its policies are attacked with such gusto.

What The Australian omits to tell its readers is that coal-fired generators coming on line now were planned and construction was begun well before Fukushima, and before the extent of the rapid growth in renewables was acknowledged. The net impact is a lot more coal projects are being abandoned. The country’s big three utilities — RWE, E.ON and Vattenfall — have made it clear they intend to build no new fossil fuel plants, because some of them are having to close new plants almost as quickly as they are opened.

Investment bank UBS, for instance, predicts that one-third of Germany’s fossil fuel capacity will need to be closed by 2017 because it is no longer economic, and they are no longer needed. Germany industry has not been affected by the renewable energy roll-out because it is only charged the wholesale price of electricity, plus a margin. Its costs have fallen substantially in recent years, not risen.

To try and illustrate its lament, The Australian sought to create drama by pointing to a period in early December when renewables contributed just 5% of generation needs on some days.  I presume these charts reflect the issue.


Actually, it’s not the dips that are worrying the incumbent utilities or the grid operators — it’s the big lumps of clean energy that are forcing their generators offline when they produce. Currently, Germany gets just under 25% of its electricity from renewables over a year, and this will rise to around 60% by 2035 (the new government’s new target). As that happens, those gaps will disappear, the lumps will get bigger, and new storage solutions will mean there will be even less need for fossil fuel or “baseload” generation. A similar scenario would take place in Australia, which is why the incumbents are so keen to neuter the Renewable Energy Target so they can extend their revenues as far as possible.

The problem with the current debate in Australia is that much of this information will simply be ignored. The new government — like its noisy boosters and spokespeople — has shown itself to be uninterested in clean technology, even when it makes environmental, economic and financial sense.

Take the Clean Energy Finance Corporation as an example. It has now established that it will be able to do its job of investing up to $10 billion in low-carbon technologies, while achieving up to half the government’s emissions reduction target, and return a surplus to the budget.

Too good to be true? Must be. Because even though Treasurer Joe Hockey accepted the CEFC’s numbers in his budget update just before Christmas, the government has given no indication it will abandon its attempts to scrap the CEFC.

As some industry insiders suggest, it’s about time the PM accepts that Australia has a “super-abundance” of wind and solar, just as it has of coal and gas. The only difference being is that wind and solar generation will be cheaper — as the government’s own economic adviser suggests — and cause a lot less pollution.

The renewable energy industry is currently fearing the worst. If, as The Australian suggests, the only two cabinet ministers supporting the renewable energy target are Industry Minister Ian Macfarlane and Environment Minister Greg Hunt is true, there is big trouble ahead.

Macfarlane, it should be remembered, was responsible for neutering John Howard’s Mandatory Renewable Energy Target nearly a decade ago, but the new government is so extreme he is now considered a moderate. Hunt is said to have little within cabinet. The reality is, however, that there is more support than The Australian lets on. It may be less an observation of the cabinet dynamics than a threat.

Of course, if the PM is serious about limiting electricity price rises, he’d focus on reining in network charges, which, according to every analysis, has been by far the leading cause of electricity price increases. Of course, this might not be so easy in NSW and Queensland; this would mean less revenue for those state governments, as they own the networks. And more renewables mean less revenues for the generators — be they government-owned or private.

*This article was originally published at Renew Economy


We recommend

From around the web

Powered by Taboola


Leave a comment

41 thoughts on “Tony Abbott’s half-baked war on renewable energy

  1. Paracleet

    They are such retards; if they want to prosecute their adgenda why get rid of the RET? If they leave it in place they will be able to blame ANYTHING on it over the coming years. Any price rise, any failed coal plant costing hard working Aussie battlers their jobs, etc. etc. Are they so blinded by ideology that feel they have to go after everything?

  2. JohnB

    Take a deep breath, Giles and look around you and consider what others are saying.

    You have been inside the “renewables only” box for years now, during which time you have shown an increasing tendency to ignore anything not to your fancy.

    First, your friends, the dirty brown coal fired units being constructed in Germany due to shutdown of the carbon-free nuclear power stations weren’t all committed before Fukishima. They were pipe dreams of the brown coal industry, which was only too happy to accept the task when it was offered.

    Second, there is no such thing a “new storage solution” on the horizon. It would be great news if this was so, but there has been no news on this front for years… it is as dead as carbon capture and storage.

    Third, to blame high transmission costs for the high cost of electricity is to ignore the massive increases in capital cost of the transmission grids which are essential for networks with high percentages of wind and/or solar, which are notable for their needing to be very much interconnected, constructed in unfortunate locations and which themselves are immensely large. Transmission costs can only rise under any believable scenario which involves high renewables percentages, certainly not the other way around.

    Unfortunately, the author is a very good example of one who has closed his mind to the real costs and benefits of some sources of electricity. Nuclear power is nowhere near as expensive as he paints it, and renewables are nowhere near as cheap.

    NB I have intentionally not included references because this comment is already too long.

    Besides which, the author has many times received copious references which substantiate what I have said. The problem is not lack of comprehensive data – it is lack of comprehension.

  3. Mark Duffett

    Not only do Parkinson and others of his ilk make blithe invocations of ‘gaps will disappear’ as ‘lumps get bigger’ (never mind the implied massive overbuild) and ‘new storage solutions’ that don’t exist yet, they don’t even perceive their glaring internal contradictions.

    South Australia has managed to attain 31% electricity from wind and solar ‘without the need for new back-up power…because most of the peaking (i.e. gas) plants that respond to changes in demand — and supply — already exist’ (not to mention the ability to pull other fossil-generated power across the eastern border when needed). Yet a couple of paragraphs later it seems those same utilities aren’t going to be investing in reliable generators any more because solar and wind are eating their lunch. So what happens when the current baseload infrastructure on which renewables are coasting reaches the end of its working life?

    And the minuscule nature of those yellow blips in the chart should cause everyone who trumpeted rooftop PV reaching a million Australian roofs to stop and think very long and hard indeed.

    All the while, German CO2 emissions continue to rise. The climate system doesn’t care two hoots what percentage of renewables we have, it’s only the stuff we’re pumping into the atmosphere that counts. It’s very telling that Parkinson doesn’t mention the e word once.

    Oh, and what JohnB said.

  4. Electric Lardyland

    And still it seems, that the only ‘direct action’ being taken, is against people who believe in climate change and who are acting on those beliefs.

  5. AR

    This country is in for a very difficult couple of years with the current government – they are not just unintelligent & ideologically driven but bad at even enunciating (never mind implementing)their own, ignorant intentions. How Turnbull can bear it I do not know – unless he goes rogue or Indi he will not waste anymore of his life after the next election keeping shtumm while TT & his Uglies trash conservatism.

  6. Liamj

    There is nothing inevitable about renewables, the brown-tech luddites in LNP & corporate media have been keeping us in the dark ages for decades. They see warming & depletion as splendid drivers of profit, and thats all they ken.

  7. Chris Hartwell

    Paracleet, expect that future cost rises will be blamed on the legacy of the carbon tax, or on any EFT implemented in the future.

  8. @chrispydog

    Those ‘lumps’ of solar/wind output are given mandated priority to the German grid, are heavily subsidised by retail users, and go nowhere near the red line ie demand.

    Wind and solar are diffuse sources of energy which require large capital inputs to harness and are intermittent.

    Germany’s CO2/KWh is about 450g and rising, while France’s is 80g and has been that low for decades.

    Spain just boasted of producing over 20% of it’s electricity last year from wind, and hence lowered its emissions. What was its other big source? You guessed it, nuclear, which unlike Germany they haven’t switched off.

    Without nuclear, that big grey area on the graph is filled with fossil fuel power.

    These are real world choices: we look like France, or we spend a motza like Germany and make not one iota of difference to our CO2 emissions.

  9. Reechard

    It is not so much that Abbott is so dumb that he does not like or see the need for renewables. He likes his mates in the filthy fossil fuel lobby better!

  10. Reechard

    No new storage???
    So what is Hot Salt for Off Peak? BZE and their very do-able 10 year plan to build CO2/emission free power production in Australia at a cost of approx 3% GDP per annum. Have you heard of it? I doubt it because you do not acknowledge it Or you are keeping quiet… Bit like Bishop some time ago when, even after being briefed on the BZE technology, plan and costing etc, said the same thing.
    Hey, there’s a use for that $1.7 trillion Super pool. I’d invest.

    Any idea the size of subsidies to the filth fossil fuel industry?

  11. @chrispydog

    Reechard, I’ve read the BZE’s proposals, and like Dick Smith said in his doco as he walked out the door: “I find that hard to believe”.

    It’s full of assumptions that border on fantasy, and none of the technical experts on power systems I read (many) give it much credence either.

    Back in the real world, Germany has the second highest electricity costs in Europe (after Denmark) and yet produces some of the dirtiest electricity, because wind/solar cannot replace fossil fuels.

    It’s maths.

  12. Hamis Hill

    Look, just because it is Tony Abbott’s War on Renewables doesn’t mean it is “half-baked”, does it?
    The poor batard is going to start getting paranoid with all this non-approval about the place.

  13. Hamis Hill

    “Where there’s muck there’s brass”, expect Tony and Joe to appear in Parliament coated in coal dust to show their solidarity with dirty fuel.

  14. klewso

    Just what is his attention span when it comes to anything he’s personally not interested in?

  15. @chrispydog

    Reechard, I’ve read the BZE’s proposals, and like D!c-k Smith said in his doco as he walked out the door: “I find that hard to believe”.

    It’s full of assumptions that border on fantasy, and none of the technical experts on power systems I read (many) give it much credence either.

    Back in the real world, Germany has the second highest electricity costs in Europe (after Denmark) and yet produces some of the dirtiest electricity, because wind/solar cannot replace fossil fuels.

    It’s maths.

  16. @chrispydog

    Yes Reechard, I do know BZE’s proposal because I have actually read it, and read lots of well informed commentary on it.

    Judging from your questions, I can safely assume you haven’t.

  17. JohnB

    Reechard, hot salt is not new and it is not the answer to storage woes.

    For starters, the sheer tonnage of salts required to even back up 10% of a single night’s demand in a mild climate (Australia) are immense. Germany and other places further from the equator have it even worse during winter, when insolation is negligible for weeks on end and there is absolutely no hope of salvation via molten salt.

    Even the Spanish experience has been less than stunning – one plant achieved (from memory) 5 hours backup at 30% operating load. That gets us through the evening, but no more. Everybody is left sitting in the dark at midnight

    BZE is a hopeless mess of optimistic assumptions. It has been critiqued many times but its authors, like Giles Parkinson, remain ignorant because they are wedded to their dreams.

    They all need to get out of their echo chamber more and into the real world.

  18. Jonathan Maddox

    “the minuscule nature of those yellow blips in the chart” is because it’s a European winter. That’s the month of December. Even the southernmost (sunniest) part of Germany is all above 47 degrees of latitude away from the Equator. All of Australia is below 40 degrees south. All of our major cities experience less cloud cover year-round than any German one. Conditions for solar generation in Australia are better all round than in Germany. We also have better and more widespread sites for onshore (low-cost) wind.

  19. Aidan Stanger

    JohnB #17
    Why do you think an immense amount of salt being required would prevent it from being the answer to our storage woes?

    The thing thas striuck me most about BZE’s plans wasn’t the optimistic assumptions it made, but the optomistic assumptions it failed to make. I think thhey’ve greatly underestimated the potential for solar PV. Once that’s factored in, it should be possible to include solar thermal in a much more cost effective way than what they’re currently proposing.

  20. AR

    Aidan – the salt needn’t even be sodium chloride (NaCl) – it just happened to be freely & cheaply available for the first experiments.
    Magnesium sulphate or potassium chloride would be even more efficacious for the molten process (being well nigh useless for other purposes) but ummm… where could OZ obtain the vast amount required, to be cheap enough it would have to be on the surface over, for example, several thousand sqkms somewhere hot and not otherwise being grazed or built upon. Hmmmm…

  21. Aidan Stanger

    AR – Despite the higher cost and lower maximum temperatures, the Port Augusta solar thermal plant would use NaNO3 and KNO3, as they’re a much better heat storage medium than NaCl.

  22. Mark Duffett

    Jonathan Maddox “All of Australia is below 40 degrees south.”

    No it isn’t. But notwithstanding that, despite better conditions on a million Australian roofs, it still only amounts to, at best, a few percent of electrical energy over a 24 hour period. The yellow on the current Australian version of the graph would look a little bigger, but not that much.

    AR, very droll, but good luck trying to drive enough bulldozers, excavators and scrapers onto a salt lake to collect over 35,000,000 tonnes of the stuff.

    How much material would Beyond Zero Emission's zero carbon plan use for the concentrating solar thermal plants? A lot pic.twitter.com/gIKBio4OKQ— John Morgan (@JohnDPMorgan) January 18, 2014

  23. Aidan Stanger

    Msrk Duffett #22

    Far better to use huge amounts of salt than burn huge amounts of coal!

    Yes, solar PV still only accounts for a few percent of electricity generated. The same could be said for wind a decade ago. At the moment, most Australians still don’t have solar panels on their roofs, and most of those who do have far fewer panels than their roofs could accommodate. Plus there’s plenty of scope for non-rooftop solar PV.

  24. JohnB

    Aidan, oh Aidan.

    Have you tried to do the maths, or do you just want to feel good?

    The east Australian grid was formerly 17% renewables, thanks mainly to the Snowy.

    It is now 7%, because the Snowy has not grown and our population has.

    Look even casually at how many rooftops and how many dollars you are locking us into and you will see that millions more roofs are needed to get back to 17%, where we once were, at a prohibitive cost. But it will be entirely ineffectual.

    Australia’s electrical energy carbon intensity is going backwards fast, and that is only electricity. Count transport fuels and domestic, industrial and commercial gas and you will soon realise that we need to find a way to a gas-free energy future, complete with massive reductions in transport and industrial sources which have nothing at all to do with electricity.

    How do you propose that fertiliser will be produced without gas? Cow poo? We all know the impact of cattle burps on our methane budget. Hint: Currently fertilisers are manufactured from natural gas.

    Contemplating a hydrogen car? Forget it. Hydrogen is commercially derived from natural gas. Splitting water into H2 and O2 is not economic.

    Explosives? Same story, but perhaps we will not need explosives or liquid fuels in a utopian vegan world where even the cars run on carbon monoxide derived from the partial combustion of bean stalks and the remaining million or so Australians grub around in the dirt for their food and give thanks for their low carbon lifestyle… until they light their cooking fire.

    It’s OK to come up with an answer to part of the greenhouse gas problem. The truly difficult part is continuing the analysis to the point where the greenhouse gas budget is balanced.

    But, don’t stop there. Even harder is progressing beyond balance to negative emissions. The world will very soon reach the point where the only way to avoid 2.5 degrees temp rise (or 3, or 4 – it makes little difference: pick your own target).

    From that day onwards, the options are stark:
    1. Remove CO2 and its equivalents from the earth’s atmosphere, worldwide, PDQ; and
    2. Condemn all earthlings, humans included, to a world with temperatures spiralling upwards.

    A whole forest of solar panels on rooftops will do very little to avoid Option 2.

  25. JohnB

    Moderation, again?

    Yes, I know that I mentioned p-o-o and b-u-r-p-s and m-a-t-h-s.

    Must be the latter.

  26. Mark Duffett

    Aidan, far better than both would be to utilise comparatively minuscule amounts of uranium, thorium and waste from early-generation nuclear plants.

  27. Jonathan Maddox

    Thanks to new catalysts, water electrolysis is now far more cost-effective than it once was. Yes, fossil-derived hydrogen is still cheaper just as is fossil-derived electricity, but the difference is shrinking : energy efficiency of modern electrolysers approaches 80%.

    But we won’t be making hydrogen to burn it in cars. Battery-electric cars are already a very cost-effective alternative to fossil-fueled ones. Electrolytic hydrogen may come into its own as feedstock for chemical processes including synthesis of fertiliser and liquid fuel for those applications — aviation, shipping and farm machinery — where alternatives are not sufficiently energy dense. It also already plays a minor role in storage of excess electric energy (see power-to-gas).

  28. Aidan Stanger

    JohnB, your post is rather puzzling as I never claimed I wanted the use of natural gas to be eliminated. I’m certainly not looking to a utopian vegan world. I do think we should reduce our reliance on gas, but some will always be needed.

    We seem to have different concepts of what’s economic. You take what I call the accountant’s view (it costs too much so forget it) whereas I take the engineer’s view (it costs too much so why does it cost too much and how can we bring the cost down?). The nice thing about solar PV is that the costs are almost entirely fixed. Whether it is econmic depends mainly on the discount rate used in the calculations. Typically the rate used is significantly higher than the official interest rate (this was the trick the government used to make the NBN look uneconomic) but as the infrastructure will have a productivity enhancing effect, there’s a strong case for using a lower rate than the official RBA rate. I said something similar in my submission to the Productivity Commission’s infrastructure inquiry.

    Your state may have fallen below 7% renewables, but mine’s several times that. Rooftop solar has much more potential than what’s needed to get your figure back up to 17%, but there’s no reason to confine it to rooftops. Thesre’s plenty of arid grazing land where the animals would appreciate the shade of solar panels, and they wouldn’t adversely affect the land’s productivity as that’s limited by water availability.

    Solar thermal does have higher running costs (though still low by fossil fuel standards) but as its objective is to produce a lot of electricity on demand at times when the price is higher, I don’t see that as a big problem.

    Getting back to what you said about gas, the Haber process is now obsolete and I predict its use will have ceased by 2020 (though I’d like to see government intervention to end it sooner). And combined with more economic elecrolysis, we should be able to end our reliance on gas for fertilizer production.

    I agree our net CO2 emissions will need to be cut below zero, and I think biochar is the best way to do that (and is something that can also be used to supply some of our CH4 requirements). But we also need to decarbonize our economy now. And that’s not something that should require big lifestyle changes.

    You seem to bave reached the conclusion it can’t be done so we should give up and make the planet worse for future generations. I look at what can be done and what’s preventing it, and am baffled as to how anyone could even consider that opinion, let alone reach it.

    As for nuclear power, the world will need a lot of it, but Australia is so well suited to solar power that I’m not convinced nuclear would be economic here.

  29. Mark Duffett

    You’re “not convinced nuclear would be economic”? What happened to your ‘engineer’s view’ expressed at the outset?

  30. JohnB

    Since when is there a difference between engineers and accountants regarding economic analyses? As an engineer, I am on good terms with many accountants and I am no stranger to economic evaluation of projects.

    You have an objection to the cost of capital (discount rate) used in calculating comparisons on the basis of NPV or whatever; I don’t. It would be silly to use, say, 4% for solar projects and 8% for the rest. The discount factor must be the same for all proposals. Comparing like with like is a core principle of EA’s.

    Either Project A competes with Proposal B for funds on a level playing field or someone is fudging. If an external benefit exists, it should be costed and included in the evaluation, however I recognise the issue with externalities : the corporation will ignore them, even if the society it operates in is killed in the process. That is a political question, not an issue of discount rates.

    If large scale solar, either PV or thermal, was economic then it would be happening right now, without socialising portion of the costs via subsidies or distorted economic evaluations.

    The final comment, to the effect that nuclear power is OK, but not in Australia should be ignored because it is classic NIMBY-ism. I agree that we “will need a lot of it”; however, that includes in Australia.

  31. Aidan Stanger

    Msrk Duffett #29

    The economic conditions that favour nuclear over fossil fuels are similar to those which (in sunny environments) favour solar power. The cost of solar power is falling rapidly, whereas overseas experience shows the cost of nuclear power isn’t yet falling the way it was predicted. So although I’m not ruling out nuclear power in Australia, I think solar’s likely to beat it.

  32. Hamis Hill

    The US Department of the Army, just incidentally the largest engineering organisation on the planet, after the first oil shock commissioned the RocketDyne corporation to produce a flywheel energy storage power source for large vehicles.
    The resulting unit was tested in underground coal shuttles which operated for two hours continuously and was “recharged” in fifteen minutes.
    For all the so-called engineers who just “know” it “carn’t be done moight” you can read all about it in the Proceedings of the The First International Symposium on Energy Storage held in Dubrovnik in 1979, published by the United Nations, and a copy held in The State Library of NSW.
    (somehow one always conceives these fakers with a broad Aussie accent).
    The proceedings also report on the use of molten salts for energy storage.
    The Flywheel unit can be used by farm machinery, for example, recharging from energy stored,take your pick of the technology from Solar thermal, whatever.
    Oh, that’s right what would the world’s largest engineering organisation know about such things?
    Compared to all “the know it all engineers” pontificating on the subject in complete and abject ignorance of what has already been established.
    Not very “professional” are they?

  33. JohnB

    And your point, Hamis, was what?

    That an uncosted proof-of-concept trial of something in the 1970’s, something that has not progressed beyond that stage in the ensuing 30+ years, stands above current practice?

    Sure that it wasn’t simply either too dangerous, too impractical or too expensive?

  34. Aidan Stanger

    JohnB #30

    Maybe I’m being a bit too hard on accountants. Or maybe it depends on the accountant (I’m sure a lot of chartered accountants would claim it’s the difference between them and certified accountants). My point is that engineers shouldn’t blindly accept assumptions.

    My main point about discount rates is that it is inappropriate to use rates as high as 8% for any public infrastructure projects. The official interest rate should normally be the rate used. However the purpose of setting interest rates is to control inflation, so a lower rate should be used if it can be demonstrated that the infrastructure spending would be less inflationary than the normal process of banks lending to businesses and individuals.

    The current use of high discount rates is introducing a very strong short term bias that unjustifiably skews investment decisions away from capital intensive projects like solar energy. That bias should be properly addressed rather than trying to compensate for it in the externality calculations.

    Use of a more appropriate discount rate would also favour nuclear power, but the reason I consider the case for nuclear power here to be weak isn’t nimbyism but rather a combination of abundant solar energy and very low population density. If we had a higher population (and I think we should) the case for nuclear power would be stronger.

  35. Aidan Stanger

    JohnB and Hamis Hill

    Flywheel storrage has progressed significantly since the 1970. It is one energy storage option. Others include pumped storage, supercapacitors, batteries and molten salt.

  36. JohnB

    Treasury, who tend to drive these things, also have a few rarely discussed other so-called arguments in favour of using high interest rates in EA’s.

    These include:
    1. (NSW Treasury, re State Owned Corporations). They charge a premium interest rate on state-owned entities’ funds, just because they can. It makes them feel good. And extra percentage point or two on the loans held by the State look like money for jam, and it is… to them. But not to the SOE’s. The difference, in my experience, is more than 1 percent.
    2. Where government entities are in direct competition with public ones, eg water and electricity projects, the interest rates that are available to State or Federal Government are not “correct” because private borrowers don’t have triple AAA ratings (Fitch, S&P and Moody). Thus, the methodologies adopted for the National Electricity Market, etc, are based on a loaded rate which is believed to better represent the rate that the private firms would pay. Again, the cash difference need not remain with the department or corporation that is doing the job – it is skimmed off by Treasury in the interest of competitive fairness and equality. So 3% can become 7.5%.
    3. Treasury don’t trust anybody’s estimates. They want their money back asap and are not prepared to wait for the design life of the asset, typically 25 years, to get it. Higher financing charges are one way to camouflage the triple goals of early repayment, over-repayment and hidden additional contingency sum.

    Bottom line: Treasury, whether State, Federal or even corporate treasury accountants, has no interest in building assets or operating businesses – they just want to get the highest return on investment, even if it means that nothing gets done or a less efficient 10-year fix is erroneously over-valued against a 50-year asset.

    Quick comparison of evaluations based on 3%, 7% and (as Packer demanded when he purchased ANI many years back) 18%, will yield very different results for a suite of options which have service lives of, say, 10, 25 and 50 years but otherwise similar capital requirements.

    However, nothing in the above supports analysing competing projects for similar purposes and the same client using two different discount rates.

  37. Aidan Stanger

    JohnB, do you have a reference for those? The second so-called argument in particular is absolutely scandalous – the public sector should exploit its natural advantages, not pretend they don’t exist. Competition should be a way of reducing costs, not an end in itself.

    You seem to think I’m advocating analysing competing projects for similar purposes and the same client using two different discount rates. I’m not (except where it can be clearly shown they would have different inflationary impacts, which I’d expect to be rare for competing projects).

    What I’m saying is that renewable electricity generation infrastructure nearly always has higher capital costs and lower operating costs than its fossil fuel equivalent. Therefore, when compared on the same terms, there is a discount rate below which the renewable power is cheaper and above which the fossil fuel power is cheaper. So one of the effects of using an unnecessarily high interest rates is to bias decision making away from renewables and towards fossil fuels.

  38. Hamis Hill

    In rely to JohnB’s “untested proof-of-concept trial”, and you know this because?
    Just an example of how armchair philosophy beats applied science in political debates?
    Luckily for them, and perhaps for us, the US Department of The Army doesn’t rely upon armchair philosophy.
    Perhaps JohnB shouldn’t rely on armchair philosophy either.
    It produces too many slovenly and unreliable arguments mainly based upon arrogance and ignorance.
    But that’s politics for you, thank goodness science and engineering is different.

  39. JohnB

    Hi, Aidan.

    The public sector, when in competition against the private sector, is seen to have a real advantage re cost of capital.

    This became a battle-ground during the early days of the NEM and I imagine that some battles continue. Arguments were protracted and very expensive due to layers of lawyers.

    I suggest that you verify what I have been saying through either an competition lawyer or a long term observer of the industry, such as Keith Orchison. Given the amount of money involved and the complexity of the debates, I imagine that there are Australian text-books written specifically around the NEM.

    Bottom line: discount rates of 7% are closer to the mark than the published Reserve Bank rates applicable to Federal Government borrowings. The difference primarily stays with Treasury, not the corporation and can be considered to be a risk loading applied by the “banker” (Treasury) for loans made to the “contractor” (Government owned corporation).

    This is in some ways similar to the use of an inter-company loan rate in a private conglomerate. The corporation may be self funding or may have access to funds at X%. When funds are loaned to operating subsidiaries, a different rate normally applies, as a risk loading. The question becomes “what is the real magnitude of the risk and hence the fair loading?”

    The NEM has similar tensions with private corporations due to their internal loadings. Are they truly for risk, or are they just a rip-off?

    Whatever their name, higher interest rates result in higher energy costs to consumers.

    A AEMO report which uses 10% is: ECONOMIC PLANNING STUDY REPORT National Electricity Market 2012.

    UNSW uses 5% in this paper published in March 2013: Least cost 100% renewable electricity scenarios in the Australian National Electricity Market; Ben Elliston, Iain MacGill, Mark Diesendorf.

    Or Google National Electricity Market + Discount rate and spend a day reading.

  40. JohnB

    HH, your favoured flywheel technology has languished for decades.

    It is clearly going nowhere fast.

    Calling me names is irrelevant to the issue at hand.

    Come back when you have progress to report.

  41. Aidan Stanger

    JohnB #40,
    Far from languishing, flywheel technology has evolved for decades. Around the turn of the millennium I rode on a flywheel powered rail vehicle in the UK (and though it was only a demo, they have since entered commercial service). And flywheels are now in use on the USA electricity grid – see beaconpower.com for more info.

    Though I don’t expect them to ever become the technology of choice for large scale energy storage, flywheels do have huge potential – I suggest you look at their wikipedia page for more examples of what they can do.

Leave a comment


https://www.crikey.com.au/2014/01/15/tony-abbotts-half-baked-war-on-renewable-energy/ == https://www.crikey.com.au/free-trial/==https://www.crikey.com.au/subscribe/

Show popup

Telling you what the others don't. FREE for 21 days.

  • This field is for validation purposes and should be left unchanged.