Australian news, and some related international items

How the current Australian government destroyed a great electricity policy

Australia had a great electricity policy – let’s get it back, REneweconomy, By  on 31 March 2017  When the ALP lost government in 2013 Australia had a secure, but rising, cost of electricity. Network prices had risen substantially, causing bill shock mainly because the AEMC and COAG had failed to rein in the Australian Competition Tribunal; and because networks were – and are – entitled to earn a perpetual rate of return on sunk costs, even when those costs have been fully recovered and notwithstanding that capacity utilisation has fallen.

The carbon tax was adding around $30/MWh to electricity prices, but the increase in network costs and the community emphasis on energy efficiency driving lower consumption were the key factors. The wires and poles cost tripled between 2008 and 2013.

However, over the next five years it’s the generation cost that drives prices up from $274/MWh (before retail discounts) to maybe $324/MWh (and the federal government loses, say, $10 billion of tax revenue in the process).

More importantly Australia had a suite of policies that:

  1. Encouraged energy efficiency. Every large corporate had to explicitly report on its energy efficiency plans.
  2. A carbon tax. Although this was meant to transition to floating carbon price it was actually far more effective as a tax. The advantages were.
    1. It raised final prices encouraging efficiency.
    2. Simple to administer
    3. At $30/t raising more than A$10 bn a year. By contrast fuel excise which most people don’t really think about raises about $12 bn a year. For an average house in Australia that carbon tax added $180 per year to their costs. By contrast the fuel excise at $0.38 litre and assuming a motorist uses 9 litres/100 Km, and drives 15,000 km a year costs say $600 a person. In two car households the cost could easily be over $1000 a year. This to your author’s mind shows the difference between perception and reality.
    4. The known price enabled both generators and consumers to plan around the fixed cost. Space does not permit in this article but providing confidence around the cost of capital is the main way Govts can contribute to keeping electricity prices low.
    5. Most importantly it penalized high carbon emission raising the variable cost of brown to or above that of black coal and making gas cheaper, at the time, than coal

But what if the carbon tax forced old generation to close but no new generation was built? Wouldn’t that be a problem for energy security? So that’s where…

  1. Renewable energy incentives come in. That was done by the LRET. In addition, state governments decided to offer high feed-in tariffs for rooftop PV. This lead to a glut of RECs and so the LRET scheme was split in two, small and large. The surplus of large certificates has only recently been worked off. We’ve criticised the LRET policy several times as being a high cost and unreliable way to get new renewables into the system but it did at least a provide a carrot. Reverse auctions can do the same job in a cheaper and more targeted fashion.

The net impact of these policies was to raise final electricity prices to households by 10 per cent and to business by about 15 per cent. By and large the Australian system was regarded as one of the best in the world. Fig 1 shows that the explicit cost of the LRET and SREC scheme is small, even at today’s inflated REC prices.

The coalition eliminated the old policies, but didn’t replace them with anything newEnergy efficiency was completely de-emphasised……….

Announcements as a substitute for policy

To this day there is no federal  policy other than what’s left of the RET. Zero, zip, nada.  There is no policy because the federal government is opposed to the policies being adopted all over the world, which a majority of Australians want and which the electricity industry wants.

This is leading to a breakdown of the cooperative federalism of the past  decade and is another impediment to reform of the management of NEM. In fact, there is no management, just a committee (COAG energy committee) and government organisations with no KPIs (the AEMC for instance). There are announcements “Snowy 2”; and now, an after-the-horse-has-bolted ACCC review of retail prices…….

Some might see this as a hopeless situation, but because of Australia’s fantastic wind and PV resource, and because the cost of wind and PV has fallen, its actually a great opportunity to build a 21st century grid that will be the envy of the world.

Wind in the USA produces electricity at  US $42/MWh = A$63/MWh unsubsidised (the consumer pays $20/MWh and the tax credit is worth about $22/MWh). Capacity factors in the USA are getting up to 45-50 per cent – by comparison, a typical combined cycle gas plant is at 50-60 per cent. Australia’s newest wind farm is at 43 per cent in its first three months.

Australia’s 5GW of distributed solar and the low energy density of networks (electricity consumed per Km of wires) makes this a fantastic country to build a decentralised grid using solar PV and household storage. But again, where is the federal government vision? Where is the policy? Where is the modelling? The lack of initiative and policy cannot be excused on any level, 3 year election cycle or no. Australians have a right to, and do expect more.

Despite our advantages we are well behind what the rest of the world is up to………

In the USA a very recent survey of 600 utility companies confirmed they they plan to continue their decade old shift to wind, and PV and distributed energy despite the election of Donald Trump. And why wouldn’t they? Its good economics and sound policy with a decade of experience behind it.

The federal government has criticised state policies but offers nothing in return…….


April 1, 2017 - Posted by | AUSTRALIA - NATIONAL, energy, politics

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