Labor, Greg Hunt & Australia’s Wind Industry Panic as LRET Set to Implode
Back in October last year, STT predicted that Australia’s Labor opposition would reject any moves by the Coalition to scale back the (completely unsustainable) Large-Scale Renewable Energy Target (LRET) (see our posts here and here).
It was around that time, that the Coalition’s (killing) Industry Minister, Ian “Macca” Mcfarlane; and his youthful ward, (carpeting the) Environment (in giant fans) Minister, Greg Hunt started running around like headless chooks – looking to salvage the wreckage of the LRET; look after their mates at Infigen & Co; and otherwise save their political skins.
As predicted, the Labor opposition has resisted; and these panic stricken efforts have come to nowt. Here’s The Australian on the beginning of the end for the LRET and the wind industry.
Labor rejects ‘final’ offer on new energy concession
20 March 2015
NEGOTIATIONS over the renewable energy target remain deadlocked a week before it is likely to spark a cost crisis in the aluminium sector with Labor rejecting the government’s final peace offer.
Industry Minister Ian Macfarlane offered the Clean Energy Council, which represents major renewables producers, an extra 1000GWh hours for large-scale renewable power generation by 2020. Mr Macfarlane said it was his final offer and he would not go higher.
Opposition environment spokesman Mark Butler rejected the compromise as “too low”.
“We know it would be a 40 per cent reduction in the investment that would have taken place between now and 2020 if Tony Abbott had stuck to his election promise and also, all of the advice we’ve got from the industry is that 32,000GWh simply won’t sustain a viable industry into the future,” he said.
Australian Workers Union national secretary Scott McDine called on the Coalition and Labor to agree to rebate the RET cost for aluminium and other trade exposed industries if a deal was not struck by the end of next week. Mr McDine criticised the government, saying Labor had moved further in a bid to reach a deal.
Today, social and environment groups will write to the government demanding the RET be maintained as it is.
Mr Macfarlane’s latest offer would take the large-scale component of the RET from 31,000GWh to 32,000GWh, with about 13,400GWh reserved for rooftop solar panels. If an agreement is not brokered by the end of next week, regulators will set the level of the scheme for 2015 using the existing numbers.
The aluminium industry and the AWU have warned that if this happens, jobs in the industry will be at risk because the RET costs it about $80 million a year.
The insane costs of the LRET to REAL industries – like aluminium smelters – are not lost on the old style Labor/Union men – the blokes with ample frames that fill out fluoro-coloured work shirts and vests, rather than hand-tailored Italian suits.
However, the flipside of that enormous cost to all Australian power consumers – whether critically endangered aluminium smelters (see our posts here and here); or tens of thousands of households cut off from the power grid because they can no longer pay their bills – is the $50 billion in subsidies that will be filched from power consumers and directed to wind power outfits over the life of the LRET.
The value of that massive stream of subsidies to the “new” style Labor/Union (‘Industry’) Super Fund men – blokes who wouldn’t be caught dead in a fluoro work shirt – has opened a rift between the “old” Labor/Union boys and the “new” boys – who waddle off each day to run Union Super Funds, that have $billions invested in wind power outfits, like Pacific Hydro.
Labor’s political war chest is filled to the brim by the returns made by its Union contributors, controlling the $billions that are siphoned through Union Super Funds – run by the likes of former Labor Climate Change Minister, Greg Combet – with help from his best mate, Garry Weaven.
These funds have poured $billions into wind power outfits like Weaven’s Pac Hydro – backed by IFM Investors (controlled by Weaven and Combet); and – with a 41,000 GWh LRET – Union Super Funds were keen to throw $billions more at new wind farms in order to wallow around in the $50 billion in REC Tax/Subsidy, that’s potentially up for grabs.
The Coalition’s proposed cuts to the 41,000 GWh LRET not only throw a spanner in the works for Labor’s plans to cover Australia in thousands of giant fans in future – and to have their union buddies reap obscene profits at the expense of every power consuming household and business – the very fact of the proposal will (ultimately) result in a collapse in the price paid for RECs. An actual cut to the LRET would see the REC price plummet. Any fall in the REC price threatens the viability of every established wind farm.
In a sign that the greatest Ponzi scheme of all time is about to collapse, Pac Hydro – an outfit renowned for its “social conscience” (see our post here) – has just clocked up one of the largest single corporate losses ever seen in Australian corporate history: Pac Hydro’s books apparently record an annual loss of $685 million – the Australian Financial Review says “$700 million” – but with losses of that magnitude a lazy $15 million is probably just a rounding error (see our post here). From what STT can glean, around half of that whopping figure is attributable to losses incurred by Pac Hydro’s wind farm operations in Australia. Pac Hydro has announced it will sack around 25% of its staff, starting from the top down: directors Garry Weaven and Brett Himbury were the first to go; and community “favourite”, Lane Crockett has been given the ‘pink-slip’, too.
The fact that ALL of Pac Hydro’s corporate pain and woe is being suffered at a point when the subsidy ‘rules’ have not been altered at all, gives a pretty fair hint as to what’s on the cards for the entire wind industry when the subsidies inevitably get cut or scrapped.
For those – clearly mercenary reasons – what used to be known as the “workers party” has no other choice but to shackle itself to the LRET policy debacle, as it inevitably implodes.
And implode it will: whatever talk there is about targets being set at a “real 20% by 2020” (or being “amended”, “adjusted” or somehow “fixed”), retailers have decided that they will simply pay the “shortfall charge” – and leave the government of the day to deal with the inevitable political punishment that will be meted out by voters (see our posts here andhere).
No doubt, the “modern” Labor Party (a pack of policy pygmies that runs in lockstep with the lunatics from the Greens) would love to round up Grant King (head of Australia’s largest electricity retailer, Origin) and send him off to the Gulags as punishment for his LRET recalcitrance: “Ah, the good old days”.
But, absent a Bolshevik putsch, the worst fate that retailers, like Grant King’s Origin, face is the imposition of the $65 per MWh fine under the LRET – which will be passed on to all Australian power consumers – along with the tax implications attached to the fine – at a full cost of $94, as the shortfall starts to bite within the next couple of months.
Here’s the numbers for those who might have missed what they’re about to be belted with.
With the total contribution going to satisfy the LRET from eligible renewable sources stuck at 16,000 GWh, in the table, the “Shortfall in MWh (millions)” appears as 16,000,000 MWh (1GWh = 1,000MWh). The LRET target is, likewise, set out in MWh (millions).
|Year||Target in MWh (millions)||Shortfall inMWh(millions)||Penalty on Shortfall @ $65 per MWh||Minimum Retailers recover @ $94|
The more than $30 billion that retailers will be collecting from all Australian power consumers – commencing in a matter of weeks – has sharpened the limited focus of young Gregory Hunt.
When it comes to calculating the full cost of the LRET, young Greg seems to have difficulty in getting his, no doubt solar-powered, calculator to spit out the full number – the one that adds the inevitable cost of the shortfall charge AND the cost of RECs – which will ALL be recovered from retail power consumers – as to the recovery of the cost of RECs, Origin’s Grant King correctly puts it:
“[T]he subsidy is the REC, and the REC certificate is acquitted at the retail level and is included in the retail price of electricity”.
It’s power consumers that get lumped with the “retail price of electricity” and, therefore, the cost of the REC Subsidy paid to wind power outfits. The REC Tax/Subsidy has, so far, added $9 billion to Australian power bills.
No matter how hard Greg tries to deflect attention from the cost of the LRET to Australian power punters, at the end of the day, retailers will have to recover the TOTAL cost of BOTH RECs AND the shortfall charge from Australian power consumers, via retail power bills.
In order to overcome the glitch in Greg’s, less than candid, policy presentation matrix, we’ve tallied up the costs below. In the right hand column we’ve combined the annual cost to retailers of 16 million RECs at $94 (ie $1,504,000,000) and the shortfall penalty, as it applies each year from now until 2031, at the same ultimate cost to power consumers of $94.
|Year||Target in MWh (millions)||Shortfall in MWh (millions)||Shortfall Charge Recovered by Retailers @ $94||Total Recovered by Retailers as RECs & Shortfall Charge @ $94|
So, once regard is had to the legislation on which the LRET is based, and the fact that retailers will be recovering BOTH the cost of the shortfall charge AND the cost of purchasing whatever RECs might be available, it’s hard to see how “saving” the LRET and building new wind power capacity will “protect people’s power prices” – as young Gregory claims.
Greg is on record now, calling the shortfall charge (and its total cost to retailers and, therefore, power consumers) a “massive penalty carbon tax of $93 per tonne which nobody wants to see.” At $93 per tonne, it’s more than 3 times the initial cost of the one set up by the Greens and Labor; and, therein, lies Greg’s little political difficulty.
Greg and his team-mates strode to power in September 2013 on a mandate – spelt out in advance, and loud and clear – that they would scrap the carbon tax set up under the previous Green-Labor Alliance.
Now, the “massive penalty carbon tax … which nobody wants to see” – hidden within the LRET – is about to bite young Greg and his Coalition buddies with a vengeance.
Hence reports last Friday that Greg is off to do a deal with the 8 cross-bench Senators, in an effort to save his and the government’s political skins. Maybe, just maybe, Greg can cut a deal, and pick up the six votes he needs. But, as with any deal, the devil’s always in the detail.
When Greg sits down to talk turkey, he’s going to have to explain why Australian power consumers are about to be whacked with the most expensive tax on CO2 emissions anywhere in the world: his $93 per tonne whopper, compares with the European price bouncing around €4-6 (AU$5-8); and how that hidden ‘carbon’ (they mean CO2 gas) tax is going to cost Australian power consumers $30 billion, all by itself.
Then he’s also going to have to explain the full $50 billion cost of the shortfall charge and RECs to be collected from power consumers under the LRET, to all of those senators; and how that can possibly be justified: with 34,000 homes disconnected from the grid in Victoria last year alone (see our post here); with more than 50,000 homes without power in Australia’s wind power capital, South Australia (see our post here); and the same kind of power price penury seen in NSW (click here) and Queensland (click here).
STT thinks that Greg’s shortest and safest route home is to start talking (real fast) about cutting that “massive penalty carbon tax of $93 per tonne which nobody wants to see.”
It’s a whopper; it’s inevitable; and it’s looming just over the hill.
Over to you Greg …