As the RET Review Panel get ready to help axe the mandatory Renewable Energy Target, Australia’s miners have united to brand the RET a guaranteed “job killer” and just “plain crazy”. The miners quite rightly identify the Renewable Energy Certificates (RECs) issued under that policy as an enormous and unnecessary cost burden to households and business.

In truth, RECs are simply a Federal Tax on all Australian electricity consumers, because the entire value of the REC is added directly to power bills and (under the large-scale scheme) is all directed to wind power generators, as a government mandated subsidy.

Currently, around 12% of Australia’s electricity comes from renewable generation sources (with almost half of that coming from hydro power, the great bulk of which pre-dates the RET legislation). Annual demand is around 190,000 GWh, so 12% of that (the “contribution” from renewables) represents 22,800 GWh.

The wind industry and its parasites argue that the REC Tax/Subsidy will lead to “investment” in renewable energy (ie wind power) capacity sufficient to satisfy the current 41,000 GWh mandated annual target. However, satisfying that target by 2020 is economically and practically impossible: a matter which Australia’s biggest generators and retailers all agree upon (see our post here).

To meet that target would require an increase in total installed wind power capacity of around 24,000 MW – from the present capacity of 3,000 MW – to more than 27,000 MW (at a cost of more than $50 billion); and a duplicated transmission network to carry it (at a cost of more than $30 billion) (see our post here).

In addition, financing that “investment” would depend upon the REC price reaching $90 to make all of these new projects commercially viable. Currently, the REC price is $26 and falling – which is way below what is required to even cover wind farm operating costs; and nowhere near enough to cover construction costs. This is the main reason that banks are simply refusing to lend to wind power companies.

With less than 23,000 GWh coming from renewable sources at present – and no likelihood of any significant wind power capacity being added between now and 2020 – Australia will simply fall short of the fixed target by a figure in the order of 18,000 GWh.

Now, at this point, power consumers might breathe a sigh of relief thinking they’ve avoided being slugged with the REC Tax – which would have otherwise been added to their power bills – if all those extra wind farms had been built and were producing the additional 18,000 GWh needed to satisfy the fixed target. Oh, but if it were that simple.

For every MW that a retailer falls short of the mandated target it gets whacked with a $65 fine – what is referred to under the Renewable Energy (Electricity) Act 2000 as the “shortfall charge” – follow the links hereand here.

The big retailers, Origin Energy and Energy Australia have already said that – rather than messing around with intermittent and unreliable wind power – they will simply cop the $65 fine and pass that entire cost on to their retail customers (see our posts here and here).

This means that – instead of just paying the average wholesale price of $35-40 MWh – retailers will end up paying close to $100-105 per MWh – the wholesale price plus the fine. And that will all be passed on to power consumers.

Remember, that the original objective of the mandatory RET was to encourage the generation of electricity by renewable energy sources and, thereby, to reduce CO2 emissions in the electricity sector.

In the end result, however, power consumers will simply end up paying the cost of a whopping $65 per MWh fine – that will be recovered by retailers on over 42% of the fixed annual mandatory RET of 41,000 GWh.

By 2020, the $65 per MWh fine will be levied on a shortfall of around 18,000 GWh – which means a total of around $1.17 billion (18,000,000 MW x $65) will go straight into general revenue every year until 2031 – when the RET expires.

With the mandatory RET continuing until 2031 – and the $65 fine with it – this means that – from 2020 – a total of close to $12 billion will be added to power bills and pocketed by the Commonwealth. However, there will be: NO additional renewable energy; NO “break-through” on-demand renewable energy technologies; NO reduction in CO2 emissions – just a GREAT BIG TOXIC TAX on ALL Australian electricity consumers.

It’s a point not lost on Australia’s miners. Mining investment and mining exports have kept the Australian economy at the top of the international leader-board in terms of growth in incomes and meaningful employment. Australia dodged a GFC bullet thanks to the red stuff being shovelled out of mountains in North-West Western Australia and the black stuff being shipped out of Queensland. And those States with big mining sectors (WA and QLD) continue to out perform the rest by a mile – in terms of growth in incomes and employment.

So, when miners talk, sensible governments listen (see our posts here andhere). Here’s The Australian on what the miners are saying about the mandatory RET.

Subsidies for clean energy to hit $21bn
The Australian
Annabel Hepworth
22 May 2014

SUBSIDIES for renewable energy schemes such as rooftop solar panels and wind farms will cost electricity consumers up to $21.6 billion by 2020, a new analysis has found.

A submission by the Minerals Council of Australia also warns that more gas and coal-fired power stations could be mothballed or permanently closed as the renewable energy target puts pressure on the electricity market and slashes their revenues.

If this happens, retail electricity prices “can be expected to increase”, according to an economic analysis commissioned by the council which represents mining giants including BHP Billiton, Rio Tinto and Glencore Xstrata.

The analysis also hits back at fresh claims by the clean energy sector that the RET will create up to 18,400 jobs by 2020, declaring “the most immediate effects” from subsidising the renewable sector are job losses as cheaper forms of energy are crowded out.

“Additional job losses can be expected to arise from the drain on economic activity as a result of higher electricity prices,” it finds.

Former Queensland treasurer Keith De Lacy — now one of the nation’s best-known company directors — declared it was “plain crazy” to have schemes such as the RET, solar feed-in tariffs and carbon tax that were driving up power bills.

“The Australian public keep complaining about the increases in the costs of living and this has become even more so since the budget,” Mr De Lacy told The Australian yesterday.

“But one of the biggest increases in cost has been the price of electricity … It’s the most fundamental of services to the Australian public … These kind of things just make some people feel good but don’t achieve anything.

“They’ve got no place, I believe, in a modern economy.”

The comments add to pressure on the Coalition, given it is split over what to do about the RET.

According to the Principal Economics review commissioned by the Minerals Council, the RET scheme has an opportunity cost (money that could have been invested elsewhere) of more than $36bn by 2020-21.

The analysis finds that subsidies that are recovered through the sale of renewable energy certificates, which are directly passed on to consumers, could reach between $19.3bn and $21.6bn by 2020-21, covering part of the cost to build the infrastructure.

The miners are wielding the figures in a bid to convince the government-appointed RET review panel that the scheme is excessively costly for households and industry, and cannot continue the way it is.

“These are the additional costs paid by energy consumers: households, domestic firms and exporters such as the mining sector,” the council’s submission says.

The submission also warns that the RET will encumber business with “uncapped and high costs for subsidies”, particularly for the scheme for rooftop solar PV panels, “because of poor design and a series of inchoate policy shifts”.

In 2010, then federal minister Martin Ferguson said the RET was a “bonus to the renewable sector of the order of another $20bn to $30bn in commonwealth government support”.

The Australian Industry Group has called for the RET to be maintained, despite demands by some businesses that it be scrapped because it is expensive.

The AiGroup says that while the cost of building wind farms and solar panels is passed on to customers, extra energy from wind farms and solar panels has pushed down wholesale prices.

This has also been a key pillar of arguments by the Clean Energy Council, which is wielding its own research by ROAM Consulting that finds household energy prices would be $50 a year lower by 2020 with the RET, and that leaving it alone would create 18,400 jobs.

The Minerals Council has told the panel lower wholesale prices are not a “function of competitive forces but of government intervention”, are likely to be short-lived and undermine investments in coal and gas-fired power stations needed for reliable electricity supplies.

The analysis points to power station retirements including the permanent shutdown of the Munmorah black coal power station in NSW and temporary closure of South Australia’s Playford.

“Overall retail price rises have therefore been lower than they otherwise would have been,” the analysis says.

Wholesale electricity prices are “likely to increase” if power generators that become unprofitable close. Minerals Council chief executive Brendan Pearson said access to cheap, reliable energy had been a “source of economic strength” for Australia. “This is no longer the case,” he said.

The analysis draws on previous modelling. It quotes estimates by SKM MMA for the Climate Change Authority in December 2012 that put the cost for buying certificates for large-scale renewables at $15.9bn by 2020-21 and for small-scale renewables at $3.4bn — totalling $19.3bn.

Like most of the figures cited in the new analysis, these are based on an assumption of no carbon price — which the analysis says is appropriate as the Abbott government has announced its plans to repeal it.

To get to the $21.6bn figure, the analysis cites modelling by ACIL Tasman for TRUenergy (now EnergyAustralia) — which wants the RET scaled back — that puts the subsidy for the small-scale scheme at $5.7bn.
The Australian

The figure of $21.6 billion cited for the cost of the REC Tax up to 2020 is pretty close to the mark – matching the figures forecast by Liberal MP, Angus “the Enforcer” Taylor and privately confirmed by Origin.

However, we’re not sure why the Minerals Council stopped the clock at 2020?

The mandatory RET continues until 2031, such that – between 2020 and 2031 – a further $25-30 billion will be collected from power consumers: either by generators in the form of the REC Tax/Subsidy; or by the government in the form of the $65 per MWh fine (the “shortfall charge” – see our commentary above).

As you’d expect the Clean Energy Council trot out the same “Alice in Wonderland” twaddle that they’ve been peddling over the last month or so trying to protect their wind industry clients. No surprises there. Their claim about the RET creating 18,400 “green” jobs is patent nonsense; and gets treated with the contempt it deserves by the Minerals Council.

As to the comments from the Australian Industry Group, we’re not sure what planet they’ve been living on. These lightweights are either simply too lazy to have bothered to read the Renewable Energy legislation; or simply too dumb to understand it – sure, for the intellectually challenged it’s long-winded and tricky to follow (they could start with our post here). And they clearly haven’t paid a power bill lately.

Power consumers couldn’t care less about the wholesale price – they’re lumbered with the retail price – which DOES include the cost of the REC Tax; as well as the obscene returns guaranteed under the Power Purchase Agreements between wind power generators and retailers.

The REC Tax and PPAs are both the direct product of the mandatory RET and have resulted in Australians paying the among highest retail power prices in the world (see page 11 of this paper: FINAL-INTERNATIONAL-PRICE-COMPARISON-FOR-PUBLIC-RELEASE-19-MARCH-2012 – the figures are from 2011 and SA has seen prices jump since then).

The article refers to a “split” in the Coalition over the fate of the mandatory RET. The “split” is – on our reckoning – more like a “splinter”. The vast majority see the mandatory RET for what it is: “corporate welfare on steroids” which – given the Coalition’s unpopular budgetary attack on the “age of entitlement” – simply has to go.

If the Coalition can’t “sell” voters on the need for a measly $7 dollar Medicare co-payment for visits to the Doctor (in order to ensure Medicare is sustainable in the future), how on earth is it ever going to justify an entirely unnecessary $50-60 billion hit on power consumers if the mandatory RET is maintained?

To make the “sell” even harder, that’s $50-60 billion to be pocketed either as REC Tax/Subsidy – by foreign-owned outfits like Acciona, Union Fenosa and RATCH; or by the government in the form of the $65 per MWh fine, with no environmental benefit whatsoever.

It’s a “no-brainer”, Tony – kill the mandatory RET now, before it kills your chances of a second term.