With the RET Review Panel sharpening their axes – and all set to recommend the abolition of the mandatory RET – the wagons are being circled within Coalition ranks.

The vast majority of Coalition members are in favour of scrapping the mandatory RET in its entirety. And barely a day passes without another of their number (publicly) expressing their view that the policy is nothing more than “corporate welfare on steroids”.

Liberal member for Higgins, Kelly O’Dwyer has just penned this piece for the Australian Financial Review – in which Kelly, quite rightly, slams the wind industry and its parasites as nothing more than naked rent seekers.

Green target is industry protection
Australian Financial Review
Kelly O’Dwyer
23 June 2014

Like world peace, everyone loves renewable energy. But that does not mean everyone agrees on the best way to increase its use. For instance, it isn’t obvious that the best way is to drive up the costs of non-renewable energy.

At the last election, Australians clearly indicated they valued more affordable energy when they voted for the repeal of the carbon tax. Some voted for cost-of-living relief; others to remove a cost on business that stymied our international competitiveness and job creation.

But the carbon tax isn’t the only area where Labor-Greens policy has been deliberately driving up energy costs for businesses and households. The lower profile, but no less pervasive, Renewable Energy Target has been quietly forcing low to middle-income earners, small businesses and others to pay higher power bills to fund payments to the renewable energy sector.

The original Mandatory Renewable Energy Target was introduced by the Howard government. Commencing from 2001, large electricity purchasers were required to source an additional 2 per cent of electricity from renewable sources by 2010, compared with 1997 levels. The statutory target was intended to remain until 2020, before ceasing. Inevitably, the target resulted in some value transfer from electricity consumers to renewable energy providers. However, dramatic changes to the scheme introduced by the Rudd government in 2009 took things to another level altogether.

They lifted the 2020 target from 2 per cent to 20 per cent, and extended the statutory target to 2030. Taking into account 15,000 gigawatt hours per year of existing renewable energy supply, the 2020 target for additional renewable energy generation became 45,000 GWh – based on an assumed 300,000 GWh of total electricity demand in 2020.

Demand falling

Since then, though, forecast electricity demand has fallen to 230,000 GWh – meaning the real target is now closer to 27 per cent (not the original 20 per cent). This also means consumers will continue to pay for more generation capacity in an electricity market that is already oversupplied.

Estimates of the RET’s actual cost vary. Analysis conducted for the Business Council of Australia concluded in 2013-14, the RET would add about 2.8 per cent to typical household electricity bills and 3.9 to 9.6 per cent for large businesses that consume more than five GWh a year.

Last year, the Independent Pricing and Regulatory Tribunal estimated the RET for a typical NSW household cost $107 a year.

But it is clear the added cost is being deliberately directed as a form of industry assistance to one particular sector of the economy: the renewable energy sector.

The arguments are typical of corporate welfare recipients: for example, that the RET supports new jobs in a new industry that wouldn’t be competitive without the subsidy. Like all corporate welfare arguments, they ignore the fact that others (electricity consumers) are picking up the tab for that lack of competitiveness.

Worse, though, ongoing technological developments mean some areas of renewables do not need a subsidy to be cost competitive. For instance, the BCA has noted that the dramatic decline in the cost of rooftop solar since 2009 means it is now at grid parity and offers an economic return to installers that is competitive with retail electricity suppliers.

Some arguments also focus on emissions abatement – even though the RET specifically subsidises renewable energy rather than lower-emissions energy more broadly, and implies a cost of abatement well above even Australia’s internationally uncompetitive carbon tax.

There are complex sovereign risk issues to navigate but, happily, the federal government has commissioned a review of the RET. Awareness is growing that this is just another area where a sense of entitlement is alive and well – this time among the renewable energy sector.

We all want a clean, green planet. But let’s not pretend old-style industry policy dressed up an environmental policy is the best way to achieve it. As legislated, the scheme’s acronym should be more fulsomely expanded to recognise the RET for what it is – a giant REnT.

Kelly O’Dwyer is the federal member for Higgins.
Australian Financial Review

On the previous Monday (16 June 2014) debate was had on the future of the mandatory RET in the Federal Parliament (House of Reps).

The debate kicked off with Labor hackbencher, Pat Conroy waxing lyrical about the wonders of giant fans, pixies, leprechauns and other such magical phenomena.

You know, the usual fantasies about wind power being free; creating millions of jobs; and providing electricity at rates affordable to anyone living in the Third World – he even goes in for the furphy that wind power is produced at zero marginal cost – the wind industry myth which we debunked in yesterday’s post. For a taste of what life’s like in another dimension read what young Pat had to say here.

Meanwhile, back on Earth, Australians are very fortunate to have Angus “the Enforcer” Taylor dedicated to dismantling the wind industry piece by stinking piece. Here’s Angus in response to the Green-Labor giant fan love-in (for a pdf click here).

HOUSE OF REPRESENTATIVES
PROOF
Federation Chamber
PRIVATE MEMBERS’ BUSINESS
Mandatory Renewable Energy Target
SPEECH
Monday, 16 June 2014 (Page: 140)

Mr TAYLOR (Hume) (12:36): Religious belief is based on faith not facts. The new climate religion, recruiting disciples every day, has little basis on fact and everything to do with blind faith. The new theologians of the green Left are not focused on the hilltop at Calvary, but on hills closer to home – many in my electorate, near Lake George, Gunning and Crookwell. And heaven help the heretics who question them. If you listen to Labor and the Greens, an immediate shift to renewable energy is necessary to avoid Armageddon.

At the other extreme, some believe, we do not need any of this. Of course, the coalition is taking a middle path. We have concluded that well-targeted emissions reduction via Direct Action is good policy. The great virtue of Direct Action is that it provides incentives, not penalties, for emissions reduction across the country. But the hard work starts now. As policymakers, our job is to minimise the cost of reaching our emissions-reduction target, particularly given our economy relies on energy-intensive exports.

Today’s The Australian reports on definitive economic modelling of the Renewable Energy Target recently completed by Deloitte. It tells us what should be obvious: the scheme is poor policy in its current form. The massive subsidy we single out for the wind industry via the LRET is one of the biggest but least understood corporate welfare programs ever conceived. Wind energy typically costs well over $90 to $100 per megawatt hour. The alternative is conventional energy, currently priced about $30 to $40 per megawatt hour, in the absence of a carbon tax. To make things worse, the electricity grid needs extra investment to absorb the intermediate supply from wind.

Deloitte tells us that the cost of reducing carbon emissions via the Renewable Energy Target is a $125 per tonne, more than five times the cost of Labor’s job-destroying carbon tax. The total cost to the economy is expected to be $34.1 billion, in today’s dollars. The extravagance of these massive subsidies to the wind industry is being paid for directly by electricity consumers and generators. Indeed, we have hardly begun. For large-scale renewables, which has come to mean wind, the current target of 16.1 terawatt hours moves to 41 by 2020. At the same time, the market price of delivering those renewables will increase sharply, reaching a legislative cap in the near future.

According to Deloitte, by 2020, the RET will cost the economy $3.4 billion per year. It will destroy almost 5,000 jobs and will drive a substantial reduction in investment and real wages. That is what bad policy does. It wastes money, costs jobs, costs investment and reduces income across the nation. It is true that the cost of renewables will come down over a period of time, but solar will trump wind easily on this count.

Across much of the Western world, policy makers are focused on one easy option to begin decarbonising our electricity grids, while the cost of renewables comes down: natural gas, because it is abundant and because it halves emissions. The United States has presided over a game-changer, achieving rapid reductions in carbon emissions, containing the price of electricity and putting manufacturing back on the map – all on the back of cheap gas. It has given Obama an incredible political opportunity. He is claiming this is a triumph of his new direct action policy when, in fact, gas has done most of the work.

But there is a hitch for us. In Australia gas is more expensive than in the US, because we export it. Of course, there are strengthening calls from the left for a reservation of gas for domestic purposes. We should ignore these calls because we have alternatives. Bear in mind that the electricity grid is responsible for less than half of our emissions. Land use, transport, fuel, agriculture and industry are all responsible for the rest. Indeed, these areas have been central to delivering our Kyoto obligations and will be central to Direct Action.

Burchell Wilson, chief economist of the Australian Chamber of Commerce and Industry, said in today’s The Australian:

The renewables industry has been standing over the graves of Australian manufacturing concerns, crowing about the jobs the RET is creating in the wind industry.

In short, by 2020, if the renewable energy target is not restructured, the costs will explode and we will all pay for it.

That is why this government is conducting a review of the target and why we committed to this review before the election. Fixing the RET is the next step towards ending the age of entitlement – in this case, wind-industry entitlement.
Angus Taylor (Hume)

Nice work Angus, we couldn’t have said it much better ourselves.