Australia’s Energy Minister, Ian “Macca” Macfarlane and his youthful ward, Environment Minister, Greg Hunt are the flies in the Coalition’s political ointment, when it comes to engineering anything like a sensible policy on energy. Both Macfarlane’s and Hunt’s offices are filled with wind industry plants and stooges, like Hunt’s senior adviser, Patrick Gibbons. Patrick is best mates with Vesta’s former head – and now full-time wind industry lobbyist – Ken McAlpine.

Both Macca and Hunt are still working flat-out at the minute trying to salvage the wreckage of the (completely unsustainable) Large-ScaleRenewable Energy Target (LRET).

For months now, Macca has been trying to cut a deal with Labor in an effort to help his mates over at the near-bankrupt wind power outfit, Infigen (aka Babcock and Brown) stay afloat.

Meanwhile, Macca’s side-kick, Greg Hunt has been trying to woo the cross-bench Senators, as part of the same last-ditch, salvage and rescue mission: back in December, Greg jetted down to Hobart to try and convince newly independent Tasmanian Senator, Jacqui Lambie about the “wonders” of wind power (see our post here).

And his office has pulled out all stops to prevent anyone with the first clue about the scale of the great wind power fraud from having any directcontact with Hunt, to avoid the Minister being confronted and embarrassed by the facts of an unmitigated policy fiasco (see our post here).

For more than just a little while, STT has been pointing out that the Large-Scale Renewable Energy Target (LRET) is simply unsustainable – be that as a matter of simple economics; or as a cold, hard political fact.

STT provided a very detailed analysis as to just why the LRET is all set to implode, in this post:

LRET “Stealth Tax” to Cost Australian Power Punters $30 BILLION

And backed it up in this post:

Rearranging Deckchairs on the Titanic: or Ian Macfarlane’s Futile Efforts to Save the LRET & his mates at Infigen

As part of STT’s analysis we drew the parallels between the collapse of the government backed, wool Reserve Price Scheme (RPS) back in 1991, and the inevitable collapse of the LRET.

Both effectively involved government (read “taxpayer”) underwritten floor prices, aimed at protecting the prices received by producers. The RPS collapsed because wool buyers simply refused to buy wool at the mandated floor price. The LRET will collapse because electricity retailers are refusing to enter Power Purchase Agreements with wind power outfits: PPAs are only entered in order to buy Renewable Energy Certificates, which are used by retailers to satisfy the LRET target.

Australia’s commercial power retailers have downed pens – having refused to enter any PPAs for over two years – they have no intention of doing so now; and will simply pay the shortfall charge, and collect it as a Federal tax from struggling power consumers (a theme to which we will return below). In the absence of long-term PPAs, wind power outfits will never obtain finance to build any new wind farms, which means that there will be no new wind power capacity built from here on (see our post here).

So, all the talk from Hunt and Macfarlane about “adjusting” targets under the LRET is little more than meaningless political twaddle. Despite all their smooth talk and conciliatory tones over reaching a “reasonable” deal with Labor on a “new” target, neither Hunt, nor Macfarlane can force Origin’s Grant King – or any other retailer – to enter PPAs; purchase RECs; or otherwise play ball, to save either the LRET, their mates at Infigen, or their political skins.

First, we’ll tune into some political gobbledygook dished up by Macfarlane on Sky News a couple of weeks back.

Sky News
Ian Macfarlane Interview with Sky News
26 February 2015

JOURNALIST: How are your negotiations going with the Opposition and others when it comes to the Renewable Energy Target? Any progress?

IAN MACFARLANE: Well we have put a position to the industry. We are waiting for the industry to consider it. The reality is that we have a gross oversupply of electricity generation in Australia and the biggest obstacle to the renewable energy industry building new capacity at the moment is that they can’t get anyone to buy the electricity because there is so much electricity generation around.

Now I’ve offered them a process of certainty, I’ve offered them a number and I’ve offered them a guarantee that this will be the last review before 2020 so that we change the legislation that requires a review every two years. I’ve offered them a scheme where we will deal with the overhang of credits in the market, so the industry can get on and build, particularly those wind farms that have already been given an approval and have gone to final investment decision, so we can continue to see the amount of renewable energy generated in Australia grow.

That is still happening. I mean, we’re still seeing an exponential growth in rooftop solar in Australia and we are on track to very significantly exceed the rooftop solar target which was 4,000 gigawatt hours and we’re already at about 7,000 gigawatt hours. So it is happening. The industry will have to understand that we are not going to build way more generation capacity then we need. There has to be some rationality in this. The other problem they’ve got is that if the scheme stays as it is, and that’s the alternative – that we just walk away and leave it – the renewable energy industry will be the one that pays the cost of that.

JOURNALIST: Is that offer that you have extended to the industry, above 30,000 gigawatt hours?

IAN MACFARLANE: I’m not going to get involved in that discussion, but look, yes it is. The industry knows what it is, I’m sure the Labor Party knows what it is because they seem to work in lockstep with the Clean Energy Council. The offer that’s been made is based not only on sound policy, but on the reality of where renewable energy is in Australia and that is that we are seeing a significant growth in rooftop and small scale solar which has to be taken into consideration. We don’t want to do it in a way which impinges on the large scale renewable energy scheme.

So they’ve got an offer, they can think about it for as long as they like, because until they come to an agreement, the scheme will continue untouched. So the scheme that has been agreed to by Penny Wong and I back in 2009 will continue as it is. We’re not going to touch it.

JOURNALIST: It’s been a somewhat messy process hasn’t it, and it has delivered a whole lot of uncertainty for the industry?

IAN MACFARLANE: No well I don’t think it has. I mean the situation is we’ve got a scheme that everyone agrees is going to go into default, is not going to be sustainable, is going to basically do something that in the end is not good for the renewable energy industry. I’ve offered them a compromise, an alternative, a logical solution to the issue, or they can keep the scheme they’ve got. That’s their choice.

If they don’t want compromise, if they don’t want to come to a point where we can actually have a sustainable renewable energy scheme, one which I’ve been involved in since day one since 2001 when I was the Resources Minister, if they don’t want to do that, then I’ll give them what they’ve got. I’ll give them what they asked for. That is the current scheme.

But I know that is going to end in tears and I know the people that will lose out of that will actually be the renewable energy industry.

JOURNALIST: Industry and Science Minister Ian Macfarlane, thanks for your time.
Sky News

Macfarlane would have been better off saving his breath. The “conversation” above was little more than a besieged Minister, thinking out loud in a stream of consciousness session, in the presence of a bemused observer.

For Mcfarlane – and his wind industry backers – the “elephant in the room” is the fact that retailers have NO reason to enter PPAs – and every reason not to. In the result, Australian power consumers will inevitably end up paying $30 billion in a stealth tax under the LRET. Which brings us to Mcfarlane’s little throwaways that:

“[T]the renewable energy industry will be the one that pays the cost of that”.  “But I know that is going to end in tears and I know the people that will lose out of that will actually be the renewable energy industry”.

Er, not quite, Ian. The biggest losers will be REAL Australian businesses, and hard-pressed households, who will end up paying for the costliest and most pointless policy debacle in the Commonwealth’s history.

At this point, we’ll pick up a little more twaddle from the “dynamic duo”, as young Greg Hunt ties himself in knots on ABC radio.

Renewable Energy Target
ABC Radio (The World Today)
Interview with David Mark
5 March 2015

DAVID MARK: Greg Hunt, the issue of the Renewable Energy Target, where it should be set, has been running for some time. You’ve been holding talks with the various industry representatives as well as the Labor Party. What is the progress of those talks?

GREG HUNT: Good. We are making real and significant and important progress. My view is that we are within reach of an agreement which will effectively double the renewable energy that has been installed over the last fifteen years within the next five years. Real progress on a constructive basis, but in a way which will manage people’s power prices and take any risk of additional pressure off them.

DAVID MARK: You talk about doubling the amount of renewable energy; the sticking point has been over this target. Should it be 41,000 gigawatt hours, which was the target set back when the RET first was set up, or the 26,000 that you were originally proposing. What’s the number?

GREG HUNT: Sure, you can understand that I won’t put any particular figure on the table but I think what matters to the Australian public is that we are making real progress, we are within sight of an agreement, we’re working constructively with the sector and I really appreciate their work.

We are also working constructively with the ALP and the manufacturing sector and so the critical part here is the potential for doubling what’s been installed over the last 15 years within half a decade and that’s a very good outcome for the environment, it’s a good outcome for the sector, but it means it will be done in a way that it can actually build rather than the risk of not achieving and then falling into a de-facto, massive penalty carbon tax of $93 per tonne which nobody wants to see.

DAVID MARK: Will the doubling of that renewable power, that renewable electricity be as a result of the RET? Or are you talking about other programmes?

GREG HUNT: No this is exclusively through the Renewable Energy Target. So the way the Renewable Energy Target works – for the listeners – is a benchmark is set. It has to be achieved by law and therefore the renewable energy has to be built and supplied to that level. If we reach an agreement which is an effective doubling then that is very, very significant.

It means that the renewable energy will have to be constructed, but it will be done in a way which ensures that it’s real renewable energy that is actually generated rather than a figure created but which is never actually built, which is then paid for by a penalty in the form of a $93 per tonne carbon tax and that’s been our concern.

I think we are very close, very close to a constructive outcome both for emissions, for solar, for renewable energy and for putting a cap in terms of removing any risk of a jump in power prices which was the legacy of the flaw in the pre-existing system.

DAVID MARK: As you know there are a large number of projects – wind projects and other projects – that are on the shelf now because of the uncertainty over the RET. If you get the deal that you’re talking about now, that you say you’re close to negotiating, are those projects going to be taken off the shelf? Will they be built?

GREG HUNT: Well I think this will allow additional renewable energy. Whether it’s solar or geothermal, whether it is small hydro or other forms of renewable energy, to proceed. We are of course…

DAVID MARK: But what about those projects that have been shelved will they come into play again?

GREG HUNT: Well of course, by definition, the projects that are most ready to go are those that are most likely to advance immediately. We are still increasing our renewable energy. I saw a list of many, many projects that have been commenced over the course of the last year.

I think that that’s been a tremendous step forward, but the risk that we all faced was failing to achieve the target because realistically the build just wasn’t possible and as a consequence, facing a massive $93 a tonne carbon tax penalty equivalent, whereas we can avoid that dead-weight cost, we can protect people’s power prices, but we can get the prospect of solar and wind and hydro and geothermal – these are real and significant steps forward.

DAVID MARK: You’re not talking about numbers but can you give us an indication? Obviously that number is going to somewhere between 26,000 gigawatt hours and 41. Is that correct?

GREG HUNT: That’s correct. And I’m not being…

DAVID MARK: In the upper 30s, in the lower 40s?

GREG HUNT: No, look, I have always said that we need to achieve a modest, sensible, balanced outcome. We’re being very reasonable. To be frank, I’ve found a very different position from the ALP in the last week and I respect and appreciate that, it’s been encouraging and constructive. And similarly we’ve found an extremely constructive approach from the Clean Energy Council and many members.

People have decided they want a deal and so I understandably won’t speculate on a number, but the order of magnitude for the Australian public is an approximate or near doubling of renewable energy in the ground and being generated.

DAVID MARK: Greg Hunt, how much has this period of uncertainty cost the renewables industry?

GREG HUNT: Well, I think that if we head towards a realistic target, that is the best long term sustainable outcome and it actually will advantage the sector in the medium term.

DAVID MARK: When do you expect to sign off on a deal?

GREG HUNT: I won’t put a timeframe on it but I would like to do it early and soon. We, of course, inherited the statutory review. It was a review enshrined in law by the ALP when they set up the Renewable Energy Target.

People can agree or disagree – it was inherited, we’ve done it, but I think we can get an outcome here which good for clean energy production, good for consumers – that has been an extremely important issue to make sure that the risk of a massive spike and penalty and burden for consumers is avoided.

DAVID MARK: You say want to do a deal soon – what are the sticking points?

GREG HUNT: Look I think that obviously the number and the means of calculation, but we’re close on that. Then something that’s been very important to the renewable sector has been soaking up some of the 24 million surplus credits which were created largely as a result of the phantom credit scheme where people were paid for renewable energy which was never actually produced.

Extraordinary, amazing, incredible. A bizarre Labor initiative, but we’ve had to deal with the consequences of that and there is a way through that I think we have largely agreed upon with the Clean Energy Council and those are the two most important things.

DAVID MARK: Greg Hunt, thanks very much for your time.

GREG HUNT: It’s a pleasure.
ABC, The World Today

Let’s start by throwing a spotlight on some of Hunt’s little musings – we’ve highlighted the important bits above, but we’ll set them out again:

We are also working constructively with the ALP and the manufacturing sector and so the critical part here is the potential for doubling what’s been installed over the last 15 years within half a decade and that’s a very good outcome for the environment, it’s a good outcome for the sector, but it means it will be done in a way that it can actually build rather than the risk of not achieving and then falling into a de-facto, massive penalty carbon tax of $93 per tonne which nobody wants to see.

It means that the renewable energy will have to be constructed, but it will be done in a way which ensures that it’s real renewable energy that is actually generated rather than a figure created but which is never actually built, which is then paid for by a penalty in the form of a $93 per tonne carbon tax and that’s been our concern.

I think that that’s been a tremendous step forward, but the risk that we all faced was failing to achieve the target because realistically the build just wasn’t possible and as a consequence, facing a massive $93 a tonne carbon tax penalty equivalent, whereas we can avoid that dead-weight cost, we can protect people’s power prices, but we can get the prospect of solar and wind and hydro and geothermal – these are real and significant steps forward.

What Greg is referring to – but can’t quite bring himself to mention – is the $65 per MWh shortfall charge (read “fine”) mandated under the LRET; which is destined to add $30 billion to Australian power bills over the life of the scheme (see below and our post here).

What Greg must surely know – but can’t bear revealing – is that there is no way any new wind power capacity is going to be added to satisfy the current (or any “amended”) target under the LRET.

With retailers refusing to enter PPAs; and, instead, deciding to pay the shortfall charge, the full cost of that penalty will simply be recovered as aFederal tax on all Australian electricity consumers. In an effort to bring the LRET rort to an end, retailers aim to make that politically unpalatable fact plain on their power bills, by adding the words “Federal Tax on Electricity Consumers”.

But, it’s Greg’s confusing claim that building new wind power capacity will, by avoiding the shortfall penalty, somehow “protect people’s power prices”  – that has STT’s attention.  According to young Greg’s take on things, rolling out thousands of giant fans will, magically, result in lower retail power prices.

Time to look at some numbers; and put Greg’s wild claims to the sword.

The LRET target is set by s40 of the Renewable Energy (Electricity) Act 2000 (here).

At the present time, the total annual contribution to the LRET from eligible renewable energy generation sources is 16,000 GWh; and, because retailers will not enter PPAs, is stuck there now and forever.

In the table below, the “Shortfall in MWh (millions)” is based on a total contribution to the LRET from eligible renewable sources of 16,000,000 MWh (1GWh = 1,000MWh). The LRET target is, likewise, set out in MWh (millions). As set out below, this means that the shortfall charge will kick in this calendar year; insiders say later this month.

Between now and 2031 the total target could be satisfied by the issue and surrender of 587 million RECs. However, with only 16 million RECs available annually there will be a total shortfall of 331 million. That means that only 256 million RECs will be available to satisfy the remaining 587 million MWh target, over the life of the LRET.

The REC price is, due to the impact of the shortfall charge, expected to hit $94, and, due to the taxation treatment of RECs versus the shortfall charge, the full cost of the shortfall charge to retailers is also $94.

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. And that’s the figure we’ve totted up in the right hand column – which combines 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.

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 building new wind power capacity will “protect people’s power prices” – as young Gregory claims.

Whether it’s RECs being generated by current (or additional) wind power generation, or the shortfall charge being applied, retailers will be recovering the combined costs of BOTH – and power consumers will not “avoid” any of it.

As our simple little exercise in arithmetic makes plain, over $55 billion will be added to all Australian power consumers’ bills; irrespective of whether young Greg is able to satisfy the desires of his mates at Infigen & Co to carpet the country in giant fans.

Not that it matters much to Australian power consumers footing the bill, but the ONLY difference is where that $55 billion gets funnelled. In the case of the REC Tax, that gets directed as a subsidy to wind power outfits (like Infigen and Pac Hydro); in the case of the shortfall charge, that gets directed to the Federal government, and goes straight into general revenue – as we call it, a “stealth tax” – as young Greg calls it, a: “massive penalty carbon tax.”

Which leaves us wondering whether Greg Hunt simply doesn’t know his onions – and is simply a bumbling incompetent, unfit to be left anywhere near Australia’s energy policy?

Or, if Greg has got a grip on the facts relevant to the operation and cost of the LRET, whether he’s just playing “dumb”; telling “porkies”; and taking the Australian public for fools?

But, behind Greg’s fluffing, there is a little paradox, wrapped up in an energy irony; in this unfolding policy fiasco.

It seems difficult to suggest that Australian power consumers will be better off being hit with a $30 billion stealth tax (in the form of the shortfall charge under the LRET), but that, indeed, is the practical result. Yes, that’s right; Australian power consumers will be financially better off if left to simply pay $30 billion in a pointless electricity tax.

If Greg Hunt was able to realise the dreams of his benefactors at Infigen & Co, not only would Australians be hit with the combined $55 billion cost of REC Tax/Subsidy and the shortfall charge (as set out above), any substantial increase in wind power generation capacity brings with it a number of totally unnecessary, additional and phenomenal costs – all of which will be borne by Australian power consumers.

Let’s start with just a few of them.

“Investment” in wind power generation capacity

The wind industry has been bleating about uncertainty over the LRET that will “prevent” some $17 billion worth of “investment” in new wind power generation capacity. That amount is, apparently, said to be what’s needed to install the turbines needed to satisfy the ultimate 41,000 GWh target from 2020 and beyond.

The wind industry throws around the term “investment”, as if wind power outfits are lining up to make an outright, “no-strings-attached” gift of $17 billion to Australian power consumers. What the wind industry and its parasites don’t say is that – like any capital investment – the investors stumping up the cash will be looking for a juicy return in exchange.

Any investor naturally looks for a return on a capital investment. Ideally, that return exceeds bank interest and – if there is any risk involved – accounts for that risk by way of higher returns. Investors in wind farm projects – due to the massive REC Subsidy – aim for a gross return on the capital invested in the order of 20% per annum.

That means that the investors stumping up $17 billion to install new turbines will be looking to recover $3.4 billion from power consumers each and every year to achieve that level of return: returns on wind power investments can only be recouped via income received from power sales – there is NO other source of revenue.

So, rather than being the objects of $17 billion in wind industry largesse, power consumers are being lined up for an enormous, additional and – because there is already ample generating capacity to meet (declining) demand well into the future – completely unnecessary $3.4 billion hit in the hip pocket each and every year.

Further unnecessary capital costs and “investment” in a duplicated electricity grid

For a little history of the LRET and a great summary of its likely total costs – see this detailed article by Ray Evans and Tom Quirk.

Back in 2009 Tom and Ray predicted with chilling accuracy (in this paper) the escalation of power prices due to increasing wind power generation.

Ray and Tom concluded that the total capital cost of installing an extra 26,000 MW of wind power capacity to reach the 2020 target is in the order of $52 billion.

On their figures, adding to that cost will be the need to have backup generation capacity of at least 23,400 MW – from base-load sources such as coal or gas – to ensure continuity of supply. In addition, this will also bring with it the need to pay the cost of having conventional generators on standby to meet demand during routine and unpredictable collapses in wind power output, through what are called “capacity payments” (see our post here).

And to absorb the intermittent and unpredictable wind power generated by wind turbines dispersed over Tasmania, South Australia, New South Wales, Victoria and Queensland – all feeding into the Eastern grid – there will need to be at least $30 billion invested in a duplicated transmission network.

The wind industry and its parasites try to deflect the true cost of the LRET and wind power by attributing escalating power prices to the cost of “poles and wires” – when they talk about “gold plated networks” (for a detailed rebuttal to that furphy, see our post here). To carry 26,000 MW of new wind power generating capacity, scattered all over South-Eastern Australia, will require the network to be “platinum plated”.

The $30 billion talked about by Ray and Tom in their papers is the cost of duplicating the network just to take wind power – on the few occasions it actually delivers (see our posts here and here and here and here).

What Tom Evans and Ray Quirk mean by duplicating the transmission network to accommodate wind power includes $107 million for an interconnector for no other purpose than to send South Australian generated wind power to Victoria at night-time – as reported by The Age.

A network exclusively devoted to sending wind power output from remote, rural locations to urban population centres (where the demand is) will only ever carry meaningful output 30-35% of the time, at best. The balance of the time, networks devoted to carrying wind power will carry nothing – for lengthy periods there will be no return on the capital cost – the lines will simply lay idle until the wind picks up.

The 26,000 MW of new wind power capacity that Ray and Tom suggest would be built to meet the 41,000 GWh target would see turbines spread far and wide over rural NSW, SA, Victoria, Queensland and Tasmania (which would be all connected to the Eastern grid). For that to happen, a network will need to be built that runs in the reverse direction to the existing grid.

Most major capitals have substantial generating capacity within relatively close proximity and existing networks radiate out from there – sending power out to rural and regional towns and farms. With wind farms being spread over huge geographical areas their output has to be chanelled back to where the markets are. The coasts and coastal cities are where the populations are – rural and regional Australia is relatively sparsely populated and the further you go inland the sparser it gets.

To specifically cater for a huge increase in wind power capacity will necessarily require an enormous investment in dedicated high capacity transmission lines (and all the other associated infrastructure) running from remote, regional and rural Australia back to the population centres – rather than the other way round.

We haven’t even got to the costs of installing and operating highly inefficient peaking power plants needed to backup wind power capacity when it disappears each day and for days on end, but we’ve made our point (for the impact of peaking power on power prices, see our postshere and here).

As our little table shows, the operation of the LRET means that retailers will be recovering $55 billion; as either REC Tax/Subsidy; or as the shortfall charge – and, either way, it’s Australian power consumers that will be paying for the lot.

In the event that there is any further increase in wind power generation capacity that equation does not alter, except that a greater proportion will be recovered as REC Tax/Subsidy, rather than as the shortfall charge.

However, if there is any increase in wind power generation capacity it will simply result in increased capital costs needed to install turbines; build a duplicated transmission grid; build additional peaking power generation capacity; and/or to pay “capacity payments” to conventional generators, etc, etc.

And, on top of that, comes the return on all of that capital “investment”: at least $52 billion to install 26,000 MW of further wind power capacity; and a further $30 billion in setting up a network to get it to market. Power consumers will end up paying for all of that “investment” through their power bills – think of a 20% gross annual return being recovered from power consumers on an $82 billion investment.

The potential cost to power consumers can only be described as colossal.

Which is why STT says that power consumers will, in fact, the better off by simply paying $30 billion to satisfy the shortfall charge under the LRET from here on.

Retailers, like Origin’s Grant King are perfectly aware that fully satisfying the LRET target by way of new wind power generation capacity will drive retail power prices through the roof over the next four years.

As we have pointed out, electricity retailers have a choice: enter PPAs to purchase RECs, or pay the shortfall charge; and they’ve decided to be hit with the latter, and to recover it via retail power bills. So, for retailers, whatever the LRET target might end up at is a matter of utter commercial indifference.

In the LRET wash up, retailers are aware that retail power prices will actually be substantially lower if there is no new wind power generation capacity built, because it avoids the need for added network costs etc – massive costs which retailers will be bound to recover from power consumers.

For retailers, power consumers aren’t just voters who might take out their anger at a ballot box every few years; these are a power retailers’ only customers: and these customers are already struggling to pay their power bills – tens of thousands of Australian households can’t afford their power bills now (see our posts here and here).

So, despite young Gregory’s weaselly efforts to deflect attention from the ultimate costs of the LRET to Australian power consumers, his little subterfuge is unlikely to slip under the guard of Australia’s power retailers: these boys are no fools.

And, soon enough, Australia’s power consumers will work out that they are being lined up to pay the obscene costs of an unmitigated power policy debacle.

The only question remaining is whether their Energy and Environment Ministers are just plain dumb, or whether they’re bare-faced liars?