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Five things we learned this week ….

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Utilities struggle for new arguments to curtail the renewable energy target

Having failed with their arguments that adjusting renewable energy target, the large utilities and generators and other groups campaigning against the retention of a fixed target of 41,000 gigawatt hours have turned their arguments elsewhere. EnergyAustralia, Origin Energy and others have suggested that the target may be difficult to meet anyway, and cited growing community opposition as one of those reasons. “The RET’s entire viability will come into question if energy consumers are forced to pay the penalty without delivery of additional renewable energy,” EnergyAustralia argued. There’s no doubt that energy consumers would be upset by this, but their frustration may well be vented towards the utilities who failed to cause those wind or solar farms to be built.

Many companies also raised the issue about imported equipment to build wind farms, saying about 70 per cent of the manufactured goods will be brough in from overseas. Possibly a good opportunity to remind ourselves of EnergyAustralia’s vision of how Australia’s immediate energy future should look: a quick burst of wind farms to satisfy existing contracts and then nothing, apart from a whole bunch of gas fired generators over the coming decade. And how many of those gas turbines will be manufactured in Australia? Probably zero.

The coal association can’t get it head around the new paradigm

The Australian Coal Association also grasped at straws, arguing that countries with the biggest investment in renewables have the highest electricity prices. Closer inspection, however, suggests that many of these countries – Germany, Denmark, Spain and Portugal – already had high electricity costs anyway because of their reliance on imported gas. Even after a recent 47 per cent rise in the cost of renewable subsidies in Germany, the total cost of such incentives amounts to €185 a year ($A228,  or about $4.38 a week) per household. Business doesn’t pay any extra.

The ACA is also hanging grimly to the old baseload/peakload paradigm, claiming that the retirement of the  nuclear fleet of 17 power stations in Germany will necessitate the construction of 23 new coal-fired power stations underlining the primacy of fossil fuel generation. Also wrong. Those that have been completed in recent months were begun well before the nuclear shut-down – and have been designed specifically to be flexible enough to fit in with renewables.  According to the World Resources Institute, only 10 plants remain on the planning list, but the three biggest energy companies – RWE, E.ON and Vattenfall – have made it quite clear that none of these will be built in the foreseeable future, if ever, because of falling demand and the impact of renewables. Germany in 2012 has exported a record amount of electricity.

It’s all about profits and valuations

Ultimately, however, it comes down to money and profits.  The NSW government-owned Macquarie Generation said it had commissioned modeling from Frontier Economics that found generators would lose some $6 billion in revenue from the “merit order effect”, where wind and other renewables depress the wholesale price of electricity.

Gentailers can absorb some of this costs, because they make it up in the margins of their retail business (which buys the lower priced wholesale power). But generators such as Macquarie cannot. It said the impact of the RET translated into a loss of $11.3 to $17.3 billion in terms of net present value of thermal generators. Macquarie has already written down the value of its business by $1 billion as a result of the carbon price, and said it faced a further “substantial” reduction in value as a result of the RET. And the NSW government is trying to sell it. Little wonder it wants to can the RET.

And it’s all about delay

Macquarie’s essential argument was that delay was a good thing, a theme taken up with enthusiasm by the Business Council of Australia which said that Australia must ensure that it does not go beyond 20 per cent in renewables.  “A first priority improvement therefore should be to ensure the implementation of the RET delivers no more than the 20 per cent target.” By which they mean, no more than 20 per cent of actual demand.

This in a week when reports from the International Energy Agency, the UN, the World Bank, and the World Meteorological Office all lamented the impacts of delay and the world underachieving its climate targets – something the world is doing in spectacular fashion. All produced reports highlighting how the world is falling well short of its climate targets, and must act decisively, and with considerably more ambition, than the BCA would think appropriate. Garry Weaven, the head of Industry Funds Management, vented his frustration in a briefing on Friday: “The (RET) is a very very modest target. It is an inadequate response from a high carbon country,” he said. But, most funds managers were continuing to invest heavily in fossil fuels because it was a “bet on the vested interests prevailing over social leadership.”

Home efficiency is having a major impact 

It’s not just renewables the incumbents have to contend with, it’s also falling demand. And it seems much of it is to do with consumer choice. A press release from Mark Dreyfus, parliamentary cecretary for Climate Change and Energy Efficiency this week highlighted just how far we have reduced our consumption, even as we bulk up on household appliances. An eight star (yes, 8) TV in the small to medium range now costs $21 to run, one sixth the running cost of a 3-star TV, and one-twentieth the cost of a 1-star TV. Even in the large category, a 7-star TV costs just $69 a year to run, compared with a 2 star TV currently which costs $250 a year to operate. Samsung got a gong for the 8-star, LG for the 7-star.

Dreyfus says 10-star TVs are now coming into the market, causing the government to upgrade its star rating scheme to remove the bottom three rungs. These and more efficient fridges and laptops are expected to save households and businesses $5.2 billion dollars in 2020 alone. The biggest consumer in the household in terms of kilowatts consumed is often the clothes dryer. That’s where solar comes in as a really useful energy source  – just hang them outside.

And don’t miss Sophie Vorrath’s The week in green numbers …. 

 

 

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  • suthnsun

    Blind Freddie can see that anyone investing in fossil fuel supply/generation is taking a ludicrous risk.

    None of them are ‘too big to fail’ and they definitely should be given no outs when capital destruction becomes clear.

    Any investment funds are desperately needed now to fast-track development of renewables – any investment in fossil fuels is at odds with the public interest and makes them a public enemy. Why would anyone be investing at this point of time in a product that the consumer SIMPLY DOES NOT WANT.

  • James Fisher

    There has been little development of renewable energy in the past 2 years largely because of the oversupply of REC’s and the vested interests believing that they could change the goal posts rather than invest to meet the 2020 target.

    If the big players want to deliver the 2020 target they need to go full speed ahead now! That doesn’t seem to be on their collective minds.

    Clearly the best hope is for a Tony Abbott win next year to bail them out. If Tony fails they will just pay the penalty and blame the public for being anti-wind or overly optimistic that such a target could be achieved or whatever other nonsense they can dream up.

    My vote is to triple the penalty. Then we might see the 2020 target taken seriously.

  • Ken Fabian

    I wonder if the election of State governments that are largely hostile to action on climate and to low emissions renewables combined with the punditry that was certain Abbott would lead the next Federal Government and carry that view into national policy making, that these combined to give these blinkered power brokers the illusion of having no reason to embrace the change that they really ought to be at the forefront of.

  • Dave Smith

    The power industry would be in some trouble if it restricted itself to using Australian manufacturing.

    Maybe we could power the whole NEM with Holden V8 engines.

    • Warwick

      Nope, V8’s are made overseas too…