Australia’s largest energy utility, Origin Energy, remains unhappy about the findings of the Climate Change Authority’s review into the Renewable Energy Target (RET), saying it had “missed the opportunity” of identifying the real costs of the scheme.
“We don’t believe it was an effective review,” Origin Energy CEO Grant King said in response to a question posed by RenewEconomy at a media briefing on Thursday. In particular, he said, the CCA had “grossly underestimated” the costs of the small-scale part of the scheme, which focuses mostly on rooftop solar.
The bulk of Australia’s electricity industry, the network operators, fossil fuel generators and retailers such as Origin fought hard against maintaining the status quo of the RET, saying it would lead to significant costs on consumers and would also have a significant impact on their own businesses, particularly the generators.
The CCA rejected that position, and recommended the fixed 41,000GWh target by 2020 be retained, rather than diluting it to a “floating target” reflecting actual, rather than projected, demand. It said the cost savings of altering the target were negligible and were outweighed by the investment impact of changing the rules.
Sill, the Labor government has yet to rubber-stamp the CCA finding, and the position of the Opposition remains unclear. Renewable energy developers such as Infigen Energy have been calling for both parties to make their positions clear, so that the build-out of renewables can continue. (See separate story).
King said on Thursday that following its recent contract with the Snowtown 2 wind project, it is in no need to make any major decisions within the next six months at least. This includes the Stockyard Hill project in Victoria, which could be more than 300MW and up to 500MW. Origin sought a buyer for that project last year but has decided to retain the development rights.
Origin Energy is currently focused on its massive CSG to LNG project in Gladstone, which will now cost about $24.7 billion, but will deliver its first revenues ahead of schedule in 2015.
In the meantime, its results are driven, essentially, by its energy business, which has been suffering from weakening overall demand, intense competition, rising wholesale prices, and various regulatory decisions.
In the latest half, its net profit fell by 34 per cent to $524 million, with underlying earnings from its energy markets division down 20 per cent to $660 million, and its margins to 9.4 per cent from 14.1 per cent – mostly to do with reduced demand and competition.
King said that the uptake of solar PV had been well beyond what anyone had anticipated and had had an impact on demand. However, the uptake was falling sharply, even if profitability from the solar PV business had increased. (see separate story).
Electricity demand from Origin’s mass market customers fell by a whopping 11.1 per cent compared to the previous half. Apart from the overall weak demand, this was caused by the loss of 179,000 customers compared to the same period a year earlier as competition among retailers intensified. This had been slowed to 23,000 in the latest half, and had been partly offset by an increase in demand from its commercial and industrial customer base.
The reduction in electricity volumes caused a $28 million impact to profit, the increase in wholesale energy prices caused a $53 million impact, and the Queensland regulatory ruling that put a ceiling on retail prices cost another $58 million.
However, the hot weather in January in Queensland also caused a huge number of peak pricing events (see graph to the right), with more than 20 per cent of the half hour intervals in the NEM pricing at between $100/MWh and $300/MWh. Origin said its hedging strategy accounted for the possibility of higher average prices, but not for such dramatic spikes and volatility.
King said that would cause a loss of around $35 million and further reduce annual profits. “When we see hot weather … we see people wanting to turn all those switches on,” he said.