Hunt disputes CEC modeling on renewable energy target

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Every day there is a new reason for the renewable energy industry in Australia to become increasingly despondent about its future.

On Wednesday it was news that renewable energy target review panel head Dick Warburton, who doesn’t accept the science of climate change and believes nuclear is the only possible alternative to coal, would not rule out scrapping the RET entirely, a decision that would cause billions of dollars of existing renewable energy investments to be wiped out.

On Thursday, it was environment minister Greg Hunt, who ostensibly has some influence over renewables policy, taking issue with modelling released by the Clean Energy Council which showed that consumer bills would fall, not rise, if the RET was retained, or even increased.

Hunt said he had read the report, and agreed with some of it, and disagreed with other bits. On the latter, it appeared to be the idea of a “negative cost” of the RET policy that “did not make sense” to the minister for the environment.

Hunt said that if that was the case, then renewable energy projects would not need a subsidy. “Some say that it is a negative cost, but that doesn’t make any sense because you wouldn’t need subsidy if that was the case. It is effectively a cross subsidy from one form of electricity to another, ” he told the Municipal Association of Victoria Environment Conference in Melbourne, in response to a question from Surf Coast Shire Councillor Eve Fisher.

Hunt’s comments are disturbing because they display an ignorance and lack of understanding of the arguments put forward by the renewable energy industry, and how the RET actually works.

The CEC modelling said that the cost of the RET, in the form of certificates bought by retailers and the cost passed on to consumers, would be around 3-4 per cent of electricity bills – a figure agreed on by Hunt. But the CEC modelling also noted that this impact would be offset by the reductions in the wholesale price, caused by the presence of more renewable energy, which has a minimal short-run cost and forces wholesale electricity prices down.

These are conclusions arrived at elsewhere in the world, including by the International Energy Agency, and for what it’s worth is the very argument presented by the fossil fuel industry, as it seeks to have the RET reduced or dismantled entirely. They fear that their profits will be eroded by the expected fall in wholesale prices. They argue that the wholesale cost reductions should not be passed on to consumers.

The reason why a RET is warranted – apart from its obvious environmental benefits – is that it requires retailers to write contracts for new wind or solar farms. Without this mechanism, they wouldn’t be built, because of an oversupply of coal and gas fired generators. The incumbents simply want to keep operating these as long as they can.

The fact that Hunt doesn’t understand how this works suggests one of two things.

The first is that he is possibly confusing the concept of negative cost abatement with his emissions reduction fund, which will allocate money to the cheapest bid in an auction. (Hardly likely that any of those bids would be negative, otherwise it would be the private sector giving a grant to the government.) The Abbott government is already struggling with the concept of negative abatement, given its refusal to allow the Clean Energy Finance Corporation to continue despite its promise that it could do the same by unlocking vast sums of private money.

It also suggests that Hunt’s instinct is to side with the fossil fuel industry rather than consumers, which is why the Abbott government insisted on the RET review in the first place, and insisted it be led by the likes of Warburton, rather than the Climate Change Authority, which made the very point that the Clean Energy Council was making this week.  

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  • wideEyedPupil

    Pretty obvious Hunt is one of those people who can convince themselves of any argument that appears — to them alone — to support their vested interests. He’s got form on these kinds of illogical statements on CC and renewables. The strange thing is he get’s so arc’d up about his rubbish when challenged, unlike Turnbull who just smiles condescendingly and talks more shit.

  • Chris Drongers

    Hunt likes being a minister. In an Abbott government this means being innumerate when necessary.

  • SolarPowerBen

    If Hunt doesn’t like a subsidy for renewables, why does he still favour subsidies for fossils? Where is the level playing field?

    • Beat Odermatt

      The coal industry can pass on the cost to future generations. The cost of rehabilitation of coal mines, control of shale and coal fires (some burning for decades) , acid mine water control, health cost caused by coal dust etc. etc. is well over 50 Billion Dollars. Currently there is just not enough money in any rehabilitation fund to cover the cost. In the end, it will be our children paying for it.

  • Chris Fraser

    For a moment it sounded like Greg Hunt was conceding that renewables are cheaper in the long run. All that remains to be put in place for a consumer savings is a high level RET. Oh, is that a problem for Greg ? The wrong people must be twisting his arm …

  • Colin Nicholson

    So this is the chap who conducts an experiments to test influences as follows. Take 100 samples and apply the measure in question to 50 and do nothing with the remaining 50. Of the fifty with the measure, 40 record a positive outcome, whilst for those without the measure only 10 record a positive outcome. Our man the minister analyses the data by adding the 40 to the 10 (both ways) comes up with 50 and hence determines 50/50 that is, the measure has no noticable effect.

  • Beat Odermatt

    The RET in fact will help electricity companies making more money and makes them to pay more taxes and dividends. The feed-in tariff at the moment is around 8 cents, which can be resold for well over 30 cents within milliseconds within the same grid. I am sure electricity companies could not be as stupid as to argue against RET. The RET benefits everyone, the customers, Government, power companies and of course the environment.

    I have worked in a coal mine and I can assure you that rooftop PV create a lot less dust, noise and pollution!

  • In figure 1 (p2) of the ROAM report, the benefits modelled for the continuation of the RET are shown to come from reduction in pool prices.

    For this reason, it’s important to consider the comments in section 5.1.1 “Sensitivity of pool prices” to understand the conditions under which the modelled results would hold true – and the conditions under which they might not.

    For instance, figure 5.2 shows spot prices continuing to run in a range between $30/MWh and $40/MWh in the BAU case for SA, VIC and TAS (and up to $50 in NSW).

    This makes sense on the stated input assumption that there’d be no generation retirements or mothballing. Basically, providing an external incentive to bring more capacity into an oversupplied market could be expected to keep prices low, or drive them

    Each reader will have their own view of how likely it is that established generators continue to run their entire portfolio in the light of continued depressed wholesale market prices (if the attempt to curtail the RET is unsuccessful).

    If retirements were to occur, spot prices would rise, as we highlighted here was the case in QLD over summer 2012-13:

    If this was to occur, the modelled benefits would migrate from benefits to consumers towards asset writedowns for generation companies as ROI increases for the remaining generation fleet.

    Hence readers should be aware of a few key assumptions that stand behind the finding that RET would deliver a net benefit by suppressing spot prices.

    • Gramus

      Excellent comment.
      This debate really needs comment by those with an actual understanding of the issues.

  • Blair Donaldson

    I’m no longer amazed by the cherry picked justifications employed by Greg Hunt and his fellow Luddites in their ideological battle against science, reason and evidence. Black is white to them, except when it isn’t. Apparently they are also expert on any subject where consensus disagrees with them. Welcome to the new dark age in Australia.

    • RobS

      I think the disagreement with expert opinion is the most staggering part, they read (or don’t read) a complex analysis and its conclusions then “rebut” it with the most blitheringly stupid and simplistic argument that a 10 year old might come up with. Does hunt really believe the CEC didn’t consider subsidies when analysing the Effect of renewables on wholesale power prices? does he really believe that he’s had a stroke of genius and been the only one to remember to take the RET into account when considering the effect of renewable energy on power prices? It’s either wilful misdirection, staggering hubris or mental simplicity of the highest order. Considering Hunt wrote a final year thesis on the superior characteristics of an emissions tax for discouraging the release of environmental pollutants oh so ironically titled “A Tax to Make the Polluter Pay” it smacks of wilful misdirection.

      • Blair Donaldson

        Exactly. Evidently scientific information and real-world data, along with expert opinion is not rated as highly as ideology in the minds of the likes of Hunt.

        It’s hard to know what he believes but clearly, respect for evidence and honesty isn’t high. It’s interesting that he gets exercised about subsidies but appears to have no problems with subsidies going towards fossil fuel fired generators, miners etc?

        Most amazing is that he appears to think people should take him seriously. It’s a weird world we live in.

      • Miles Harding

        There’s ignorance out the window, leaving Greg Hunt in a moral vacuum.

        More evidence that the black hand of big coal is guiding LNP policy to the detriment of the nation and its people.

  • Matthew H

    The retail electricity market is dominated by the major utilities which also own much of the fossil fuel generation capacity. There’s no chance they’ll buy from new, competing renewable generators unless required to by regulation such as the RET, which is why it must stay.

  • Name

    Hunt clearly does not understand the concept of innovative change – a new paradigm.
    RET has created and can continue to create a new way of generating electricity and it is cheaper in economic terms. However to trigger the change capital needs to be invested to build new renewable power plants and that does not happen without the Renewable Energy Certificate cashflow underwriting the capital investment. At the present 20% target level for 2020 this underwriting costs electricity consumers about $8/MWh.
    Three benefits then flow from this investment.
    Firstly, we have seen reduced prices of electricity for summer daily peaks (see published work of Mike Sandiford) from peak shaving/smoothing by solar PV generation, mainly since 2010 – these reductions spread over the year would appear to be equivalent to around $12/MWh in 2014.
    Secondly, we have seen modified bidding behaviour from those with low or zero fuel costs bidding into the market, such as brown coal, solar photovotaic and wind generators. SKM has published work on this and ROAM’s recent work for CEC shows similar trends. These effects seem to be a saving in wholesale electricity costs of about $10/MWh.
    And thirdly, there is a reduced amount of carbon dioxide in our electricity sector emissions lets say 0.2 tCO2/MWh, for a 20% target, worth $8/tonne (Hunt’s direct action estimate) saving about $1.6/MWh.
    So the net effect of RET is +$8-$12-$10-$1.6= minus $15.6/MWh or about $3 billion savings a year.
    This government claims to understand transport infrastructure – better roads will save more in economic terms that their financial outlay. The benefits of the cost of building the road do not flow back directly to the builder, but flow in economic terms to the road users in time savings. Hence the government likes to build roads because of the benefit cost ratio. Much the same happens with renewable energy.
    But Hunt cannot accept that the financial outlay to support RET is producing more economic benefits to electricity consumers than it costs to install the renewable energy generation. The installers of the generation don’t get the benefit – the electricity consumers get it. RET produces a benefit cost ratio of nearly 3 – far better than many roads and with no government subsidy!
    Hunt is smart he can understand this but will he listen??
    David Rossiter former Renewable Energy Regulator

  • Gramus

    Hunt is right. If RE on a long run marginal basis was indeed negative cost wind farms would be being built without the RET subsidy. They are not, therefore the negative cost claim is somewhat dubious.

    Paul McArdle has it exactly right in his comment. There are underlying assumptions in the ROAM modelling which do not stand scrutiny.

    • RobS

      What do you mean “they are not”? Are you suggesting no developer is voluntarily foregoing the subsidy therefore that is proof it is an absolute necessity for every project to be built? No it’s just proof that the developers aren’t economic idiots who would throw away the offer of support. Your point would only be valid if the subsidy was removed and renewable installations never resumed, until then you are simply making up facts to suit your agenda.

      • Gramus

        If we can believe the publicly stated views of the major wind developers, there won’t be new wind farms in the absence of the RET any time soon.

        • Blair Donaldson

          The RET is not a direct subsidy, it forces retailers to buy a percentage of electricity from renewable energy sources. Market forces still apply to those sources. At least it’s an honest and transparent system unlike the assorted subsidies, tax breaks and exclusions from environmental guidelines enjoyed by generators relying on fossil fuels.

          Anybody who has seen Hunt explain his system can see full well he knows it’s a dog. There is no meaningful penalty for polluters to exceed their limit, there is no meaningful pressure to require them to convert to renewables or clean up their act because Hunt’s version is only funded for a couple of years and then who knows what will happen? At least the RET has some reasonable, sensible timeline so the generators, developers and investors can make a fair assessment of the scheme and plan their investments accordingly.

  • DogzOwn

    But did the bill pass, to exempt Minister Hunt, from future prosecution, for wilful blindness type disregard of consequences of his obviously dirty deeds? Will they end up offering $153/MWh or more, forever, in blind faith about nuke power junk from Uncle Sam? What a whiter than white neocon feller’s country! Shameful.