Why were RET modellers instructed to ignore commercial reality?

Print Friendly

The firm hired by the Abbott government to conduct the modelling for its controversial review of the Renewable Energy Target has admitted it was instructed to ignore commercial reality – particularly around coal-fired power generation.

Buried in its voluminous report, leading consultant firm ACIL Allen says it was instructed by the RET Review panel, headed by climate skeptic Dick Warburton, to ignore commercial realities around coal-fired generation.

ACIL Allen is one of the country’s leading modellers, providing analysis for many of the country’s biggest companies. Normally, it says, it would take into account the risk of a carbon price, financing issues and community views when assessing the prospects for coal-fired generation.coal_divestment

But in its notes to its report, it says is was instructed to ignore all those commercial realities when assessing the cost of coal generation – an equation that was crucial to gauging the costs and the benefits of the RET scheme.

This is how ACIL described the situation:

“ACIL Allen’s standard assumption when undertaking market outlook studies is to restrict conventional coal (i.e. coal-based technologies which do not employ carbon capture and storage) from entry. This is due to:

 Community views and corporate sustainability policies

 Potential difficulty obtaining generation licences from State and Territory governments

 Long-term risk of explicit carbon pricing being reintroduced

 Difficulty in securing financing on a commercial basis due to these risks.

As requested by the Expert Panel, conventional coal entry will be permitted in the policy scenarios based purely on the economics of the technology within the market. As ACIL Allen’s modelling assumes perfect foresight though, it ignores the risk of future carbon policies which may have a negative effect upon the commercial performance of such plant.”

Any analyst and financier will tell you that it would be impossible to finance or build a new coal-fired generator in this county, but the RET Review panel wanted the modelling of the RET costs to be done on the basis that coal generators could be built. This was a key component in their efforts to try to paint the RET scheme as costly and ineffective.

The admission by ACIL Allen is crucial when assessing the credibility of the RET Review panel’s findings – which are essentially that the RET be stopped immediately, or best that renewables should be allowed to account for only 50 per cent of new demand, up to a maximum of a “real 20 per cent”. This would reduce the amount of wind and solar generation to be built in the country by more than two thirds, to the benefit of coal-fired generation.

The modelling has been criticised on a number of counts, including highly conservative estimates of the cost of solar and wind generation; and benign forecasts about the cost of coal and gas. But an explicit instruction to ignore commercial reality – on top of dismissing climate change as an issue – is the most egregious.

As one senior banker told RenewEconomy: “It is extraordinary that the modellers were asked to ignore commercial reality. You couldn’t take these recommendations to a company board. It would be irresponsible. It would be like doing modelling for a company on the basis of the Australian dollar being worth 12 US cents. It’s ridiculous.”

The fact that corporates include a carbon price in their investment decisions is not new. Even major resource companies such as BHP Billiton and Rio Tinto do exactly that, which is possibly why they have moved to reduce their exposure to thermal coal generation.

A report in 2013 found that ExxonMobil assumes a cost of $US60 per metric ton by 2030. BP currently uses $40 per metric ton. Royal Dutch Shell uses a price of $40 per tonne.   The US government operates with a “shadow” carbon price of $US43/tonne. The Australian RET Review completely ignored it.

Despite all of this, the ACIL Allen modelling actually found that a scenario of 30 per cent renewable by 2020 would deliver the greatest benefit to consumers, jobs and the industry, and would be the most economically efficient. But it would also cause most pain to the incumbent fossil fuel generators. So what did the panel recommend? Immediate closure of the scheme to new entrants.


RenewEconomy Free Daily Newsletter

Share this:

  • Warwick

    Giles, I’d say the biggest omission was to ignore the intrinsic value of renewables, i.e. clean air and clean water whilst putting no cost to society of the emissions of fossil fueled power stations for greenhouse gases and particulate pollution.

    • ChrisEcoSouth

      I have made a straightforward approximation (more like back of envelope) of the cost of the
      negative health effects of coal, which seem to get lost behind the

      This is using the Gross External Damages methodology of Muller,
      Mendelsohn and Nordhaus, American Economic Review, August 2011.

      And to make it really pointed, the net negative health effect
      (including agriculture think acid rain etc), of the coal industry by
      itself, and not including CO2, is approximately $AUD4billion per

      On top of this add the energy industry subsidies/special tax
      concessions, and we are now around $8billion per year.

      Thats what we all pay!

      More at:

      Like China, we should be actively looking for clean alternatives to
      coal, for the sake of the health of ourselves and our livestock.
      Think of the recent Hazelwood coal-pit fire at Morwell – how many
      Australian’s lungs were damaged?

      • Lane Crockett

        Using the IMF paper recently published, it suggests that Australian coal and gas fired generation causes $9BN per year in environmental and health costs.

    • MysteryIdiot

      Like the author said, not putting a price on carbon, even an implicit price was not consistent with best practice. If you priced carbon AND had a benefit to the counterfactual from providing clean air etc then you would be double counting.

  • johnnewton

    Surely this renders rhe report invalid and is worht a massive news stoty embarrasing the Abbott government. Oh, wait, how can you embarrass them?

    • David Martin

      I believe, looking at this from the US, that there is nothing that anyone can do to embarrass the Abbott government that they aren’t being caught doing to themselves. And there seems to be no end in sight. But it certainly does render the report invalid, which comes as no surprise to any objective observer. Nor was that in any way a surprise given the way the government stacked the membership of the RET review panel, not to mention involved ministries.

      • johnnewton

        But David, to stack the panel AND prejudice the result, that takes some cojones.

  • RobS

    I truly hope that the government convinces someone somewhere to start building one large coal fired power station, when the holy grail clean coal technologies turn out to cost orders of magnitude more than promised, when a carbon tax gets reapplied to it in a few years and when its costs blow out by several times initial estimates and it all drives the company into bankruptcy in a heap of debt and worthless stranded assets then the lie of affordable coal power and Liberal energy rhetoric will be revealed for all to say in a legacy that will be remembered for decades. An enduring albatross that can be hung around the neck of the LNP to discredit their energy economic credentials for decades to come.

    • John W.

      Unfortunately that’s when the other law of government econometrics will kick in, and a future “Truthful Tony” Abbott will cover the company’s losses with public money, because of the “unfortunate, unforeseen, circumstances encountered by the company.”

  • Germany, a strong advocate of renewable energy, had no difficulty in building new coal plants

    I am far from advocating new coal plants for Australia (nuclear would be better) but let’s not kid ourselves that new coal plants are out of the question – our current coal plants are all getting long in the tooth. Even gas would be better but the anti CSG and shale gas activists are making gas supply in Australia a possible challenge.

    And please Giles don’t tell me we can do it with renewable energy alone and maintain our current network reliability. And don’t say storage is the answer. Given the EROEI problems with storage we probably can’t do it with just solar and wind and new hydro or geothermal are looking very unlikely.

    • I will let the Australian Energy Market Operator tell you it is possible with renewables only, as you know full well. Find me an energy company that wants to build a new coal plant in Australia, and I will show you a board as far removed from reality as you and your fellow nuclear dreamer, Dick Warburton.

      • And the AEMO report you are referring to had caveats as long as your arm which would make the concept of 100% renewable in the NEM completely impractical.

        • michael

          “possible” is such an easily misrepresented term as being equated to probable or realistic. That’s where this semantic argument lies. A bit like the beyond zero reports claiming australia could be 100% renewable by 2020…. please. My take away message from the majority of these newsletter is the positive story about the contribution of distributed renewable going forward (big tick), and the misplaced conflation of this with the ability of renewable to completely replace current generators say in the next decade (big cross), but every publication needs a bias to generate interest of a section of society, so you have to take the good with the bad

          • Glad you find the publication at least partially useful. I agree that DG and storage is going to change things rapidly. I don’t think that it will replace all centralised generation within a decade, but we did run a story quoting the energy analysts at the world’s biggest investment bank, UBS, saying that. These aren’ green dreamers, they are hard nosed analysts. When they – and others – start talking like that, we should sit up and take notice. That’s the point of this newsletter, to offer an alternative to the lame dross and backward thinking that dominates mainstream media. In the end, it doesn’t matter whether all coal fired power disappears in 10, 15 or 20 years, Disappear it will.

          • michael

            Definitely useful! I may disagree with some of the conclusions drawn within articles or the bent of the writing, however it’s a great way of keeping up with any new projects arising in the sector. You’re correct on the fact it will probably one day be replaced (definitely partially short term, and totally sometime in the distant future), I only take issue with people ignoring any good that has come of it or the fact it is still the most economic way of supplying the current situation and as much as they may want to force everyone to fund an accelerated transition, it just aint happening overnight. I’ll definitely be keeping on reading as this transition is happening and worth being up to speed on!

    • The Australian system should more towards about 60% renewables with gas peaker (and some pumped storage or other type of) backup – and the coal feet should be laid to rest. More rooftop solar will require a gas peaker backup system NOT the retention of a 2 to 3 day cook up period baseload coal. Gas gen can be installed in about 5 days flat – the quickest to install hands down, but burning gas to make electricity is extremely inefficient, only about 50% even with combined cycle. The more renewables we have the less gas we squander on base load generation.

    • Peter F

      Germany is planning to build 8GW of new coal and close 14GW. This closure target looks like it will be increased to 17GW over the next few months. By next year Germany will generate enough renewable electricity to power Australia. Given Australia’s much better solar (and surprisingly better Hydro resources) and at least as good wind it is easily possible to run the Australian grid on renewables. In addition to running the hydro as backup to wind and solar users can use thermal storage,(ice for AC, hot water for heating) and demand management to cope with the remaining variability

  • Chris Fraser

    I suspect the ACIL Allen modelling could be the basis of a new energy policy, being offered by an alternative government of course.

  • Rob G

    ACIL Allen have a good reputation to protect, the last thing they what is this half-baked review coming back on them. They know its geared for a one-sided case and they won’t stand by it quietly.