Tony Abbott did his best to kill off renewable energy when he was PM—and he’s still trying it seems. But it is interesting to look back at the consequences of his efforts. The war on renewables was meant to reduce electricity prices. But it has done the opposite—and a lot more.
The big negative for renewables has been that the uncertainty created by the war led to a collapse in investment in large renewable energy projects. And the compromise 2020 large-scale renewable energy target (LRET), reduced from 41,000 GWh to 33,000 GWh, is now driving much less renewable energy development.
However, even the reduced LRET still means a lot of renewable generation capacity has to be built fast, from a near standing start, to generate 55% more renewable electricity than was produced in 2016, by 2020.
A report for the Clean Energy Regulator estimates an additional 6000 MW of generation capacity will be needed to meet the reduced 2020 target—a doubling of the renewable generation capacity installed since 2001. This has driven up the price of large-scale generation certi cates (LGCs) from a long- term price of $30–$40 to $80–$90 (see box).
So it is now very profitable to build new renewable generation capacity under the LRET, and we are seeing a boom. Of course, Mr Abbott can now complain about the high price of renewables—that he caused by frightening investors which, in turn, has led to a shortage of new renewable capacity and LGCs. As in all markets, a shortage has driven up prices.
But Australian media have noticed that renewable energy prices for new generation everywhere else, and in bids for ACT government auctions (which are outside and additional to the LRET), are falling. Without the LRET uncertainty, LGC prices should have been stable or even falling as more new, cheaper generation was built.
Effect on prices
The LRET cost does not appear in wholesale electricity prices; instead energy retailers pay and pass on the cost to their customers— adding up to a cent per kilowatt-hour to retail electricity prices in 2016. Large industrial consumers are largely exempt.
The impact of the war goes beyond the LGC price. Wholesale prices are also higher than they would have been with more renewables.
Today, renewable energy has less capacity to depress electricity spot market prices (the ‘merit order’ effect acknowledged even by Abbott’s hand-picked Warburton review panel) because we have less of it than we would have had. Renewables bid into the electricity market at very low prices, so they tend to replace high-priced generators. The last generator chosen sets the price for all generators operating at the time, so all generators operating make more money when there is less renewable generation available.
On top of this, the government’s failure to effectively manage the gas industry has meant that, when gas power stations are the marginal generators, high gas prices drive wholesale electricity prices sky-high.
Electricity generators, sensing that the media hysteria has done a great job of building a community expectation of higher electricity prices, have also raised their wholesale price bids, further increasing profits—that’s how markets really work: prices reflect ‘sentiment’ not actual production costs!
So the overall outcome of Tony Abbott’s war on renewables has been much higher electricity prices and, after a blip, a booming renewable energy industry.
We also need to remember that inflated network costs (now almost half of retail electricity prices) and, in some states, retailer pro ts are the big drivers of retail electricity price increases. Many governments have failed to fix that.
And some surprising effects
Some other ‘surprises’ have also emerged. State governments know that there are lots of votes in supporting renewable energy. And with renewable energy costs crashing (well done ARENA, CEFC and ACT government!) even sceptical treasuries can be convinced that state-level targets and programs make sense. Led by the ACT, state governments are ‘filling the vacuum’ using the ACT auction model.
Increasing numbers of businesses, local governments and universities with high consumer profiles are also installing or funding renewable energy projects because it helps with their image. Image is worth far more than any cost associated with renewables. With declining renewable energy prices (if they buy outside the LRET) and exploding grid electricity prices, renewable energy looks cheap, and provides insurance against future price hikes. An organisation whose customers are concerned about the environment would be mad not to join the rush.
And network operators in rural areas have finally overcome their cultural block, encouraged by declining energy storage costs, and the realisation that they risk being left out in the cold. They are beginning to roll out fringe–of-grid renewable energy and storage, which is much cheaper than extending or even maintaining the grid when you have few customers per kilometre, high resistive losses, high maintenance costs, bushfire risks, etc.
In Western Australia, the cost of such subsidies has even been recognised by treasurer, energy minister and ex-Institute of Public Affairs anti-renewables campaigner Mike Nahan. He knows he needs fringe-of-grid renewable energy and storage to cut costs.
Independent energy analysts, many large energy companies and some media have reacted by raising the profile of renewable energy, and have presented enormous amounts of factual data that demonstrates even more clearly that an energy-efficient renewable energy future is the cheapest and most likely path to meet our climate obligations and goals while growing the economy. Disappointingly, few have mentioned that energy efficiency is key to minimising energy costs and accelerating change—but I’m used to that.
Policy must reflect reality
Both the electricity industry and business energy consumers want policy certainty. That means policy will eventually have to reflect reality. That’s a problem for anti-climate change, anti-renewable energy politicians. And for those who don’t recognise the significance of energy efficiency.
Mr Abbott’s ongoing efforts to shut down the LRET are causing serious problems for the government, but not for renewable energy. He is just confirming the fragility of national energy policy under the present government, and reinforcing the view that no one can rely on stable federal government energy policy.
So the renewables industry will rush to capture the LRET opportunity in the short term, while state governments, business and communities will be even more determined to take independent action.
The ACT’s ‘contract for difference’ approach is actually much better for the long term than the LRET model, as it provides much more certainty for project proponents, governments and other project funders. Project developers bid in auctions, and the cheapest ones receive guaranteed prices under long-term contracts.
This approach can also be applied to investing in storage, demand side and ‘system reliability and security’ outcomes. And it could underpin an LRET policy successor beyond 2020. State Coalition parties will have to distance themselves from Tony Abbott and the federal government, if it doesn’t change policy, or lose votes.
It would have been better for everyone if Tony Abbott had received some reality therapy, and stepped back from his war. But, in the long run, his efforts have cemented progress towards a clean energy future. On the one hand he has incentivised change by making investment in new renewables more attractive, and increasing pro ts for existing renewable generators, even though this has come at a cost to consumers.
He has also provoked states, business and communities to take independent action. On the other hand, he has added to the policy uncertainty that is limiting investment in traditional fossil fuel driven, centralised energy systems. These have long lead times and face increasing business risks from rapid technology change and climate issues.
And most people and business leaders who accept climate science just want to get on with the transition. The business risk is in moving too slowly, not too fast, towards a zero carbon energy future. As is the political risk.
Maybe Donald Trump should look closely at, and learn from Tony’s example.
Alan Pears, AM, is one of Australia’s best- regarded sustainability experts. He is a Senior Industry Fellow at RMIT University, advises a number of industry and community organisations and works as a consultant.