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Don’t waste time on CET – there are other options for renewables, efficiency

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Source: iScienceTimes.com

Source: iScienceTimes

In the toxic world of Australian politics, and the degree to which it is influenced by business interests, I don’t believe we will ever have an effective broad-based emission reduction policy – no matter who is in government.

I’m not saying this just to be negative, but to highlight the importance of focussing on the broad range of other options available to enable uptake of renewable energy and energy efficiency.

The problems with ‘flagship’ policies

I view the Clean Energy Target as a ‘flagship’ policy, which should form the basis of a sound emissions reduction platform. If such an emissions trading scheme is well designed and implemented, it can be both effective and efficient in reducing emissions.

Unfortunately such schemes suffer from being both (i) large and (ii) complex. Their large coverage means that powerful vested interests are likely to be affected, and to a significant degree, and so will oppose them, or attempt to alter the scheme design to their advantage (see more discussion here).

Their complexity makes it harder for smaller less powerful organisations to understand and critique them, and it is more difficult to see whether the scheme is being effective, as well as understand the impacts of changes to the design.

In fact, because of their complexity, it is even possible for flagship policies to make things worse. This can occur both directly and indirectly.

Flagship policies can make things worse directly because their complexity means that it is often very difficult to understand what the final impacts will be.

This is especially the case when incumbents successfully lobby for exemptions and compensations (as has occurred for every emissions reduction scheme in Australia), which when combined may actually result in significant financial flows in their direction with little additional abatement.

They can make things worse indirectly by soaking up the time of the various groups dedicated to reducing emissions. Think of all the time and wasted effort that went into the numerous discussion papers stretching all the way back to Australian Greenhouse Offices National Emissions Trading Discussion Papers in 1999.

The intervening 18 years is literally littered with the corpses of failed attempts. Even the CET proposed by Finkel is openly regarded as the third best option.

They can also create a false sense of achievement. The NSW Greenhouse Gas Reduction Scheme and the Emissions Reduction Fund are perfect examples.

In the GGRS, much of the claimed ‘abatement’ was actually just pre-existing plants doing what they were already doing, and so emissions were not actually reduced below what they were when the scheme started (see here).

It should come as no surprise that these very same plant (built as early as 1998) were the first off the blocks for the Emission Reduction Fund, and had to provide no additional abatement to create even more ‘abatement’ certificates.

The only flagship scheme that has worked is the Renewable Energy Target, which I suspect was successfully implemented simply because the incumbents didn’t believe that renewables ‘worked’. As soon as they realised they did, and were actually having a real impact, the target was reduced as much as politically feasible.

Flotilla policies are more likely to be effective

I think we would be much better off putting our efforts into ‘flotilla’ policies, which are more likely to be successful because they can be designed to be targeted and so (i) individually have less impact on incumbents, and (ii) benefit a specific group who can then provide political support.

So what are these flotilla policies? They are pretty much anything that isn’t large and complex.

They include the targeted state-based reverse auctions and tenders for renewables and storage because they are fairly straight forward (compared to an emissions trading scheme the design can’t be distorted by lobbying pressure), end up benefiting particular organisations (who will provide political support), and lock in long-term certainty for that particular project.

They include the large number of ARENA and CEFC-supported projects, as well as pretty much any policy that targets residential end-users (not least because they vote).

Time will tell, and I would love to be proven wrong, but I don’t think we’ll see an effective and stable carbon pricing mechanism for quite some time (including the state-based schemes).

Fortunately by that time renewables will no longer need such support (energy efficiency never really has, but of course requires other kinds of support), but then there’s the rest of the economy to consider…

   

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  • Chris Drongers

    Just tax all fuel according to the carbon content

    • Peter Campbell

      The LNP would be into that. No tax for brown coal, a bit for black coal, higher for gas and max for renewables.

  • David leitch

    Great article Rob

  • Joe

    I think you may be wrong. I see China being a game changer of sorts with the introduction of their national ETS next year. With China to price carbon emissions I can’t see China standing idly buy if their trading partner countries do not adopt a similar scheme or some other pricing mechanism for carbon. China is the world’s consumer good factory and the world is basically exporting its carbon emissions to China by not manufacturing volume consumer goods locally. China placing a ‘Carbon Tariff’ on imports is not out of the question so the incentive will surely be there for other countries to put a price on carbon emissions.

  • Chris Fraser

    Maybe renewables are the star performers because of their cost curve, but if we don’t support them, would we at least want to level the playing field between renewable, diesel, coal and gas ? The message about subsidies that dirty fuel sources still get for stationary energy is just not firmly out there in the public’s understanding.

    • Rod

      The usual retort when identify FF subsidies to your average muppet is a tax rebate isn’t a subsidy? You can’t win with that level of denial.

  • Hettie

    It occurs to me that with their rapacious price rises and the resultant boom in the uptake of rooftop solar, the power companies have mortally wounded the goose that has been laying the golden eggs.
    One must feel sorry for those who, because they are renters, or have no specifically owned suitable roof space, are locked out of the opportunity of taking control of their own energy supply.
    They will be forced to pay the costs of supporting an infrastructure, gold plated just as the need for it was starting to decline. Costs that will be shared by an ever diminishing number of customers who almost by definition will be those least able to meet them.

    • Geremida

      Rather than “feel sorry” for those that are not in a position to take control of their own energy, I feel that renewable advocates must work hard at coming up with schemes which address or alleviate this disparity.

      • Chris Drongers

        Renters will soon have access to peer-to-peer trading of renewables. Gen-X, Power Ledger, Red Back and many others will offer this. After some initial shuffling rental power prices can be expected to settle somewhere in the region of renewable LCOE + transmission /distribution + power ledger costs + renewable owner profitq margin (limited profit as it would be in solar panel/battery owner interest to sell power to get maximum benefit out of panels+storage every day.

        • Geremida

          Nice thinking Chris. But I’m looking at how the numbers stack up. In Queensland I can get between 11 & 15c/kWh FIT. My LCOE is around 4c/kWh. So if I sell via p2p trading, I would get LCOE + owner profit say 1-2c/kWh – total 6c/kWh. Aren’t I way better accepting the retailer’s FIT?
          Renter would buy via p2p for around 17-18c/kWh not much below current Alinta deal up here (network costs are around 10c/kWh)

          • Chris Drongers

            Absolutely agree that you would be better off staying with FIT. But once P2P becomes commonplace there will be a race to optimise systems and prices. Economic rationalism suggests that profit levels throughout will bi slightly above the bobdrate for each profit point. The exception will be for the owner of the rooftop solar panel who is selling a fungible product with a lifetime between instant to one day (assuming daily cycling of battery to gain some sale). Great that p2p limits the profit taking power of generators and retailers

      • Hettie

        Indeed, and the germ of a solution seems to lie in community programs that provide a sort of shareholding in larger solar projects, restricted to those who are prevented by circumstance from owning their own setups.

        • ZeroEmissionsNoosa

          Exactly Hettie! I like the Darebin Council(Melb) Solar Saver initiative where “Council will pay the cost upfront and the ratepayer pays it off over 10 years through a small additional Special Charge on their quarterly rate payments.”
          see http://www.darebin.vic.gov.au/Darebin-Living/Caring-for-the-environment/EnergyClimate

          • Hettie

            Sounds good.
            Looks like distributed systems must inevitably supercede the “grid,” leaving all those gold plated, privatised poles and wires as stranded assets.
            Oh dear. How sad. Never mind.
            That’s what you get for being a fossil fool.

    • Ian

      The bleeding heart concern always pops up when distributed renewables seem to be achieving some influence. ☹️

      How much has distributed solar actually contributed to high electricity prices? Previous articles on this site have demonstrated that, if anything, rooftop solar has kept retail electricity prices lower than they would have been without solar.

      The retail and administration cost component of the homeowner’s electricity bill makes up a large percentage of all the costs – even more than market-gaming generators and gold-plating distributors . The guys doing the metering of your bill have their heads so far in the trough that only their back hooves and curly tails stick out. We should be reserving our holy anger for them!

      • Hettie

        What an ugly, ungenerous response to my comment, which you seem to have read very carelessly.
        Of course renewables are exerting downward pressure on power prices. And it is obvious that the fossil fuel advocates are scrambling to prolong and maximise their profits.
        That does not alter the fact that as more of those who can afford the capital cost of going off grid do so, those who cannot afford that capital cost, or do not own the roof over their heads, will be left to pay the costs of maintaining the grid, and are least able to do so.
        To use the phrase “Bleeding hearts” is to betray a degree of selfishness that is quite disgusting.
        Shame on you.

        • Ian

          Well, the death-spiral you allude to is not the fault of the distributed solar rooftop owner . That’s the whole point. To have real competition to the encumbents there is no point in introducing more of the same type of leaches – they just form a bigger cartel, you have to provide a different alternative. Instead of a central grid supplying electricity, you now can have individuals supplying their own electricity. To remain competitive energy retailers will have to relook at their profit margins and bloated administrative costs.

          • Hettie

            Expressing sympathy for those locked into supporting a disfunctional infrastructure is by no means the same as expressing blame for those who are able, and choose, to take charge of their own power supply.
            Facts are facts. Value judgements about the groups of consumers are irrelevant and distateful.

          • Mike Westerman

            Hettie – it surprises me in face to face and online discussions, how many renters have not approached their landlords with a request to look at ways of putting in solar. Matter.com is one option, but no doubt there are others. It is crucial to push this message.

          • Hettie

            Indeed. And it seems that the problem is that people just don’t know what their options are.
            Perhaps more advertising of schemes to get solar to renters, and action by State Governments to get solar onto State owned housing, by aged care facility operators to do the same, is what is needed to raise awareness.
            More than anything, clear policy is needed to help low income households get solar.

    • Rod

      With >20% of residences now with solar the remaining amount of private dwellings is diminishing. So rental properties with available roof space are the next great challenge and opportunity. It is actually financially possible now for tenants and landlords to both benefit from rooftop solar. Of course, landlords won’t provide free electricity but for a small increase in rent some may be amenable to installing PV. Alternatively a third party may mediate a price structure. Matter.solar is one but there are others.
      Apartment dwellers have fewer opportunities. Possibly being part of a community solar PPA.

      • Peter Campbell

        The simplest option is a communal PV system on a common property roof. Where I am, we have a PV system on a large shared carport roof. It reduces the Owners Corporation’s electricity costs nearly to zero. This saving is passed on to owners in the form of reduced levies since we don’t need to budget for electricity. Our units are mostly owner-occupied but the owner of a tenanted unit could retain a good tenant with lower rent since the levies the owner has to pay are lower.
        A few places have layouts conducive to an array of electrically separate small systems that connect to the meters of each individual unit.

  • Geremida

    Thought provoking article Rob. I hope you’re wrong about flagship policies and that after the current federal Neros are booked out we may get something the RET, ARENA & CEFC extended.
    But as you say, I spend little time on them. Far better to act locally and help create environments where people and businesses find it just compelling to invest in renewables, even if it’s just for immediate financial reasons. But mechanisms need to be found so that their is social equity in the uptake, and “flotilla” policies will probably be required.

  • Peter F

    I think you are right. Coal plants in NSW are starting to run out of the cheap coal contracts they were sold with. While there is some low grade coal about at $30/tonne, high quality coal is selling at US$97/tonne. There are limits on how much rubbish you can feed into a boiler. Assuming a marginal coal mix price of A$60-65/tonne and thermal efficiency of 33% for an old plant running poor quality coal they have a fuel price of $40-45 per MWhr, O&M of around $20 and increasing as the plants age so a low breakeven of $60-65 but if they have to use export quality marginal cost is $90-95 so to justify turning on the plant they have to see power prices averaging more than breakeven for the next two days or more .

    Wind is coming in at $55-65 all in, solar a bit more and solar thermal at around $80-90 without RECs, thus if the wind is blowing or sun shining coal can’t compete. Once utilisation falls below about 40% it is not worth starting coal plants up because of long ramp times so even if prices spike to $120 for a couple of hours the coal plant can’t take advantage of it. Then if prices fall below the fully absorbed price for solar at say $40/MWhr, the wind and solar plants are still making a contribution to overheads, the coal plant is just pumping money up the chimney.

    No-one is going to stop rooftop solar, if power prices stay where they are now solar and wind will make a fortune without RECs and if prices fall to $55-65 wind and solar will make a contribution for long enough until the next coal plant withdraws from the market and then prices will spike up again and draw more wind and solar in.

    The battle now is not to continue support for renewables but to deny support to coal and gas

    Policies which will accelerate the transition without picking winners will be
    a) rigid enforcement of existing environmental controls, and preferably tightening them to international levels
    b) tighter regulation of frequency and most of all
    c) getting rid of the 5/30 rule.

    Remember the currently the renewable projects started since Jan 1 this year will remove double the annual output of Liddell from the market by Jan 1 2020. In effect we are removing demand equal to 1GW of coal every year.
    The only question for the fossil fuel generators is what will be the share lost by gas and what by coal.

    • Ian

      Just as renewables are distributed and variable and require a mix of technologies so policies need to be distributed and varied to promote this kind of renewables system.

      The new bottle neck to renewables adoption is no longer lack of a mature market or supply chain needing emissions policies it’s solving variable energy generation and load mismatches. This means interconnectivity, storage, and a range of different types of renewables generators

  • Les Johnston

    I think that this argument is correct. The CET has been wormed to favour the fossil generators and assist propping up their revenue stream. Although the best option we be a tax or price on carbon the small is beautiful approach and fostering uptake at the local level is changing the energy industry to nothing like the easy to increase price model.

  • solarguy

    Thanks Rob a very well thought out article and I believe your thinking is spot on. The RET certainly needs to continue and reverse auctions are proving very benificial (the KISS principle in action) and that makes sense. After all a hell of a lot of investment is going into RE and that momentum needs to continue, with the foot on the throttle and foot off the brakes.