Has IPART lost its energy independence? | RenewEconomy

Has IPART lost its energy independence?

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NSW pricing regulator condemned for allowing utilities to pocket big profits on renewable energy schemes and then complaining about cost of the scheme. Plus, shock revelation from coal industry: Wind is not baseload. And a wrap of RET submissions.

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Submissions to the crucial review of the Renewable Energy Target (RET) continue to surface, with most parties taking positions which are entirely predictable. But one that has stunned, disappointed and even angered the clean energy industry is the call by the NSW pricing regulator to ditch the RET entirely.

The Independent Pricing and Regulatory Tribunal (IPART) says the RET should be scrapped altogether because it is expensive and “not complementary” to the carbon price.

Both claims are disingenuous at best. In the case of the latter, the RET scheme is designed to close the gap between the wholesale cost of energy with the use of renewable energy certificates. If the carbon price narrows that gap, which it is designed to do, then the price of RECs fall. They are, in fact, perfectly complementary. And IPART may not have noticed, but the Coalition has vowed to repeal it.

The first claim about pricing is also misleading, and galling to the clean energy industry, who point out that it is within the powers of IPART to reduce that cost by up to 30 per cent, but it refuses to do so.

IPART puts the cost of the RET at $102 per customer this year – made up of $38 from the large-scale scheme and $64 from the small-scale scheme. Apart from the fact that this cost will fall as the solar multiplier is wound down – a fact not highlighted by IPART – even the current year’s estimate could be reduced by nearly one-third if IPART followed the example of the pricing regulator in the ACT and allowed energy retailers to pass on only the market price of the renewable certificates, rather than the nominal cost.

“IPART’s submission … leaves one wondering about its political independence,” said one executive, on the condition of anonymity. ”Is IPART really acting in the long-term interest of the NSW electricity consumers through a submission that argues for dismantling the RET?

“IPART has already demonstrated they are not overly concerned about the costs of the RET scheme by unnecessarily inflating the costs NSW consumers pay. IPART has provided retailers with a no-risk windfall profit, at NSW electricity customers’ expense, by passing through excessively high STC (small-scale certificate) and LGC (large-scale certificate) prices – currently 21-26 per cent above today’s actual prices.  Buy an LGC today for $33; sell it to your residential customer tomorrow for $45. It’s a license for retailers to print money – compliments of the electricity price regulator.”  (Some estimates say it is worth around $400 million to the retailers).

“NSW consumers would clearly benefit from IPART spending more time performing their statutory role of determining appropriate electricity costs, rather than writing submissions in an attempt to score political points for the NSW government.”

Jeff Angel, from the Total Environment Centre, told the SMH: ‘IPART has lost touch with the future. It’s stuck in a narrow economic ideology which doesn’t take account of the real world of … the ongoing inefficient government subsidies for fossil power.”

The pricing regulators in most states have frustrated the clean energy industry over their refusal to heed their arguments about the “fair value” of technologies such as solar, and for pricing exports from household rooftop values at just a small premium to the output of a coal-fired power plant. The Queensland authority has also been slammed over its proposal for gross feed-in tariffs, which would allow energy retailers to buy all the output from rooftop solar at a significant discount and then sell the energy back to consumers at a profit.

IPART said that if the RET was not ditched entirely, then it should at least be diluted. It suggested that the small-scale multiplier be ended immediately (it is due to close on July 1 next year), and the RET target adjusted to reflect the exemptions given to large energy users. IPART describes itself  as the NSW government’s economic advisor and policy think-tank, so its conclusions may stun, but not surprise. The NSW Coalition government recently said it supported the RET, but not both the RET and the carbon price.

Meanwhile ….

More predictably, the Australian Coal Association also called for the RET to be ditched completely, trotting out the tired, misleading and shameless nonsense about how new fossil fuel generation needs to be built to match every MW of intermittent and unpredictable wind energy. ACA’s CEO Nikki Williams should check out South Australia, which now supplies nearly 30 per cent of its energy through wind and solar, and has not needed to add any new peaking plant. She should also consult the Australian Energy Market Operator. It says wind output is very predictable.

But, Williams claims in an article in The Australian, wind discourages investment in baseload. (Yep, that’s the idea). And then she goes on to complain that Germany recently opened the world’s largest brown coal generator – “built specifically to support renewables.” Er, not quite. RWE built the coal-fired generator with the ability to vary output because it realises that baseload power generators are dinosaurs of the past, and that the future lies only in their ability to be flexible with the renewable generation that will dominate grids of the future. In any case, both RWE and E.ON say no more fossil fuel plants will be built because they are not needed, despite the phasing out of nuclear.

TRUenergy, meanwhile, gave some meat to its campaign to have the RET diluted to a “real 20 per cent” target based on actual demand rather than a fixed number of gigawatt hours, which it had previously insisted should be the case. It suggests a series of “gateway” targets, similar to that proposed for the government’s emissions trading scheme, where a target three years hence is updated every year based on the “medium outlook” of the Australian Energy Market Operator. (Imagine the lobbying pressure around those forecasts). TRUenergy said that this would “reduce uncertainty”.

CEO Richard McIndoe said wind and solar were expensive. He also took a pot shot at the Beyond Zero Emissions campaign for 100 per cent renewables by 2020, saying it was based on “bold assumptions” and “failed to take into account the huge burden that this would have on households as well as the technological challenges involved.”

In other submissions, the Solar Energy Council joined GE and others in saying that the RET should be extended and increased after 2020, and should also be expanded to incorporate any renewable energy projects supported by the Clean Energy Finance Corporation. It said weakening the target along the lines proposed by TRUenegy and others “would be the equivalent of not building 220 fifty megawatt solar PV plants or around sixty 200MW solar thermal power stations with four hours storage. It would put Australia’s clean energy future on hold.”

Spanish renewables giant Acciona said the RET should be maintained as a fixed target. “Regulatory certainty is critical for attracting capital investment in Australia,” and its ability to “attract global capital and expertise to deliver renewable energy infrastructure will be compromised” if it was changed. It also said diluting the RET would lose a massive pipeline of the most economic wind sites, particularly in Victoria and NSW, because these projects would then be subject to new planning restrictions. This would mean more expensive wind sites were developed in their place.

The Climate Institute said changing the target based on current market forecasts may also lead to unforseen outcomes. Depending on a range of plausible assumptions, an LRET of 27,000GWh target, as supported by Origin Energy, for example, could lead to the proportion of renewable electricity in 2020 falling below 20 per cent. If hot, dry conditions persist with the emergence of a new El Nino event and this reduces hydroelectric generation to 12,000 GWh, as in 2007-2009, an LRET of 27,000GWh results in only 18 per cent of electricity coming from renewable generation in 2020. (It said Origin’s calculations exclude small-scale solar generation from total generation, but count it toward the target). “This is not a prediction, but an illustration that any number of assumptions can be chosen to suit a particular political argument to change the GWh target.”

The global renewable energy policy institute, REN21, said Australia needed to maintain its target so it could fully capitalise on a global market that was worth $257 billion, and was likely to grow. Executive secretary Christine Lins said 120 countries had a renewable energy target in place at the beginning of 2012, and renewable energy investment was growing even as fiscal budgets were under pressure in the developed world.

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4 Comments
  1. John 8 years ago

    Thanks for another great article, Giles. Oh and South Australia generated 58% by renewables recently and (I think) the sky is still up there!

  2. Chris Fraser 8 years ago

    Poor IPART. They will never be the same again. They should at least strive for a change in their acronym. If anyone else wants to give advice to a government could they just consider as many different outcomes as possible, such as social and environmental outcomes, rather than only money ?

  3. Michael 8 years ago

    It’s about time they’ve been pulled up on this. Upon the release of IPART’s calculation of this years retail tariffs, it was clear they has spent no effort on an attempt to correctly calculate RET costs.

    They allowed retailers to bill customers $40 per STC, because thats the cap set by the RET clearing house, ignoring the fact prices have been significantly below that for over 18 months, and then blame the difference on the cost of carry (in the region of 30%?!).

    As cited by Giles here, it’s not that hard to come up with a reasonable estimate of the STC spot price, the ACT ICRC did it. Almost all of the retailers would be buying their STCs from the spot market…

  4. Ken Fabian 8 years ago

    Are emissions and their externalised costs even a consideration for IPART? There are plenty of sound economic studies that show that the ‘savings’ in delaying investment in low emissions energy will make doing so later more expensive – and that failure to do so at all will have effectively irreversible impacts on things like agricultural output (and the availability and cost of food).

    What IPART is doing is legitimising a model of energy accounting that leaves out very large and significant costs. Energy providers are using that to their short term advantage to our longer term detriment – my latest power bill came with the alleged costs of carbon taxes and ‘green energy schemes’ according to Ipart highlighted in red – a politically partisan message from Origin energy to encourage dislike for renewable energy and for those without rooftop solar to resent those that do.

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