Hunt disputes CEC modeling on renewable energy target

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.

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.