The Queensland government has been advised to tread cautiously on its promise to deliver 50 per cent renewable energy by 2050, with a new study from the Queensland Productivity Commission estimating it will cost $10.8 billion in subsidies.
There are a few questions about how the sum of $10.8 billion was arrived at – and the assumption that no large-scale solar will be built over the next 10 years.
But most disturbingly – as is usually the case when Australian regulatory and pricing bodies weigh up the merits of renewable energy – is the fact that the benefits of new renewable energy are studiously ignored, even though buried in the report are estimates that the benefits could be significantly higher.
The estimated cost of $10.8 billion was released by the QPC last week as part of a draft report into the state’s electricity prices.
That report was notable for its recommendation of a retrospective cut to feed-in tariffs, a suggestion that was immediately quashed by the state Labor government. We go into its assumptions on rooftop solar in more detail here.
But it is the assessment of the 50 per cent renewable energy target – a promise made by Labor in the lead up to the election it surprisingly won last year – that catches the eye.
The QPC study – some 250 pages – really is an excellent analysis, addressing some of the key changes and challenges of the energy markets. But the report is let down badly by the numbers, although it could argue that most of these are sourced from third parties.
The study into the QRET (Queensland Renewable Energy Target) – and its conclusion that this was a bad idea for the state – was based on a report by ACIL Allen.
Policy watchers may recognise ACIL Allen as the same outfit that did the report for Coalition government’s review of the national renewable energy target, who argued that a 23,000GWh target could translate into a “real 20 per cent” target, and whose analysis was used by the fossil fuel industry in its unsuccessful attempt to convince the Climate Change Authority to abandon or cut back the RET in the previous review in 2012.
ACIL Allen have produced some extraordinary conclusions about how a QRET would be met. Apart from the programs being run by the Australian Renewable Energy Agency, and Clean Energy Finance Corp, it completely ignores large-scale solar.
It assumes that the QRET will be met with an additional 6,100MW of wind energy – and no additional large-scale solar. This is despite the likes of Bloomberg New Energy Finance and even Origin Energy identifying Queensland as the most prospective market for large-scale solar, and likely to account for most of the RET across Australia.
Why no large-scale solar farms? According to the QPC report: “It also suggested that a QRET is likely to be satisfied primarily by wind generation, due to the high correlation of solar output to daylight hours.” What? That is exactly what is going to make large-scale solar particularly attractive, according to other analysis.
But ACIL Allen appears to have a blind spot on the RET overall, suggesting that it will be met largely by wind energy, and that without the QRET, Queensland would see little investment in renewable energy. Indeed, it suggests that renewable energy would provide just 2 per cent of Queensland’s output by 2030. Somehow it imagines more than 2,100MW of gas-fired generation to be built in that time.
ACIL Allen’s estimate of a $10.8 billion subsidy comprises $8.6 billion for an estimated 6,300MW of additional large-scale investment (almost exclusively wind), and $2.2 billion for small-scale investment. The subsidy includes payment to those rooftop PV installations that are already expected to occur in the base case between 2018 and 2030, as well as the additional 300MW expected to come forward in the QRET case.
It uses this number to suggest that the marginal cost of subsidy for each additional megawatt of renewable capacity is around $1.47 million for large-scale renewables, and $7 million for small-scale generation.
The ACIL Allen modelling projects that the additional generation capacity brought on by a QRET would decrease wholesale electricity prices compared to the base case, and quite significantly.
On average, wholesale electricity prices are projected to fall by about $10 or 15 per cent between 2016–17 and 2034–35. The wholesale prices in other NEM regions are also projected to be lower under a QRET relative to the base case.
Based on current state generation of 53,500GWh, expected to rise by 10 per cent over the next two years and continue smaller gains in the following decade, this would amount to $600 million a year. By 2030, that would reduce wholesale generation costs by around $8.4 billion, and continue to do so for the life of the plants.
The biggest loser from that reduction in wholesale prices? The state-owned generators that currently dominate two-thirds of the market by capacity, and whose practice of “rebidding” is alleged to have jacked up wholesale energy contract costs by six times the cost of the rooftop solar bonus scheme.
The report even admits that that the QRET will not affect retail prices – pushing them up just 0.5 per cent for retail users. This compares to the 87 per cent increase experienced in just the last 10 years – almost exclusively from network costs. But still the QPC argues against it.
As an example of some of the tortured logic behind its recommendation, the QPC report also argues that QRET would be a bad idea because it would benefit other states, because the excess capacity of wind energy would force prices down in New South Wales, and around 3 per cent across the whole National Electricity Market.
Queenslanders, it says, would pay for someone else’s benefits.
Well, apart from the fact that it ignores the benefits of its own cost reductions, the contrast with what would happen without the QRET is really quite extraordinary.
It suggests that Queensland would add just 250MW of wind capacity, and just 250MW of solar capacity from specific projects sponsored by the Australian Renewable Energy Agency, Clean Energy Finance Corporation and state government policies.
This is the current mix in generation in Queensland, and according to ACIL Allen, the percentages might actually get worse without a state-based target, because most of the construction to meet the federal renewable energy target would be built elsewhere.
Indeed, it suggests that by 2030, only two per cent of Queensland’s generation would come from renewables – with the addition of some 2,600MW of gas over the next decade.
Quite how they arrive at that estimate is not entirely clear, particularly given the rising cost of gas generation and the closure and mothballing of the sort of gas plant they say will be built.
But it’s not as bizarre as the report’s conclusion, that this is a good thing. It’s bad, the report suggests, to build lots of wind and solar under a state-based target and have other states enjoy the benefits of lower prices, but good not to build anything much in the state under a federal target, and pay the cost of large-scale generation certificates for wind and solar to be built in another state.
The point of state-based targets – because nothing is being done at national level, and states such as South Australia, and Queensland, and the ACT, can see the benefits of encouraging more renewables.
This is what ACIL Allen predicts will be the case without a state-based target – new renewables contributing little with coal and gas producing 96.5 per cent of the state’s electricity by 2035.
This is what it says will happen with a 50 per cent QRET. Apparently, no large-scale solar to speak of, a lot of wind, and a lot less coal and gas.