Seven ‘radical’ ideas for Australia’s renewable energy policy

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Investment bank UBS comes up with suite of policies to accelerate shift of Australia’s electricity consumption from carbon-heavy centralised model to carbon-light distributed model. Australia, with strong solar and wind resources, and smart people, could lead the world.

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Analysts at investment bank UBS have come up with a suite of policy suggestions that they say could put Australia at the cutting edge of a carbon light de-centralised electricity grid.

smart-pv-150x150In a frank assessment of the status of Australia’s renewable energy policy environment, UBS says the world is transitioning away from carbon-intensive centralised models to a carbon light distributed model.

The idea that Australia – one of the most carbon intensive economies in the world – could be best placed to move to a carbon light seems counter-intuitive, particularly given the political rhetoric and the strident voice of vested interests in the country.

But UBS – like other investment banks and analysts – says that the transition is inevitable as new technology turns customers into competitors, and takes control of electricity away from the industry and puts the consumer in charge.

“Mass market technology is typically characterised by rapidly falling costs, which is happening to both distributed electricity and to household storage.

“Technology also leads to very low-cost intelligent devices “the internet of things”, to lower costs of communication & control of these devices (smart meters). This presents opportunities and threats to the existing industry.“

But UBS says Australia could lead the world because its resource of solar and wind energy are better than most countries, and it has pool of “intellectual capital” that is in the forefront of the solar and communications technology world.

UBS says the move to a distributed model makes sense because Australia has a very large amount of roof area per head of population (the benefit, perhaps, of the quarter acre block and low-rise suburbs).

And it has low network density. The number of customers per kilometre of poles and wires is incredibly small, as the solar industry has pointed out. And this is making distribution and transmission relatively expensive.

electricity prices smartUBS argues that the current review of the renewable energy target amounts at best to “damage limitation” for the incumbent fossil fuel interests.

If policy settings were designed to assist the transition to the “Nu-tility” world, where distributed energy takes over from centralised power – there would be a carbon tax, subsidies for storage, incentives for rooftop PV, mandatory time of use meters and networks would be unregulated competitive businesses sharing the pain.

Few, if any, of these seven policy moves would be popular in the current political environment, UBS admits, but it sees them as essential to meet a low carbon goal.

Here they are in more detail:

1.  Mandate time of use meter roll out over remaining States in the NEM (NSW, QLD, SA, TAS)

2.  Reinstate the carbon tax with zero exemptions and zero compensation, but start it at a lower level, say  $10/t. This would raise around $5bn of revenue and continue to discourage electricity consumption. It would send a price signal to all carbon producers, however of itself it would not induce much fuel shifting.

3. Encourage the construction of distributed PV solar on any building where the majority of the electricity consumption is during the day or where the costs of being connected to the grid are high. Examples of the former category include many Federal and State Government owned buildings, factories and warehouses. All that flat Western Sydney metal roofing is ideal for solar.

4. We would use some of the funds raised to subsidise the take-up of onsite storage and encourage grid defection and the creation of micro grids, particularly in rural areas. Network investment and pricing models would need to be sharply revised.

5. Networks in general would have their monopoly pricing status revoked. In the world of the “Nu-tility”, the network is no longer a monopoly – it competes with distributed electricity and possibly with other distribution business models. If networks put prices up too much they will face competition of their own.

6. We would incentivise closure of some brown coal fired electricity in Victoria, possibly via means of environmental regulation, but possibly with a capacity closure auction.

7. Likely continue with the current renewables target.

On the point of the RET, UBS says the annual cost of the renewable subsidy is about $500 million per year for LRET (large scale), which on the current target rises to $1bn by 2020, and around $500 million for the SRES (small scale) which UBS expects would probably rise moderately.

In comparison, as this table shows, the subsidies for fossil fuels are much higher.

UBS subsidies

“The point of the table is to show that renewable costs are not particularly egregious, a point that has been made many times.,” UBS says.

“Renewables have relatively small impact on customer electricity bills and as demonstrated by ROAM Consulting arguably have a significant impact in keeping power prices down. “

Any reduction in the RET, as recommended by many vested interests and conservative politicans and commentators, will at most reduce future supply. That means it won’t do much to lift pool prices, apart from being lower than they might otherwise be if the RET was maintained as is.

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19 Comments
  1. Beat Odermatt 5 years ago

    Like always, it seems that Japan and
    Germany are the only countries ever having done anything wrong during
    war times. It seems to escape a lot of people that Mussolini in
    Abyssinia, Stalin across Europe and dear Queen Victoria across Africa
    and the India were not behaving like saints. I believe that we should
    leave history where it belongs, in the past. It is in Australia’s
    best interest that all our friends are strong and therefore it will
    be less likely that our country will be dragged into other future
    conflicts.

    • coomadoug 5 years ago

      Beat
      This article is written in a mood that is a demonstration of optimism for the future and an expression of opportunity. This mood could also highlight the relatively non existent cleanup requirements of green energy systems.
      Climate deniers often compare coal with solar while comletely ignoring these huge clean up costs that are being handed down the line to our children.
      Why is there not acceptance in the media and the industry that such statements are obviously rediculous? If a coal industry political representitive says “coal is cheaper then solar”, this should be seen by all as just rediculous because of the mess and the obvious high cost of clean coal.
      It was many years we had to listen to tobaco claiming that smoking is harmless.
      That is where we are now. We are watching a doctor in 1978 claiming there is no evidence to suggest that smoking is harmful. “The science isnt settled”
      “The statistics are not true”

    • suthnsun 5 years ago

      Good points, also hidden but massive piles of contaminated by-products
      all over the globe are one of the most depressing aspects of modernity – hard to have faith in the rationality and capacity of society to take account of costs.

    • Tim Buckley 5 years ago

      Beat

      I couldn’t agree more. Mine rehabilitation is another major externality pushed onto Australian tax payers by the mainly foreign owned ‘Australian’ mining industry. I enclose a link to a great article on this subject.

      http://www.thesaturdaypaper.com.au/news/politics/2014/05/24/minings-multi-billion-dollar-black-hole/1400853600#.U4BvMtKKDZ4

      • Beat Odermatt 5 years ago

        Yes, I think we have not even began to assess overall costs of mine rehabilitation. Health cost and cost to the community from having to resort to seawater desalination partly because power companies are using plenty of cheap water to make steam are not included. There is NOTHING good with burning coal to make electricity in 2014.

      • ID635 2 years ago

        How is it pushed onto tax payers? How many tax payer dollars have been spent on mine rehab? Specifically coal mine rehab. Sounds like you are just making stuff up.

  2. Chris Fraser 5 years ago

    A great list from UBS – fully agreed with all of it. Though they have predatory enemies in the form of vertically integrated utilities, fossil energy producers and the LNP ! Let’s hope their message gets out to force some objective debate rather than the slogans and usual ideological rubbish.

  3. michael 5 years ago

    haha, fuel tax credits as a ‘subsidy’ really helps the table! love it every time that one gets trotted out. On a serious note, why not a carbon tax with no exemptions, no compensation, and unlimited buying on international markets?

    • wideEyedPupil 5 years ago

      They are a subsidy. Fuel excise goes to general revenue and refunding it comes from general revenue.

      • michael 5 years ago

        ok, an administrative change in ’82 magically morphs it into a subsidy?

        • John Silvester 5 years ago

          “administrative change” I’m not sure what you mean. An administrative change of $2.3bn to administer what? I thought it was a credit for fuel excise paid by miners and farmers. A refund if you like.

          • michael 5 years ago

            Was a reply to the fact of it being in general revenue and how that related to it being a ‘subsidy’. The only reason it is in general revenue was a change to reduce the amount of time it was exploited for non sanctioned credits. Before that there was no rebate as such, it was an exemption

          • John Silvester 5 years ago

            so it’s still a subsidy, just the mechanism changed

  4. wideEyedPupil 5 years ago

    “2. Reinstate the carbon tax with zero exemptions and zero compensation, but start it at a lower level, say $10/t. This would raise around $5bn of revenue and continue to discourage electricity consumption. It would send a price signal to all carbon producers, however of itself it would not induce much fuel shifting.”

    This is pretty bad coming from economic experts (even if they work in a bank!). The carbon tax or ETS for that matter are not consumer side measures, they are supply side measures. The purpose of the CT is not to encourage pensioners to turn their heater off, (4% increase in price is all we are talking about remember) it is to make renewable energy marginally more profitable against fossil fuels and to therefore encourage capital investment in renewable generation which has high barriers to entry but near-zero marginal costs.

    If you look at the demand side inflection of 2009/10 it is clear energy efficiency had started to bite well before the CT and there is no evidence that the CT reduced demand beyond trend but it did reduce emissions beyond trend significantly. The emissions inflection point is stark if you look at he graphs from an RE article of a few days ago.

  5. JohnRD 5 years ago

    Time of use meters make very little sense for ordinary house holds. For example, my daily power bill is less than $20 per day. Does anyone seriously suggest I will be hovering over my meter to minimise costs? Or that the cost of meter plus management system is justified? Would make a lot more sense to spend the money on clean power producing rooftop solar.

    • Tim Buckley 5 years ago

      John
      Probably a typo, but $20 a day is $7k pa, that gives you plenty of incentive to put in a time of use meter, and have solar on your roof. To have solar, you have to move to a smart time of use meter anyway (in Sydney, anyway). A home energy management system would mean you don’t need to hover anywhere, it by design manages your electricity and heating requirements automatically, a far more effective and permanent system. A delay button on your washing machine and dishwasher or a timer on your pool pump likewise automates the use of electricity to when it is cheapest. Smart meters are entirely sensible and commercially viable for anyone who is a major electricity user. Install them in the top 20% of houses first, where the impact is most needed.

      • JohnRD 5 years ago

        Woops. What I meant to say was 20 kWh/day which is about $6.00/day.

        Keep in mind that a time of use meter will only save a fraction of this, if anything.

  6. Alen 5 years ago

    We have the public and major financial companies clearly throwing their support behind renewables, I guess the one good thing that came out from the biased RET review is that it is demonstrating how much support RE in general has. Thus with a neutral (towards RE) or less extreme government there should be a significant shift in the energy sector, even Palmer (appears) to be supportive of the RET. Let’s just hope the industry can hold out long enough for the Abbott led LNP to realise that their anti-RE and anti-CC stand is a doomed outcome, after-all satisfying Origin and the likes will not win them an election.

  7. Les Johnston 5 years ago

    Fossil fuels also contribute to serious health effects on those exposed to air pollution from combustion. Not aware of coal burning advocates living under the exhaust stack from a fossil fuel power station. Who pays for these insidious health effects? Not the fossil fuel burners.

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