The new conservative plan to shut down renewable energy

More details have emerged about the plan hatched by a group of conservative cross-bench Senators to dramatically reduce the amount of new renewable energy projects to be built in Australia over the next five years, and to deliver a windfall subsidy to old hydro electric plants.

The plan outlined by libertarian (low taxes, minimal government) Senator David Leyonhjelm essentially delivers on the Coalition plan to limit new build renewables to around 26,000GWh, but has the bizarre inclusion of handing subsidies earmarked for new projects to state-owned hydro plants that were built decades ago.

The renewable energy industry has reacted with horror. The Clean Energy Council said it would result in a transfer of nearly $14 billion of wealth to those plants, remove more than $14 billion from new development, causing new projects to remain at a standstill and put 18,000 jobs at risk. (See its list below)

The proposal was described by The Australia Institute as a “shocker” and by the Australian Wind Alliance as “hair-bained” and “madness”. All agreed it would be worse than even what the controversial Waburton Review proposed.

It is truly absurd. But what is really unsettling for the industry – and anyone who cares about the development of renewable energy in Australia – is how similar the policy is to what the ruling Coalition is proposing.

Now, while it seems preposterous that the Coalition would ever allow renewable energy certificates to be pocketed by the hydro operators (over and above the baseline currently in place), nothing can be ruled out from this government.

But it’s really just about mixing numbers to get to the same answer, and right now it seems that that answer is 51,000GWh – what the conservative side says is equivalent to a “real” 20 per cent of the revised demand forecast by 2020. They just propose different routes to get there, although the impact on the renewable energy industry would be equally devastating.

As we know, the current legislated target for the LRET (the large scale component) is 41,000GWh by 2020. Tha would cause about 8,000MW of new wind and solar plants to be built over the next 5-6 years, something that the existing coal and gas generators clearly don’t want to happen. The small scale component (mostly rooftop solar, but also solar hot water and others) is uncapped, but is currently thought to be at least 10,000GWh by 2020 at the current rate of deployment. That makes a total of 51,000GWh.

This number was bandied around by Industry Minister Ian Macfarlane last month when the Coalition came under pressure to cut a deal with Labor, and after the minister signaled that he wanted the 41,000GWh to be slashed to 26,000GWh – meaning new build projects would be cut by two thirds. (16,000GWh of new build has already been completed).

So Macfarlane’soffice tried to hide this number by using a different one – 51,000GWh. They got there by adding 26,000GWh of large scale, to 10,000GWh of rooftop solar, and 15,000GWh of pre-existing hydro, and declared they weren’t against renewables after all.

The difference between the Coalition and the cross-benchers would be in the treatment of the pre-existing hydro, which when added to the original RET target of 45,000GWh (before it was broken into a large scale and small scale target)  took the total of 60,000GWh, or around 20 per cent of what was then presumed to be aggregate demand in 2020.

Leyonhjelm wants the pre-existing hydro to get the certificates for everything they produce. This is patently ridiculous. It might not take much for Macfarlane to convince them that the same outcome (nobbling of new build renewables) can be achieved without such lavish handouts to the NSW and Tasmanian governments.

Even Macfarlane would agree with the TAI’s Richard Dennis, who said the proposal wouldn’t cut the cost of the RET to consumers. It would see the billions flow to the owners of existing hydro electricity generators, rather than to the builders on new renewable power plants.

“Under the scheme consumers would pay all of the costs but get none of the benefit,” he said in a statement. “Indeed, if you were designing a scheme with the objective of undermining the RET and increasing electricity price, it’s difficult to think of a more effective way of doing it.”

But it is remarkable how similar the broad Leyonhjelm proposal is with that of the Coalition – apart from the hydro treatment and proposed links to Direct Action. Leyonhjelm advocates full protection for affected industries, curtailing the development of new wind and solar, leaving household solar (a political hot potato) untouched. It even advocates for more measures to encourage stand alone systems in remote and off-grid areas with solar and storage.

It is said that the Coalition is being urged – particularly by “big business” and the incumbent utilities – to reach bipartisan agreement with Labor over a change in the target, because that is seen as providing more “certainty”.

But the Coalition doesn’t care. It’s mission is quite clearly to reduce the “new build” component of the RET to the 26,000GWh suggested by Warburton and endorsed by Macfarlane, Hunt and Abbott.

If it can do that with support of the cross-benchers, then that is exactly what it will do. Already, the idea has the stated support of John Madigan and Bob Day, Jacquie Lambie seems interested, Nick Xenophon will support anything that kills the wind industry, and even Clive Palmer – as we discussed in our article Can Palmer be tusted to defend the RET” – has made similar noises about pre-existing hydro.

Leyonhjelm’s ridiculous proposal will just be a smoke-screen for what is really on the agenda as confirmed by the support of the Coalition and many of these cross-benchers, including the Motorist Party’s Ricky Muir – of yet another investigation into wind energy and its economic impact.

The CEC described that “farcial” move – approved by the Senate on Monday – as “groundhog day”. It will be the 9^th such inquiry – and all have so far supported the case for wind energy.

Here is the CEC’s list of reasons why the Leyonhjelm’s scheme is madness:

• Supporting existing hydro at the expense of new renewable energy. This proposal would provide additional support to existing hydro generation, reducing the amount of new renewable energy generation needed by over 60 per cent, from 25,000 Gigawatt-hours (GWh) to just over 9,000 GWh. This scale of reduction would have a devastating impact on existing market participants, while the flaws in this approach would likely undermine any new investment.
• Transfer of $13.5 billion to existing hydro operations. It would lead to a massive wealth transfer to existing hydro generation, at the expense of new renewable energy, worth more than $900 million per year, or $13.5 billion between now and 2030 when the policy ends. Almost 60 per cent of this would flow directly to Tasmania.
• Loss of broader economic benefits. The benefits of investment in new large-scale renewable energy would be lost. This includes the $14.5 billion of expected investment and thousands of new jobs in rural and regional parts of Australia.
• Loss of carbon abatement benefits. The new investment delivered by the current RET is expected to deliver carbon reductions of 194 megatonnes of carbon by 2030. If the policy was altered as proposed, taxpayers would need to fund additional measures through the Direct Action policy to replace this abatement.
• Higher power prices for consumers. A reduction in new electricity supply and competition in the wholesale electricity market would lead to higher power prices for consumers. The benefit of new renewable energy investment on power prices was demonstrated by the ACIL Allen modelling for the recent Warburton Review, which showed that any scenario which led to less renewable energy also led to higher power prices.
• Hydro power is already supported by the RET. Hydro is already eligible under the RET, where it generates above a pre-determined baseline. This provides an incentive for the maintenance and upgrade of existing hydro generation, and has provided revenue to Australia’s existing hydro power generators over the life of the policy.