The firm hired by the Abbott government to conduct the modelling for its controversial review of the Renewable Energy Target has admitted it was instructed to ignore commercial reality – particularly around coal-fired power generation.
Buried in its voluminous report, leading consultant firm ACIL Allen says it was instructed by the RET Review panel, headed by climate skeptic Dick Warburton, to ignore commercial realities around coal-fired generation.
ACIL Allen is one of the country’s leading modellers, providing analysis for many of the country’s biggest companies. Normally, it says, it would take into account the risk of a carbon price, financing issues and community views when assessing the prospects for coal-fired generation.
But in its notes to its report, it says is was instructed to ignore all those commercial realities when assessing the cost of coal generation – an equation that was crucial to gauging the costs and the benefits of the RET scheme.
This is how ACIL described the situation:
“ACIL Allen’s standard assumption when undertaking market outlook studies is to restrict conventional coal (i.e. coal-based technologies which do not employ carbon capture and storage) from entry. This is due to:
Community views and corporate sustainability policies
Potential difficulty obtaining generation licences from State and Territory governments
Long-term risk of explicit carbon pricing being reintroduced
Difficulty in securing financing on a commercial basis due to these risks.
As requested by the Expert Panel, conventional coal entry will be permitted in the policy scenarios based purely on the economics of the technology within the market. As ACIL Allen’s modelling assumes perfect foresight though, it ignores the risk of future carbon policies which may have a negative effect upon the commercial performance of such plant.”
Any analyst and financier will tell you that it would be impossible to finance or build a new coal-fired generator in this county, but the RET Review panel wanted the modelling of the RET costs to be done on the basis that coal generators could be built. This was a key component in their efforts to try to paint the RET scheme as costly and ineffective.
The admission by ACIL Allen is crucial when assessing the credibility of the RET Review panel’s findings – which are essentially that the RET be stopped immediately, or best that renewables should be allowed to account for only 50 per cent of new demand, up to a maximum of a “real 20 per cent”. This would reduce the amount of wind and solar generation to be built in the country by more than two thirds, to the benefit of coal-fired generation.
The modelling has been criticised on a number of counts, including highly conservative estimates of the cost of solar and wind generation; and benign forecasts about the cost of coal and gas. But an explicit instruction to ignore commercial reality – on top of dismissing climate change as an issue – is the most egregious.
As one senior banker told RenewEconomy: “It is extraordinary that the modellers were asked to ignore commercial reality. You couldn’t take these recommendations to a company board. It would be irresponsible. It would be like doing modelling for a company on the basis of the Australian dollar being worth 12 US cents. It’s ridiculous.”
The fact that corporates include a carbon price in their investment decisions is not new. Even major resource companies such as BHP Billiton and Rio Tinto do exactly that, which is possibly why they have moved to reduce their exposure to thermal coal generation.
A report in 2013 found that ExxonMobil assumes a cost of $US60 per metric ton by 2030. BP currently uses $40 per metric ton. Royal Dutch Shell uses a price of $40 per tonne. The US government operates with a “shadow” carbon price of $US43/tonne. The Australian RET Review completely ignored it.
Despite all of this, the ACIL Allen modelling actually found that a scenario of 30 per cent renewable by 2020 would deliver the greatest benefit to consumers, jobs and the industry, and would be the most economically efficient. But it would also cause most pain to the incumbent fossil fuel generators. So what did the panel recommend? Immediate closure of the scheme to new entrants.