AGL, Origin and EnergyAustralia’s 'shame' of self-interest

New analysis shows how handsomely big power companies – and how little consumers – stand to gain from a reduced RET. Campaign groups are onto it; but can you blame business for being all about business?

In any horse race, son, always back the horse called self-interest.

 – NSW Premier Jack Lang advising a young Paul Keating

The big three energy retailers – AGL, Origin Energy and Energy Australia – as well as power retailer Simply Energy and its power generator owner, GDF Suez, are being targeted by a shame campaign from a combination of environmental advocacy groups because of their attempts to have the Renewable Energy Target reduced.

Greenpeace and the Total Environment Centre are taking a mass-market approach of communicating direct to the general public about who’s naughty and nice in the power sector in terms of their investment and lobbying position on renewable energy.

Meanwhile, the Australian Conservation Foundation, Climate Institute, and WWF have taken the more cerebral tack of commissioning economic analysis illustrating that it is self-interest, not concern for consumers, that lies behind power companies’ attacks on the RET.

Greenpeace’s Green Electricity Guide ranks all the Australian power retailers placing; Powershop number one in the nice category. They are active only in Victoria at present and owned by Meridian Energy, a major New Zealand utility and developer of Australian renewable energy projects such as Macarthur Wind Farm.

For those outside Victoria, the niche green energy specialist retailer Diamond Energy gets top billing (active in Queensland, NSW, South Australia as well as Victoria). For Tasmania, the Northern Territory and Western Australia there is no choice of power retailer.

Another retailer receiving high marks is Click Energy, which is highly focused on the solar market having nabbed Dominic Drenen, who used to head up Origin’s solar division when it was the largest solar retailer in the country.

In terms of who’s naughty, Simply Energy heads the list – owned by GDF Suez, which also owns Hazelwood and Loy Yang B brown coal fired power stations. Simply is then followed by EnergyAustralia and Origin.

AGL manages to separate itself several rungs down the naughty list yet, in the end, Greenpeace has chosen to lump it in with EnergyAustralia and Origin, labeling them as the 'Dirty Three' in the report it has released documenting these companies’ track record on renewable energy.  

Graph for AGL, Origin and EnergyAustralia’s 'shame' of self-interest

The intention of this work is clearly to encourage consumers with an environmental conscience to switch away from these retailers and towards those more focused on renewable energy. This is being done in conjunction with a campaign by GetUp!

Now, of course, these companies aren’t trying to kill-off the RET because they are evil nor because they possess some incredibly altruistic concern for the welfare of their customers. As Michael Corleone explained in the classic movie The Godfather, “It’s not personal, Sonny. It’s strictly business” – in the end it all comes down to economics.

Energy market modelling by engineering firm Jacobs-SKM illustrates that the ‘Dirty Three’ plus Simply Energy’s GDF Suez would see a multi-billion pay-off if they can manage to persuade the government to reduce the large-scale RET from 41,000 gigawatt-hours of energy down to 27,000 GWh (what has been termed a 'real 20 per cent' renewable energy market share target).

This would increase their profits through reducing competition faced by the fossil fuel generators they own – thereby increasing power prices and, in several cases, also increasing sales volumes.

That chart below details the net present value of increased profits the major power companies would capture from either freezing the scheme (termed 'abolished') or reducing it to a 'real 20 per cent'. AGL is the biggest beneficiary to the tune of more than $2.5 billion once you take into account its acquisition of Macquarie Generation. Energy Australia gains around $2 billion, GDF Suez about $1.7 billion and Origin about $1.5 billion.

Figure 2: Net present value of increased profits by company from scaling back RET

Graph for AGL, Origin and EnergyAustralia’s 'shame' of self-interest

Note: 'Reduced' RET means reducing the large-scale RET to 27,000GWh; 'Abolished' RET means closing the scheme and compensating existing owners to the value of $35 per MWh of renewable energy.

Source: Jacobs-SKM (2014)

One of the main reasons behind this gain in profits is that power prices in the wholesale electricity market will rise. This then acts to offset savings households might gain from reduced subsidies to renewable energy. The chart below illustrates that with the exception of one year (2017), households are expected to pay slightly more overall per megawatt-hour of electricity as a result of cutting the target. This finding by Jacobs-SKM echoes findings from other well-known energy market analysts such as ROAM Consulting, Intelligent Energy Systems and ACIL-Allen.

Figure 3: Increase in consumer power prices relative to leaving RET unchanged

Graph for AGL, Origin and EnergyAustralia’s 'shame' of self-interest

Source: Jacobs-SKM (2014)

Of course, the key consequence of reducing the RET will be increased power production and carbon emissions from fossil fuel generators. According to Jacobs-SKM an extra 154 million tonnes of CO2 will be emitted to 2030 if the scheme were scaled back to a real 20 per cent.

Using the US Environmental Protection Agency’s attempts to monetise the damage suffered by society from global warming, the Climate Institute estimates the power companies’ extra profits will leave a damage bill for everyone else of $14 billion out to 2040. A breakdown on which power stations will see the biggest increase in emissions, and their associated damage bill, is illustrated below with Origin’s Eraring power station topping the list. 

Graph for AGL, Origin and EnergyAustralia’s 'shame' of self-interest

Source: Climate Institute (2014) using US EPA and Jacobs-SKM data

However, with so much focus on electricity price effects, one suspects this vital component of the cost-benefit analysis of the RET may be missing from the final Warburton review.

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