Echo chamber: A sequel to power price scaremongering

Kate Carnell, the head of the Australian Chamber of Commerce and Industry, has released a report by Deloitte Access Economics on the economic impact of the Renewable Energy Target, which her organisation claims "underscores how the policy is pushing electricity prices up and raises doubts about earlier modelling that suggested prices would fall from 2021".

That earlier modelling they refer to is by a range of specialist energy market modellers, ROAM Consulting, Intelligent Energy Systems, ACIL Allen Consulting, and Sinclair Knight Merz’s MMA group. Each of these modellers – who are regularly used by our government energy market regulatory institutions, as well as private sector investors in energy infrastructure – have independently concluded that it’s likely that leaving the RET at its current levels will lead to a substantial reduction in wholesale electricity market prices. This is estimated to largely or completely offset the subsidy cost associated with supporting construction of renewable energy power capacity. 

So who’s right?

Well, the problem is that Deloitte have a precisely zero-track record as energy market analysts and modellers. Their background has been macroeconomic modelling. The other energy market modellers have published a range of work including down to highly detailed tables of operating characteristics and cost assumptions for electricity generators. This trail of analysis doesn’t exist for Deloitte. And their report is highly intransparent about how their energy market model actually works. Indeed they don’t even list their assumptions for gas prices, which are rather fundamental to the analysis. So it’s impossible to determine why they came to such different results as these other, more established, energy analysts.

The only thing we’ve been given to help explain the discrepancy is the chart below detailing that Deloitte have chosen to assume higher capital costs for wind and solar power based on work by the Australian Energy Market Operator. (The government's RET Review modeller, ACIL Allen, instead used costings from the government’s Bureau of Resource and Energy Economics' Australian energy technology assessments.) According to the Chamber of Commerce’s Burchell Wilson, Deloitte used "more realistic assumptions" about the cost of renewable technology and fuels.

Figure 1: Capital cost assumptions for wind and solar power. (Dotted lines are costs used by ACIL Allen; Solid lines are costs used by Deloitte.)

So how much more realistic are Deloitte’s assumptions?

Well, if you open up my local newspaper you’ll see an advertisement every week from Future Friendly Electrical Contractors who will sell you a 5 kilowatt solar system for $7900, or $1580 per kilowatt. If you add back the government RET rebate, then the subsidy-free cost is at most $2300 per kW. If you bother to use Google you’ll find a number of other suppliers happy to provide you with a solar system for similar costs and even less. Yet apparently according to Deloitte’s “more realistic” assumptions such prices will never ever eventuate.

In terms of wind power we have less transparent data, but thanks to TrustPower being publicly listed they’ve revealed they paid around $1700 per kilowatt for the nearly completed Snowtown II wind farm. This was an exceptionally good deal I am told, but it seems to suggest that BREE’s data, let alone AEMO’s, may be a touch high. 

So I’m left rather puzzled, which then gets me wondering Kate Carnell’s name is rather familiar.

Remember how the carbon price was going to drive up grocery prices by extraordinary levels?

It wasn’t just Tony Abbott who made those claims, but also a person called Kate Carnell who, back a few years ago, headed up the Australian Food and Grocery Council before her current role at ACCI.

Back in April 2011, she told ABC television:

"Our figures show that the increase in costs in Australian-manufactured food and groceries, depending on the product, will be between 3 and 5 per cent".

She added,

"That's a lot of increased cost on a supermarket shelf".

And I remember clearly the Monday after the government released the details of the carbon pricing package in 2011 the front page of the Herald Sun screaming that Julia Gillard was lying about it’s impact on the cost of living, because Carnell said grocery prices would be going up by 5 per cent.

So what actually happened?

According to Woolworths: “Fewer than 10 of roughly 10,000 suppliers asked for an increase in their prices at the time. Just as prices didn’t increase when the tax was introduced we don’t expect any substantial change should it be repealed.”

Given all this, when it comes to claims about electricity prices who should we really doubt?