Hard on the heels of a doubling of electricity prices, the head of the country's largest listed energy utility, Origin Energy, has warned of a heavy new round of capital spending, which may place further pressure on power prices over the balance of the decade.
After the steep rise in power prices over the past five years due to heavy network investment, Origin managing director Grant King said new spending would be needed to achieve the federal government's renewable energy target. This would come as the government seeks to rein in power prices, hoping electricity will decline under a "CPI minus x" pricing regime.
But, according to Origin's estimates, about 2200 megawatts of additional wind generation capacity will be needed annually between 2017 and 2020, "which will require an enormous increase in activity to 2020" in terms of new investment, Mr King said.
Even though wind power is inexpensive to build, it is difficult to obtain the permits and approvals while also needing gas-fired power stations to generate electricity when the wind is not blowing.
This will drive a significant new round of capital spending, which will put pressure on power prices at a time when renewable energy is already a significant burden on households and smaller companies, Mr King said.
The Climate Change Authority recommended leaving unchanged the existing target of 45 terawatt hours of electricity sourced from renewable energy by 2020. But declining electricity output will push the proportion sourced from renewables to 27 per cent of the total by then, more than the 20 per cent initially planned.
"We don't yet know what the RET [Renewable Energy Target] scheme is costing us and we should have known more about that as a result of the [authority's] review, but we don't," Mr King said.
Costs, now excluded, such as the higher expense required to ensure supply from variable wind and solar sources will ultimately have to be counted, Mr King said.
"These are marginal fuels, free-riding on the system," he said. "Once that free ride is over, they will have to pay their way and that will result in increased costs."
It is likely the proportion of environmental programs such as the carbon tax will exceed that of the wholesale cost of generation for many small and medium-sized businesses unable to access compensation under present arrangements, Mr King said.
Programs to spur the take-up of solar photovoltaics had cost about $4 billion or as much as $600 per tonne of carbon abated, he said.