O'Farrell's renewable energy wonderland

Some days you just have laugh at the weird and wacky way in which we manage to conduct climate change and energy policy in this country. We seem to have multiple parallel universes in which governments conduct energy and climate change policy. Yesterday it was the NSW government operating like something out of Alice in Wonderland. 

Not much more than a week ago we had the NSW government pull a PR stunt worthy of former SA Premier Mike Rann. The NSW government released its Renewable Energy Action Plan, which asserted that:

“Renewable energy provides a pathway to achieving lasting economic prosperity that does not take resources away from future generations and reduces the impact of our activities on the natural environment.”

The report boasted that “NSW is open for business in renewable energy,” and “The NSW Renewable Energy Action Plan positions NSW to grow renewable energy to support the national 20 per cent by 2020 target.”

According to the action plan, the Renewable Energy Target is expected to stimulate $36 billion in investment, most of it in wind power, of which the NSW government intends to capture a large share in the interests of creating 6000 jobs.

This has all got me rather confused because apparently this can all be done without any extra costs for NSW taxpayers or energy consumers. It also is apparently not in conflict with the government's imposition of quite severe new restrictions on the approval of wind farms.

It comes from a government whose premier – Barry O'Farrell – said that if he had his way, there wouldn't be another wind farm developed in the state. It also comes from a government whose energy minister said the Renewable Energy Target should be closed, but that policy is the only mechanism that is driving this apparent “pathway to lasting economic prosperity.”

What's more, yesterday, the NSW government's own electricity generators, Delta Electricity and Macquarie Generation, put their names behind a submission from the National Generators Forum calling for the RET to be emasculated.

Also, on the same day, the NSW government's utility regulator, IPART, released submissions to the Climate Change Authority and a federal government Parliamentary inquiry urging the Renewable Energy Target be scrapped altogether.

Why? Because the carbon price apparently makes it superfluous. 

At this point I have a bit of a double take. This is coming from an authority whose own government repeats ad infinitum that the carbon price should be rescinded. A government, which in conjunction with federal Coalition leader Tony Abbott, has done such good job of scaring people, that it is highly likely the carbon price will be rescinded. I'd be interested in what IPART believes should occur once the carbon price is rescinded, but they don't deal with that real-world practicality.

IPART then asserts that it would be better to support low emission technology through funding from the government budget rather than a charge on electricity consumption. Sure, just like all those other grant programs that have been a roaring success. Like Ausindustry's Clean Technology grant program, which was just frozen by the government due to a political pickle in delivering its promised budget surplus. Like the Renewable Energy Demonstration Program that was panned by the Auditor General. Like the CCS Flagships program that pushes its funding out every year into the ‘never never'. I could go on.

Does IPART actually provide any evidence for why the budget-funded programs are better, in spite of this substantial evidence to the contrary? Does IPART acknowledge the carbon price will actually be at a level well below estimates of carbon emissions' social damage, and so electricity is actually underpriced to reflect externalities? But then again why let evidence get in the way of a good theoretical argument.

Which then brings me to IPART's assertions about the cost of the RET. Sure enough their submission is continuing to quote a past IPART estimate of the cost for the RET based on a small scale renewable energy certificate (STC) clearing house price of $40, when the price has actually been $25-$30. 

I called IPART about this and had a conversation broadly along the following paraphrased, but largely Alice in Wonderland lines:

CS: Do you realise that your submission claims a cost for the RET based on an STC price of $40 when in fact the price has been substantially lower at $26 to $30?

IPART: In setting regulated retail tariffs we forecast the cost for the RET.  Our forecast of $40 reflects the expected price if the Clean Energy Regulator had accurately forecast the number of STCs that would be created in 2012/13.  However, the Clean Energy Regulator has under-forecast the number of certificates created and set the obligation on retailers too low to clear the market. 

CS: So why are you still quoting this inaccurate cost in your recent submission now that we know the STC price is substantially lower?

IPART: We set the price paid by around half of small consumers in NSW who have remained on the regulated price.  Our cost estimate reflects the costs that regulated customers are paying in 2012/13.

CS: But that's because you made a mistake in your estimates. It isn't what the RET actually costs, and in fact you've delivered a windfall gain to NSW electricity retailers (TRUenergy/Energy Australia and Origin Energy).

IPART: We forecasts all costs, including the costs of the RET.   We assumed that the Clean Energy Regulator would set the STC target appropriately such that the clearing house would clear.

CS: But we're now well into the next year and it's obvious to everyone that the clearing house won't clear, but you're still quoting this inaccurate estimate. Also your estimate fails to account for how the additional supply of renewables has acted to depress the wholesale pool price and now we have energy prices substantially lower than what you estimated, delivering a further benefit to consumers you haven't taken account of – correct?

IPART: We are constrained by terms of reference for our review, which prescribe that in setting regulated retail prices we use an estimate of the Long Run Marginal Cost if this gives a higher price than market based costs. 

CS: Is it not true that if consumers bothered to shop around they could make a substantial saving over IPART's regulated default tariff?

IPART: You can check market offers in NSW at www.myenergyoffers.nsw.gov.au

CS: Will you set the costs on the same basis in the future?

IPART: Our current determination expires on 30 June 2013.  Unless we are asked by the NSW Government to continue regulating, we will not be setting regulated retail prices from next year.  If we are asked to continue price regulation, we will review the way we establish all cost forecasts.

To which I say: one only hopes the government doesn't ask them to continue regulating. 

By the way I looked up the myenergyoffers website and found eight retailers with offers that could save a consumer the entire additional cost of the RET (even the inflated IPART estimate) for someone on the default regulated tariff with Energy Australia (consuming 7,000kWh per annum). And guess what? One of them was Energy Australia.  If a customer just bothered to pick up the phone and ask Energy Australia to give them a better deal they'd save themselves $163 over what IPART has decided.

No one should be relying on IPART's estimates of retail electricity costs. NSW electricity consumers are suffering far more as a result of them than they ever will from the RET.