Grant King gave a very interesting and revealing interview on the ABC’s Inside Business on Sunday. His comments on the renewable energy target again appeared confused.
He correctly points out that the Large-scale Renewable Energy Target is a fixed terawatt hour target enshrined in legislation:
“Well there's two I think important areas to talk about in the RET scheme and the first is that we all do talk about 20 per cent by 2020, but of course it's actually a real number. It's not 20 per cent, it's a number: 41 terawatt hours.”
But somehow Mr King deduces that it’s higher than people were expecting:
“The current RET scheme as it's configured is actually forcing more energy into the system because the target is higher than people thought it was going to be.”
This raises some interesting questions. Which people? And why would they be expecting anything other than the legislated target of 41 terawatt hours. And why for that matter is Origin modelling a “real 20%” when in fact, as Mr King rightly points out, the target is a mandated amount of generation not a percentage.
Furthermore, it cannot be argued that his statements might have been misinterpreted as he continues, “It was never intended that the RET provided that much energy.”
Of course the RET was intended to provide that much energy; that was the amount specified in the legislation; there is no reason for anyone to expect that the RET would provide any more, or less.
In relation to carbon pricing, Mr King admits that under the current or his expected future carbon price, coal fired generation is what would be built to meet new baseload requirements. Many believe that low cost energy is the key to our nation’s competitiveness.
So here’s the conundrum we face. Our nation’s carbon policy is so weak that coal fired generation remains the economically rational choice of new generation, however, you won’t see too many financiers willing to take a punt on a new coal fired power station. As Mr King rightly points out, for gas fired power generation to compete you need carbon price of $40 per tonne. As legacy coal contracts roll off and are repriced at export levels the underlying cost of electricity will increase.
Add to that $40 per tonne of carbon and guess what? Renewable energy become pretty competitive with traditional sources of generation. It’s what the renewables industry has been saying for years, and what fossil fuel generators have been trying to hide from consumers with misleading claims about the need for backup generation for renewables.
Mr. King also demonstrates he’s a bit out of touch with how the electricity market operates when he stated that, "wind farms are ‘must run’ generation. Once the wind blows and the power is generated, it runs”.
This was true in 2007. However, in that year the national electricity market rules changed, and wind farms started bidding into the electricity market just like every other generator. One has to wonder how many of Mr. King’s other arguments are 6 years out of date.
Mr King continued down this tired line of attack with,
“So at the moment, if you like, the industry's building synthetic baseload power stations by having renewable energy power stations like wind and solar, and building more peaking power stations to balance it out for when the wind's not blowing and the sun's not shining.”
This peaking generation, like the economically rational new coal fired generation, is only built in Origin electricity market modelling – not in the real world. The fact is, and I’m sure Mr King knows this, there has been no new peaking generation built to “firm interruptible power”. One wonders if the costs of the RET that Mr King refers to come from the very same model?
Richard Farrell is the Investor Relations Manager at Infigen Energy