Tristan Edis (TE): You’ve been quite critical of the Climate Change Authority’s recommendation to leave the forty-one terawatt hour LRET unchanged stating that:
...those schemes [the RET] do not cost into them the cost of additional transmission and distribution investment, the cost of additional generation necessary to firm the schemes and the cost of climbing up the cost curve and not down the cost curve. So our view is that those costs are seriously understated. The Climate Change Authority in their review last year completely skipped the opportunity to review the true cost of these schemes.”
Can you explain further what you mean by completely skipped? Because from reading the review and the modelling work behind it, it did look at transmission, the cost of firming renewables and also assumed that we would have to climb up the cost curve and exploit more marginal wind farm sites over time.
Grant King (GK): I’ll give you a quick explanation because you’ve got a very important role to communicate these things. But let’s… Look, I can’t… it’s been a while… a long time ago that I looked at that report, but my recollection was it recognised there were issues, but at the end of the day the overwhelming answer in the report was, ‘but that none of that matters because the excess amount of wind is driving down the wholesale cost of energy and that’s a net good so everything is fine’.
I mean that’s a quick summary of their report. Now, you know, that… we can have a debate about that in a sec, but let me then draw out some specific points.
So, let me start with solar as an example. Now, you know that the forty-five terawatt hours is where the original twenty per cent was thought to be and you know that the forty-one was thought to be four terawatt… when they split the scheme into the LRET and the SRES, there were deemed to be four terawatt hours of SRES that would come through at a fixed price, forty I think, and hence the forty-one number. Do you recognise all those numbers?
TE: Yeah, yeah, yeah..
GK: Now, I think the CCA themselves in their report said the four was probably likely to be twelve, right. Hopelessly wrong, isn’t it?
TE: I think everyone has been surprised by the uptake of solar PV, absolutely.
GK: Yeah. Again because it was hopelessly oversubsidised. So, that four gigawatt-hour estimate was hopelessly wrong. It was twelve. The regulator has each year for the last two years… or the two prior years – maybe this year they got it about right – grossly underestimated the amount of SRES to be recovered from retail customers, grossly underestimated it. The subsidy for solar is flat, so I think it’s three to four billion dollars over two years under the SRES scheme. But they’re all facts, right. So, that’s not bad in terms of getting wrong to start with, right.
If you then go to the distribution systems, the fundamental issue is the relatively small amounts of energy can free ride the system, but the greater the contribution, the less you can have that free rider effect occurring because it is a free rider effect. And the question… You know, I often find these… You know, you see these little snippets of commentary made, so people say solar is great because it’s reducing the summer peak and it is. The trouble is we now have a winter peak.
So, in my view what’s inevitably going to happen is we’re going to have to review the basis of charge for distribution networks because they’re charged out on an energy basis, but as more energy comes from non grid, but people still rely on the grid, I actually think we’re going to have to change it. You know, the industry is going to have a look at… have to have a look at charging on a capacity basis and when it charges on a capacity basis, then that will truly reflect the economics of solar production, for example, relative today.
Now, that’s not to say solar is bad; solar is great. It’s going to have a role. It’s going to keep being installed on rooftops. But it’s not been properly costed at the moment.
Now, you know, there’s another example. And the rhetorical question I put because when I make that point people come back and say oh, you know, but, you know, batteries will come along, and, you know, my question of you is a rhetorical question was that if, for example, people genuinely believe that solar did not need the grid for its economics, that is to provide the net back tariff and to ensure people have power at night, for example, and I said to you well I’ve got a good idea, why don’t we require it when people put on solar that they disconnect from the grid, how many people do you think would be putting PVs on their roof? I suspect the answer is very few .
TE: I suppose the issue though is that that doesn’t really get to the point of the statement that you made which was about, you know, the cost of firming, for example. I think you mentioned that the additional cost of firming wind was greater than the cost of the wind. I’m not sure what you quite meant there. The cost of additional transmission, investment… I think the view is that in fact if we remove the RET, ROAM Consulting found that we’d actually need more transmission investment, according to their modelling, and the cost of additional generation to firm, well we’ve got a large amount of excess capacity. AEMO’s not projecting the need for any new additional capacity all the way up to 2023, except in Queensland where there’s not a lot of wind being built.
So, you’re saying that they didn’t take those things into account and that there are large costs there. They’re nothing to do with the solar small scale renewable energy scheme or SRES. This is about the Large-Scale Renewable Energy Target (LRET) and they appear to have analysed those and said those costs are taken into account in their analysis.
GK: So, if we go back to our commentary that it was never intended that the forty-five or the forty-one would be twenty per cent, right, the mass is inexorable. The reason it’s a lot more than twenty per cent is, for example, as with the scheme and instead of four we’ve got twelve coming from someone, right, so it is relevant because the scheme is producing far more, you know, from solar and from the SRES and the LRET than anybody ever envisaged, right. When the scheme was implemented it was never an objective of the scheme and, you know, I’m happy if you want to contend to the contrary, but it was never… I don’t recall anywhere in the discussion about the RET scheme was the stated objective to create excess capacity in the NEM. Was that ever a stated objective of the scheme?
TE: But really does that matter if there’s an unintended consequence that there is excess capacity? I mean that’s not a social objective. Sometimes there are things that you do that have other consequences. Wouldn’t that be a matter of the distribution of the costs and who bears the costs of the scheme? That’s the result of having excess capacity, isn’t it?
GK: So, would you then construct an argument that if it turned out that the NDIS costs, which I have to say I’m in favour of, but the NDIS cost twice what everybody thought it would cost really there’s no consequence of that?
TE: But are you saying that it’s costing twice what it was originally thought?
GK: No, no. But there was… When the twenty per cent target was set, it transpired that the amount of energy people thought that would come forward under that scheme was about equal to the then estimated growth in demand in the NEM for energy, right. The scheme was never designed nor configured to produce a number well in excess of that. Ok. That was never an objective of it.
TE: But that doesn’t mean that the cost is double. The LRET target is forty-one thousand gigawatt hours which is fixed. That is one of the things that I think you’ve targeted saying this is the component that needs to be reduced substantially.
I mean it sounds to me like what we’ve got is… our real problem is in fact we’ve got an SRES that is uncapped.
GK: So, I can agree with that statement. So, what you do is take forty-five less twelve and the forty-one would become whatever it becomes, thirty-three, for example. Absolutely agree with that statement.
TE: Or you could just merge the two schemes and say let’s make it forty-five thousand gigawatt hours and do what we used to do in the past.
GK: Correct. I agree with all of those comments. I think you’re brilliant.
TE: I’m just putting alternatives there to…
GK: And that’s all we’re saying. We’re just saying that the scheme is not doing what it was intended… it is not meeting its objectives. It’s not doing what it was designed to do and there are many different ways that you could think about it. One of the ways is as you’ve said. Well, now that we know SRES is a twelve, forty-five less twelve is thirty-three, so the LRET target should be thirty-three.
TE: Or we just say forty-five and throw ‘em all in together?
GK: Correct. Or we unwind the fixed… Which I think probably is, you know, actually a bit better to just fold the SRES back into the forty-five and take the fixed forty dollars away.
TE: Yes. Ok. But that’s different to what you’re proposing … or at least what I understand you’ve suggested in…
GK: I haven’t proposed anything other than a thorough examination of the scheme in its current form
TE: Well, I mean is that really fair because you’ve said…
GK: That’s what lots of other people who are interpreting what I’m proposing.
TE: Well, I suppose one of the things you’ve said is, you know, that this should be a real twenty per cent. I know people have talked about moving back to a percentage based scheme rather than a fixed gigawatt hours or fixed units of energy. So you don’t actually have a preferred position? You don’t necessarily believe that we should move to a percentage based target?
GK: I think there’s a… there are great possibilities. I probably personally slightly prefer a higher RET target later. I actually think thirty by 2030 with a tail to 2040 is far more sensible than our current scheme, for example. And one of the reasons is that our current scheme now has so little time left that all it’s going to do is cause more wind to be built at a high unit price with little advancement of technology or any other stated objectives of the scheme when it was brought in.
Tristan, I think it’s a really, really important point that what happens when people throw points in for discussion and say this is not working as we intended, people don’t debate the facts, they target the legitimacy. They say well you’ve got vested interests. I have not said the answer is X ever. I’ve said we could do this, we could do that, but to properly really know what… need to know what problem it is we’re solving for
TE: But you have said that we should go for a real twenty per cent, haven’t you?
GK: What we have said, sorry, very clearly is a real twenty per cent would be I think twenty-seven terawatt hours. That’s what we’ve said, right. All we’ve done is point out that what the real twenty per cent would be now. Forty-five less twelve is thirty-three, so I don’t know, that’s probably twenty-two or twenty-three per cent. That would be a factual statement, right.
All we’ve said is that there is a bunch of consequential issues not intended in the design that was implemented and which have been caused by people, you know, and obviously in that period when the SRESes were separated by people lurching from one decision to another without really thinking it through.
And so too is the case for all of the feed in tariffs that occurred and I’m still amazed that no one really feels that the injustice that I feel that the people who are paying all of those subsidies are people who rent and live in flats and couldn’t afford solar schemes and you can see it in the QCA report and the IPART report. It is just so unfair. It is so unjust and no one seems to be upset about it.
TE: Well, I suppose like there are also… there are lots of wealthy people who also don’t install solar it seems as well.
GK: True. But, you know, the QCA report shone the light on it better than anybody else. I mean that cost subsidy is massive. It really is.