The Origin of renewables uncertainty
How can you consistently call for policy certainty yet repeatedly ask for changes to current policies?
Ask Origin Energy, whose commentary on key policies is nothing if not perplexing.
The ASX-listed energy retailer’s chief executive, Grant King, has spent the last 18 months bemoaning the Renewable Energy Target. He is worried that Australians are paying too much for electricity and points the finger squarely at ‘green’ costs whenever he has the opportunity; even though he is well aware that over-investment in networks is largely to blame.
This has resulted in a withering attack on the RET and criticism of the carbon price – a policy which he has long advocated.
We’ll focus on the former, with King critical that – due to lower than expected electricity demand – the RET will see renewables have around a 27 per cent share as opposed to a figure closer to 20 per cent.
As pointed out yesterday on Climate Spectator by Infigen’s Richard Farrell, King makes the claim that, “it was never intended that the RET provided that much energy.”
Farrell correctly notes that given it is a fixed target explicitly set out in legislation, then it most definitely was intended the RET provided that much energy (41 terawatt-hours for the large-scale RET). Regardless, King wants this scaled-back to represent a ‘real 20 per cent’ target.
So here we have a prominent energy executive arguing for policy certainty by essentially calling for a target to be changed from a fixed amount of energy to a variable amount. In other words, let’s change the current policy and introduce a target that will likely further change in the lead up to 2020.
If you want policy certainty, that sure ain’t it.
King tries the cost argument to justify his case, focusing on ‘relative’ cost in light of a declining carbon price.
“As the cost of carbon goes down, consumers will benefit, as has been promoted, because the cost of energy will go down, but the RET scheme or the cost of providing renewable energy will remain the same. And as a consequence, the relative cost of the RET scheme will increase as carbon prices come down. So in a sense the relative disadvantage of that scheme increases as the carbon price lowers,” he told Inside Business.
One can’t help but laugh at a complaint that “the cost of providing renewable energy will remain the same.”
Contrast this with the recent pricing decision by NSW’s Independent Pricing and Regulatory Tribunal, whereby retail operating costs – something Origin has a fair bit to do with – were viewed as the “main driver of price increases for 2013.”
And Queensland’s Competition Authority, which noted that for the 2013/14 financial year the carbon price will add an extra $9 to bills, the RET and Queensland Gas target will lower prices $6 while retailer costs will tack on $60.
King doesn’t mention any of these facts rather oddly.
Instead he pursues a relative cost argument that holds little weight given the relative costs of every other facet that impacts on prices will also be rising eg. retail and network charges.
Sector uncertainty
Discussion surrounding the need for new baseload generation in Australia is as inconsistent as anything else Grant King offers to public debate.
He has made it clear that we don’t need any baseload for the next decade at least – which is true as electricity demand is not going to rise significantly for a number of years.
King now makes the claim that with the carbon price likely to fall to $6/tonne (if Labor clings to power), coal will be far cheaper than gas. This also is accurate – but of little consequence.
If we don’t need baseload for at least a decade then an investment decision on new baseload is likely at five years away or thereabouts, which means the relative cost of new coal vs new gas is not particularly pertinent for the time being. We should instead be looking at the likely relative costs five years out from now and beyond.
King isn’t finished, however, adding that no one has invested in new baseload in Australia for at least three or four years due to policy uncertainty.
“For the last three or four years we, nor anyone in Australia, has invested in new baseload generation because it’s just not clear what the relative economics of that will be depending on whether you use coal as a fuel or gas as a fuel,” he told Business Spectator this month.
“So, you don’t make some part of the investment that you might have otherwise made because of that uncertainty.”
King himself says there is no need for baseload, yet he blames policy for the lack of new baseload investment. It makes no sense.
Regardless of policy settings, no energy company in their right mind should be investing in baseload when there is no need for it.
King is not alone, with the energy sector regularly injecting uncertainty so as to keep the fossil fuel status quo intact for as long as possible.
How does the industry get away with it? Because it is a freakishly complicated sector in which most Australians, including politicians and journalists, hold little more than a basic understanding – but that doesn’t mean they deserve to have the wool pulled over their eyes.