Energy black hole we cannot afford

Ron Boswell
November 09, 2012
The Australian

THE government’s energy white paper has made several recommendations to alleviate rising power bills. If the government were serious about easing energy price pressures, it would do better to address the cost impact of the carbon tax and the renewable energy target.

The carbon tax is placing an $8 billion a year burden on Australia and must be abolished. Not far behind is the RET, which Labor’s chief whip Joel Fitzgibbon rightly has questioned. The RET is lowering electricity demand and pushing up electricity costs. These costs will only go higher as our renewables percentage goes up from 10 per cent today to the 20 per cent target for 2020. The RET is foisting expensive and unreliable power on us and driving out the cheap, dependable and abundant energy sources we have relied on for decades.

Every day we are seeing power companies shutting down units and slashing jobs. This is due to current low electricity demand and an unprecedented fall in demand forecasts resulting from the RET and now the carbon price, which is creating an oversupply in the market. The low prices this creates, as the electricity regulator (Australian Energy Market Commission chairman) John Pierce demonstrates, is temporary and must give way to a renewed price surge. As prices go up due to the RET, more manufacturers are being put under pressure or going out of business, which is driving down electricity demand further.

This fall in demand has depressed wholesale electricity prices. But because the increase in supply has been from irregular renewable sources, energy retailers have had to contract for more of their supplies and they can do this only at a premium – ironically, the forced replacement of fossil fuel-driven electricity by renewables has increased costs to the consumer. This is a point Pierce made last month about the distortion created by the RET.

Every industry in Australia faces higher electricity bills due to the RET and carbon tax. The target of 45 terawatt hours being sourced from renewables annually from 2020 to 2030 will require businesses to surrender an increasing number of renewable energy certificates renewable energy credits?? through electricity retailers each year at considerable cost to their bottom line.

One industrial user in Queensland told me it recently received a $244,000 electricity bill. Of that, $32,500 was attributed to the RET and $45,000 to the carbon price.

This is an increase of almost 50 per cent on this user’s costs last year, due to the RET and the carbon price. A cost projection prepared for another Queensland industrial user shows that next year it will pay a $5.78 million electricity bill; $495,000 of that will be from the RET and about $1m from the carbon price.

It is not just industry costs but also household bills that are being pushed up. The latest consumer price index figures show a 15.3 per cent increase in household electricity prices in the September quarter, the biggest quarterly increase since records began. Much of that is down to the RET and the carbon tax. Modelling done for NSW’s Independent Pricing and Regulatory Tribunal, the Climate Change Authority and other bodies all show that households would save about $270 a year with the RET and carbon tax gone.

The RET is already likely to exceed its original 20 per cent goal and, for this reason alone, even its most passionate supporters should call for its reduction. Reining in the blowout would, according to ACIL Tasman, reduce the measure’s burden from $53.3bn to $28bn by 2030. But this is not enough. The government must examine the views of Labor think tank the Grattan Institute and industry groups that have demonstrated the very strong case for the RET’s removal.

We can talk all day about reducing the RET figure to a real 20 per cent figure. It would certainly help, but at the end of the day one man’s subsidy is another man’s penalty. We will still be saddled with a policy that lowers electricity demand, drives up prices and pushes out cheap, reliable energy for intermittent, unreliable power dependent on back-up capacity from coal.

Renewable energy is an expensive and ineffective way of reducing carbon emissions. The Productivity Commission estimates abatement costs to be $473 to $1043 a carbon tonne for solar technologies and $60 a carbon tonne for wind. The Electric Power Research Institute estimates that wind-powered electricity costs $150 to $214 a megawatt hour and solar photovoltaic systems cost $400 to $473/MWh compared with coal-fired electricity, which costs just $78 to $91/MWh.

The heavy industries Australia has sustained for decades with the low-cost and reliable power available to us are being lost because of the RET and carbon tax. While we cannot and should not abolish subsidies given to those like the sugar industry that have invested in renewables, they should be grandfathered. Every day the RET is left unchecked, the more electricity we source from costly and inefficient renewables, and the heavier the financial burden on industry and households gets. Australia is in an expensive energy hole because of the RET and the carbon tax, and it is time we stopped digging.

Ron Boswell is a Nationals senator. This is an extract of a speech to be given in parliament.