21 February, 2017
Courtesy of the Australian
Kevin Rudd breezed into the Sky News studio in Canberra last week to decry the lack of “deep, strong, committed national leadership” since the electorate’s foolish decision to turf him out of office.
It was “nuts” to remove the carbon tax, he said.
“Where we are now can be summed up in three words: dumb, dumb, dumb.”
Australia’s energy market could be dumber still if Labor wins office and pursues its vanity target of 50 per cent renewable energy by 2030. The plight of South Australia, the canary in the turbine blades, demonstrates what happens when an economy becomes hostage to unreliable sources of power.
Yet Rudd was unapologetic. Coal? Don’t get him started. “The message for coal, long-term globally, is down and out,” he informed us. We need “a heavy mix of renewables”, which was why he was proud that the government had introduced the renewable energy target.
In the real world, the one outside Rudd’s brain, the RET is nothing to be proud of. It is one of the most expensive public policy disasters of the century, market intervention on a massive scale with unfair and unintended consequences that will haunt Australians for decades.
Rudd, determined to tackle the era’s “greatest moral challenge”, upped the target by more than 450 per cent in an uncosted promise before the 2007 election.
It was crazy, as the Productivity Commission politely tried to tell him in a 2008 submission.
The target would not increase abatement but would impose extra costs and lead to higher electricity prices, the commission warned.
It would favour existing technologies — namely wind and solar — while holding back new ideas that might ultimately be more successful.
Rudd, of course, knew better. Not for the last time, he ignored the Productivity Commission and pushed ahead with his renewable target of 45,000GWh by 2020, of which 41,000GWh would come from large-scale wind and solar.
If the policy was designed to punish Australian consumers, it was a roaring success. Household electricity bills increased by 92 per cent under the Rudd-Gillard governments, six times the level of inflation.
Rudd went further, spending $4.15 billion on dubious clean energy boondoggles. He put $1.6bn into solar technologies, delivered $465 million to establish the research institute Renewables Australia, gave $480m to the National Solar Schools Program to give schools “a head start in tackling climate change and conserving our precious water supplies”. Easy come, easy go; the money tree seemed ripe for picking.
The cost of meeting Rudd’s windmill and solar fetish has been extraordinary.
Wind-generated power is roughly three-times more expensive than traditional energy, and large-scale solar even pricier.
It has taken cross-subsidies of $22bn to keep renewables viable, according to a 2014 review for the federal government. The economy-wide cost was put at $29bn.
It amounts to industry welfare on steroids. Corporations that jumped on the clean energy gravy train have benefited from assistance on a far greater scale than that we once lavished on the car industry.
Wind farm operators work in splendid isolation from the risk and uncertainty that trouble ordinary businesses. Their share price is not driven by supply and demand for electricity, but by the funny-money world of large-scale generation certificates.
When the LGC spot price shot up from $52 in July 2015 to $86, the value of Infigen’s stock quadrupled.
Coal energy producers, on the other hand, saw their fortunes decline. The Alinta power station closed at Port Augusta in May last year, ground down by operating losses of about $100m.
The result of Labor’s ill-considered RET policy should shame the social justice party into silence. Shareholders in the likes of Infigen have grown rich by squeezing coal operators out of business with all that entails: the loss of 440 jobs at Port Augusta, for example, and the threat the closure presents to jobs in other South Australian industries.
They have grown rich through a scheme that has made the electricity grid more unstable and reduced the reliability of supply.
They have grown rich through a scheme that has more than doubled the cost of running an airconditioner, a detail that probably won’t trouble Infigen’s executives on the 22nd floor of their five-star energy-rated Pitt Street, Sydney, headquarters but would make life uncomfortable for a pensioner surviving on $437 a week in Adelaide’s northern suburbs.
On paper, the case for abolishing the RET is strong. Deloitte’s estimates the reduction in electricity prices would add $28.8bn to GDP by 2030 and create 50,000 jobs.
The politics of liberalising the energy market would be punishing, however, and all but impossible to negotiate through the Senate.
The status quo — a 23.5 per cent renewable target by 2020 — will require doubling the capacity of wind and solar and will further erode the viability of coal plants. The doubling of energy future prices that followed the announcement of the closure of Victoria’s Hazelwood power station is a sign of things to come.
Rudd’s claim that coal is “down and out” will come as news to the Japanese government, which is planning up to 47 coal-fired, high-energy, low-emissions plants burning high-quality Australian black coal.
It would be viable in Australia, too, if energy providers enjoyed a free market. With gas prices high, ultra-supercritical coal generation would fill the demand for base-load power.
Yet the uncertainty of Labor’s greener-than-thou policies — not just a 50 per cent RET but a price on carbon, too — could yet make the end of coal a self-fulfilling prophecy.