The Trump victory came with his pledge to take the US out of the Paris agreement on climate change. This leaves only the EU among the major emitters of greenhouse gases (the others being China, India and Russia) still forcing its consumers and industries to accept high-cost electricity largely through imposing renewable energy requirements upon them.
It means that barely one-quarter of the global emissions will be being suppressed undermining the agreement. And as Australia is finding, the high prices created by those policies is forcing energy intensive industries like smelting to move offshore. This compounds and further dilutes the effect of the price-boosting measures.
Shortly after the Trump victory, Malcolm Turnbull ratified Australia’s Paris Agreement under which we agreed to force a 26-28 per cent emission reduction.
But the insanity got even worse. Within a few days, the government’s handpicked green left “Expert Panel” looking into the future security of the National Electricity Market issued a preliminary report. That panel, which is headed by the Chief Scientist Alan Finkel, produced what is surely the most risible report on electricity that it is possible to write.
It had seven themes:
- Technology is transforming the electricity sector.
- Consumers are driving change.
- The transition to a low emissions economy is underway.
- Variable renewable electricity generators, such as wind and solar PV, can be effectively integrated into the system.
- Market design can support security and reliability.
- Prices have risen substantially in the last five years.
- Energy market governance is critical.
Five these are totally wrong:
- Technology is not transforming the energy industry, it is government subsidies to wind and solar that are creating demand for products that are three times the cost of coal and highly unreliable.
- Consumers are only driving change because of government subsidies
- A transition to a low emission economy is only underway because of government policies and, as the Trump victory demonstrates, these can rapidly change
- Wind and solar can only be integrated into the system at added costs – $2 billion is the cost in transmission alone for Victoria.
- Market design can support security and reliability but only at a cost.
Those standing up to scrutiny are:
- That prices have risen. But this is due to government policies that have transformed Australian electricity from the lowest cost in the world to one of the highest cost; and
- Energy market governance is crucial.
This final theme is interesting. Governance bodies are the market operator (AEMO), the rule maker (AEMC) and the price regulator (AER) and Energy Consumers Australia, a lobby involuntarily financed by consumers. The “Expert Panel” says those bodies offer valuable insights, but if so, they have not been sufficient to persuade governments to accept them. Evidenced of this is the increase in electricity prices Australian consumers have had to accept, an increase that is demonstrably greater than that in most other jurisdictions.
One outstanding institutional leader, the now deceased Matt Zema the former head of AEMO, clearly had considerable knowledge of the market. Mr Zema during the course of a private briefing in April of last year made the following prescient comments
The renewable developments and increased political interference are pushing the system towards a crisis. South Australia is most vulnerable with its potential for wind to supply 60 per cent of demand and then to cut back rapidly. The system is only manageable with robust interconnectors but these operate effectively only because there is abundant coal based generation in Victoria.
Wind, being subsidised and having low marginal costs, depresses the spot price and once a major coal plant has a severe problem it will be closed. New coal plants cannot be built because governments are hostile and banks will not finance them. Wind does not provide the system security. But the politicians will not allow the appropriate price changes to permit profitable supply developments from other sources. In the end the system must collapse.
Mr Zema made similar comments in more public addresses but these repeated attempts to warn of an impending catastrophe with the growth of wind power fell on deaf ears.
The fact is that governance of the electricity market, the peak body of which comprises the nation’s energy ministers, has been delinquent. A key driver of costs has been the renewable requirements that will force us to use 23 per cent of electricity from renewable sources by 2020; 16 per cent of this will be from high cost, unreliable wind and solar.
Renewable subsidies are set to grow but last year were nearly $5 billion as illustrated below.
These policies are forcing the replacement of low-cost coal plant, the latest being the Victorian Hazelwood facility by wind that is three times as expensive and creates severe market management problems.
Renewable energy policies have been caused by spineless politicians responding to green hysteria about climate change and lobbying by rent-seeking businesses. They are costing Australian consumers both in the electricity bills they pay and in their effect on boosting costs for the industries, especially processing and agriculture, in which we are internationally competitive.
The policies should be abolished with immediate effect. But the government will not receive such advice from its stacked “Expert Panel”. Nor is such sound advice likely to be received from AEMO, under its newly appointed under New York energy regulator, Audrey Zibelman, who has expressed excitement about reaching a 50 per cent energy target.
Alan Moran is with Regulation Economics
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