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Green notes

20 July 2019

9:00 AM

20 July 2019

9:00 AM

Renewables fail to pay their way

The problem with continued calls for ‘sense’ in the Australian energy market including a unified national policy is that any such policy would require concessions that the Greens do not want to consider.

By far the most vocal group in the debate, and seeming to all but dictate Labor party policy in the area, the Greens do not want to be told that a lot of conventional power will still be required for decades to come to balance and back up all the renewable energy being put on grids. As private investors seem unwilling to build new plants to replace Australia’s ageing generators, in part because green activists have made the phrase ‘fossil fuel’ almost a curse, energy policy is in a quandary.

Instead of admitting this basic point the Greens, and even certain industry groups and state governments, want to push for unobtainable ideals such as 50 per cent or even 100 per cent renewable energy on grids, and even carbon trading systems – proposals made in the teeth of considerable overseas experience showing the fiendish difficulty and costs of putting such policies into practice.

Loading more than 40 per cent renewables onto a still mainly coal-fuelled, isolated grid such as Australia’s east coast, for example, has yet to be achieved elsewhere on any comparable grid, large or small. Greens may point triumphantly to Germany, Denmark, Norway or New Zealand as examples of countries with clean grids. Norway has always obtained its power from large hydro-electricity projects, NZ draws power from major dams plus geothermal projects, while Germany and Denmark essentially take advantage of being part of a European grid which is far denser and more diverse than that of Australia’s east coast, to fudge the figures on penetration of renewables.

A more relevant example of renewable generation is that of King Island in Bass Strait. The power needs of the island’s 1,600 residents are served by a system which uses a wind farm and solar panels, backed by diesel, all aiming at a renewables penetration of 65 per cent. It is not clear whether the system has reached that level of penetration but certainly it has managed 100 per cent renewable generation for days at a time, all at a cost of $18 million, or well over $10,000 per resident. The bill was paid by Tasmanian Hydro with the help of major grants. The electricity bills sent to the islanders are regulated and remain unchanged. They have never covered the cost of delivering power to the island.

Another project for the 1,700 residents of the South Australian mining town of Coober Pedy aimed at reducing the running time of the town’s diesel generator by 70 per cent, has been billed as the highest penetration of renewables in Australia. But despite a grant of more than $18 million from the Australian Renewable Energy Authority towards total project cost of $38.8 million, an apparent misstep in the tendering process has threatened to deliver much higher power bills to residents. Both Coober Pedy and King Island are expected to retain diesel generators capable of powering the whole grid for long periods.

As for carbon trading, this approach has yet to notch up a major success despite years of trying, with such schemes showing a marked tendency for prices to swing wildly and then stay too low to have any effect on company behaviour.

The largest and best-established is the European Union Emissions Trading Scheme which started in 2005. Since inception the carbon price of this ETS has been marked by major surges and collapses, but from the global financial crisis up until last year prices were under €10 ($A16) a tonne; considered far too low to force any changes from industry.

The EU scheme could not cope with the major industrial slow-down that occurred during the Global Financial Crisis which left companies with an over-supply of the scheme’s generating certificates. After long-delayed reforms which took many of the excess certificates out of the system, prices have shot up to €25 a tonne. That is almost high enough to force companies to think about reducing emissions, but a lot depends on whether the price will remain that high, and that depends, in turn, on whether governments hold the line on issuing permits during the next crisis.

New Zealand’s trading scheme started in 2007 but for many years was linked to the Kyoto scheme in such a way that permit prices stayed too low to be anything but a minor nuisance to emitters.

The scheme has been changed and as of 2016-2017 its advocates reported that the price of permits was finally affecting behaviour. As the New Zealand government relies on the support of the Green Party for a legislative majority, the scheme may remain effective, for now.

Another major trading scheme run by the state of California has yet to really work as intended. An over-supply of the scheme’s permits noted by the LA Times of early last year was due to pollution reduction technology being more effective than intended and the enthusiasm of state residents for electric cars. The resulting low prices meant businesses considered the scheme as just an additional cost of doing business in the state. Funds raised from selling permits is supposed to be used for emission reduction work, but Californian legislators have started using the money for other admittedly much-needed community works.

Much else could be said about trading schemes in other countries but after years of operation the best that can be said is that a few have ceased to be ineffectual, for now. As for green electricity, experience to date both here and overseas shows that it is a good way to spend billions of dollars in return for not much emissions reduction. Australia should keep its money.

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