The RET-go-round 2

When I wrote “The RET-go-round” post on this site yesterday I had not yet seen the AGL Energy submission to the Abbott government task force chaired by Dick Warburton. Now that I have, I would like to canvass its thrust, too.

In just two pages, written by the company’s head of economic policy and sustainability, Tim Nelson, AGL has nailed a number of important issues for the Warburton review.

The back story here is that the company has invested more than $3 billion in renewable power since the RET was introduced and asserts that it remains a supporter of increasing the proportion of green energy in electricity supply.

It is the “however” aspects of the submission that are important.

AGL argues that the large-scale 2020 target (as opposed to the part of the scheme giving handouts to solar PVs) “cannot be achieved” because of “a convergence of factors making future investment intractable.”

These factors are policy uncertainty and the associated barriers to generator exit from the NEM, the design of the energy-only market and ongoing falls in electricity demand.

As things stand now, AGL says, investment in new renewable energy projects cannot be justified economically.

The company points out that older emissions-intensive generation is not being shuttered permanently despite the demand slump and continuing (renewable) capacity additions.

In this situation, AGL believes renewables policy needs to be considered in two timeframes.

First, it says, there is little point in pushing on with a high target if the underlying factors deter investment, but those (like it) who have invested under the scheme must be protected.

Second, it adds, renewable energy policy for the medium term needs to be part of the broader efforts to reform energy market design. This, it points out, is not just an Australian issue — similar activity is under way elsewhere around the world. Here, it says,the reforms should include incentives for older, inefficient plant to be retired.

Turning to the RET aspects covering small-scale solar power, AGL argues that there is no longer a need to subsidise household PVs as investment reaches an aggregate 4,000 megawatts (what it was designed to do) — and residential investors got their RET credits upfront so there is no sovereign risk issue here.,

The big over-riding issue, not just for the RET but energy policy overall, says AGL, is that the revised approach should be “co-ordinated, long term and evidence-based.”

Some readers have indicated that they are finding the current efforts on this issue by the green movement’s running patterers — the mid-19th century criers of news in the streets of London — rather repetitive and tedious, to which I think the only realistic response is live with it or turn your eyes away ; they will be in full voice through the winter.

Having been involved with this issue since John Howard brought the idea back from a White House lunch with Bill Clinton and Al Gore in the late 1990s, having been more or less industry lead negotiator with Environment Minister Robert Hill in the MRET’s formative stage and having led again for the ESAA membership during the Tambling review in 2003, I think I have heard most angles on it many times — but I did see one new one this week: one of the green boosters accused AGL of “going over to the dark side.” Michael Fraser as Darth Vader? Nah, it doesn’t work for me.

Speaking of dark, few organisations have a darker view of the policy than the Australian Chamber of Commerce & Industry. I see the association is having a some more shots in the autumn issue of its house journal.

The ACCI view is that the Abbott government has “shown strong leadership in putting the issue on the table and staring down an army of green lobbyists.”

In the chamber’s opinion, “unwinding the RET gifts the Coalition the opportunity to deliver a good policy outcome that is an easy political sell; it wouldn’t cost the budget a cent yet will deliver substantial electricity price relief to users. In these days of constrained budget positions, it is a rare combination.”

In this context, one notes that the Federal Parliamentary Library has produced a “quick guide” to the RET in which it draws attention to Australian Energy Market Commission estimates that the direct cost of the RET to households amounts, on average across the country, to 1.38 cents out of 27.11 cents per kilowatt hour or 5.1 per cent.

ACCI and others argue that the RET imposed a direct cost on the economy as whole of $1.6 billion in 2012 and that this will rise, if the program remains unchanged, to $5 billion a year by 2020.

The chamber says that the RET cost is “particularly insidious” because is is “largely hidden” from voters with no transparency in the federal budget about “the burden on consumers.”

The Rudd/Gillard government, it adds, never revealed the costs imposed “by dramatically expanding the RET” and consequently never provided compensation to households.

ACCI points to the 2012 Climate Change Authority review which, it points outs, “admitted that the RET is not the first best approach to reducing emissions.” It adds that, reading between the lines, this was code for saying that CCA couldn’t justify it as emissions abatement policy, “given that it is highly inefficient.”

The great fear of the green lobby is that the Warburton task force is far more likely to take on board the views of ACCI and fellow travellers than supporters of the RET — which is probably correct.

The AGL Energy submission can be read as an attempt to bring some balance to the argument, acknowledging the market problems but seeking an outcome that retains the concept while bringing it within the ambit of the broader issue of NEM reform.

Meanwhile, the Grattan Institute, I see it reported, is suggesting “a carefully-crafted expansion of the RET to include non-renewable sources of energy.”  The lack of bipartisan support for clear policies to address global warming, it adds, makes it difficult to justify further investment in renewables, arguing that at present investors face “unmanageable risk.”

The institute says existing arrangements should be preserved to protect contracts and investment, underlining the AGL point.

In passing, spruiking a forum it is holding in Brisbane on 28 May (titled “Energy in 2014: more mines than field”), the institute provides this neat capsule of the domestic energy environment: “Electricity demand is falling, yet prices are still rising. Traditional generators are in trouble and the future of renewable energy is highly uncertain. Gas prices are increasing sharply and flowing through to businesses and households. And uncertainty on climate change policy completes a perfect storm for consumers and suppliers alike.”

Pity about the “perfect storm” cliche, but otherwise as good a summary as you are going to get.

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