Power plays over green energy subsidies
Lily D’Ambrosio likes to joke about how many federal energy ministers she’s seen come and go during her time as Victoria’s minister for energy, environment and climate change. Her latest federal counterpart, Angus Taylor, is – of course – solely minister for energy. Environment, and with it any talk of climate change, was hived off to Melissa Price in the ashes of the latest Liberal leadership coup. Not long after, Taylor declared there was “no room for bipartisanship” on energy policy, capping off 10 years of policy paralysis on carbon emissions.
This week, Bill Shorten seemed inclined to agree as he announced Labor’s long-awaited energy platform. He set out a policy path that would bypass parliament in order to reach a renewable energy target of 50 per cent by 2030 – bringing it in line with targets Victorian Labor has pushed ahead with at a state level. Shorten also promised to revive the national energy guarantee (NEG) – with an emissions reduction target for the energy sector of 45 per cent by 2030 – though he isn’t counting on getting this passed.
“Climate change isn’t waiting for the government to work it out,” Shorten said.
Taylor told Sky News Labor’s renewable energy target would drive a “wrecking ball” through the economy. “Australians will pay more for their electricity and you won’t be able to trust Bill Shorten to keep the lights on,” he said. At the federal level, the stalemate on climate and energy seems set to continue.
D’Ambrosio says the nature of our federation means that “you often see states leading the way and eventually we catch up at a national level”. Victoria is already planning to legislate an electricity default offer – effectively a cap on retail pricing – to replace confusing standing energy offers, a move the federal government hopes to replicate on a national level. But there’s a canyon between Victoria’s legislated commitment to net zero emissions by 2050 and the national targets for renewables and emissions, which have not been legislated.
Speaking to a room full of renewable energy enthusiasts last month, D’Ambrosio said Victoria won’t be slowed down by a lack of bipartisan progress on energy policy at the federal level. “Notwithstanding the fact that we will always take part in national debates and efforts to land a national energy policy ... that will not stop us from doing what we need to in our state,” she said.
If Daniel Andrews’ Labor government wins today’s Victorian election, it will spend $1.24 billion over the next decade subsidising the state’s already booming residential solar energy market. It has proved a divisive policy. Some say it’s a “miserly” increase in renewables, others a waste of taxpayers’ money. There are those who believe a flood of solar power could prove a threat to the stability of the national electricity grid. Then there are those who say renewable subsidies are one of the reasons we’re all paying more for our power.
In a recent combative interview with 2GB radio shock jock Alan Jones, treasurer and former energy minister Josh Frydenberg argued the Victorian government has completely mismanaged their energy system. “They’re now totally exposed coming into this summer as a result of their obsession with renewables,” he said.
And the Bureau of Meteorology is predicting a hotter and drier summer – conditions that could make for more blackouts, not to mention a heightened threat of bushfires. In August, the agency charged with keeping the lights on, the Australian Energy Market Operator (AEMO), said without contingency planning there was a one-in-three chance Victoria and South Australia could experience blackouts this summer.
Last week, the agency laid out in detail what it is doing to ready the grid for the coming months. Key to this are “strategic reserves” of power, which AEMO buys and holds, ready for extended heatwaves, bushfires or unplanned network outages. AEMO says that this year it “did not need to procure the same level of strategic reserves as last summer”, thanks in part to new energy generation coming online. This includes the Gannawarra solar plant, north of Melbourne. The plant, among the world’s largest, has been retrofitted with a grid-scale Tesla battery that will enable it to provide stored solar power to the grid at night.
But the Victorian Liberal opposition continues to blame high renewable energy targets for potential blackouts. If elected, Opposition Leader Matthew Guy has promised the Liberals will scrap Victoria’s renewables target, arguing it will push up prices for consumers.
“The fact that we are going into a hot summer and we’re unsure whether we’re going to be able to run our airconditioners or keep the lights on is a complete failure by this government,” Opposition energy spokesman David Southwick told the ABC. “We’ve seen both South Australia and Victoria go head to head in pushing for excessively high renewable energy targets and not being able to back that up with baseload supply.”
However, the Victoria Energy Policy Centre at Victoria University will soon publish research on what has actually been driving power prices up in South Australia, the state that has earned the unenviable title of having the highest electricity prices in the country.
“There were a number of voices on the right saying, ‘Look at Denmark and Germany, they’ve got lots of clean energy and look at how high their prices are.’ And there’s a strong conviction among some that wind and solar is associated with higher prices,” says energy economist Bruce Mountain, head of the policy centre.
Analysing data from the past five years, Mountain says the dominant factor in SA’s spiking prices was extraordinary gas prices, with the closure of coal-fired power plants a distant second. “The expansion of wind and solar more than offset the closure of coal, so coal pushed [prices] up, and wind and solar pushed [prices] down,” he says.
But the idea of subsidising solar power still has its high-profile critics. Rod Sims, chair of competition regulator the Australian Competition and Consumer Commission (ACCC), has long been an opponent of rooftop solar subsidies, at least at a federal level. “That subsidy is being paid for by consumers that don’t have solar panels,” Sims told a conference last month.
The ACCC has recommended federal green energy schemes such as the small-scale renewable energy scheme be scrapped by 2021. Sims says it already makes economic sense for people to install solar panels, so subsidies aren’t needed. Federal Labor’s plan will see the Clean Energy Finance Corporation receive an additional $10 billion for large-scale solar, wind and storage projects, grants to help manufacturers reduce their energy use, and a household battery program. One-hundred-thousand households on incomes of less than $180,000 a year would get a $2000 rebate to purchase and install battery systems.
Mountain disagrees with Sims on the role of household subsidies, given Australia’s international commitment to reducing carbon emissions. “To the extent that you subsidise large-scale wind and solar but you don’t subsidise small, you are distorting investment decisions.”
He says it’s also important to consider the types of consumers actually investing in solar. His research shows solar’s main buyers live “in the mortgage belt, people with kids, relatively high consumption, who put large wads of their own money into the solar system in order to buy cheaper electricity.
“If you don’t penalise those who emit, and you believe there’s a social detriment associated with emissions, then you should be subsidising or making a compensatory payment to those who produce cleaner energy, and that’s as true for small-scale solar as it is for large,” he says.
Simon Holmes à Court, senior adviser to Melbourne University’s Energy Transition Hub, agrees.
“If we’re going to respond to the science, and at some point I hope our policy does, the organic changeover from fossil fuel to renewables is not fast enough,” he says.
As the energy market transitions, AEMO is concerned with ensuring there’s enough traditional energy supply that can be used while renewables ramp up. And, given storage is still relatively expensive, when the sun isn’t shining and the wind isn’t blowing.
Gavin Dufty, manager of policy and research at the St Vincent de Paul Society, says ongoing policy uncertainty, both at a state and federal level, is spooking investors, pushing supply and demand out of balance.
“If all of a sudden Victoria says, ‘I’m whacking in $1.2 billion worth of solar’ – which, by the time it’s all in there, is bigger than Hazelwood – well, you’re going to say, ‘Shit, that came out nowhere – I’m not going to invest in anything because my lunch could get cut by the states’,” Dufty says. “So they’re backing off.”
The Victorian Opposition has promised to underwrite a large new power station in the state, a move echoing the federal government’s decision to underwrite new generation including gas or coal-fired power.
The Greens say federal Labor’s new policy is another capitulation to former prime minister Tony Abbott. It means Labor is “dumping a carbon price in favour of a policy scavenged from the Liberals’ rubbish bin,” said Greens climate change and energy spokesperson Adam Bandt.
“Labor’s timid energy plan is a polluter’s dream and will keep coal in the system for decades, much longer than the world’s scientists are saying is needed to avoid climate breakdown.”
Holmes à Court says that with the notable exceptions of coal barons Trevor St Baker and Clive Palmer, none of the country’s energy suppliers are wanting to invest in new coal-powered operations.
“Every participant, from largest to smallest – all of their new investment is going into renewables.”
This is the second in a series of articles explaining Australia’s energy policy mess. Next week, we explore the hidden power company negotiations driving your power bill higher.
This article was first published in the print edition of The Saturday Paper on Nov 24, 2018 as "Power plays". Subscribe here.