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Renewable energy targets are incompatible with the National Electricity Objective

By Justin Campbell - posted Tuesday, 18 October 2016


South Australia's electricity is neither reliable nor cost-effective. The National Electricity Objective, as stated in the National Electricity Law (section 7 the National Electricity (South Australia) Act 1996), is:

...to promote efficient investment in, and efficient operation and use of, electricity services for the long term interests of consumers of electricity with respect to – price, quality, safety, reliability, and security of supply of electricity; and the reliability, safety and security of the national electricity system.

Why then has South Australia failed to achieve an electricity supply that is reliable and cost-effective?

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One possible answer to this question is that, South Australia's ambitious renewable energy target is incompatible with the national electricity objective. This has huge implications for other states such as Queensland that have set a 50% renewable energy target by 2030.

Competitive federalism and the South Australian experience has shown that renewable energy targets are a wasteful disaster and should not be adopted by other States. Interestingly, on the ABC's QandA program the Coalition's Christian Porter and Labor's Mark Butler both rejected federalism and agreed that Australia should have one national renewable energy target. If anything the recent South Australian blackout shows the value of different States adopting different policies and allowing natural experiments to occur. We've had a natural experiment on renewable energy targets and the results are in: They're terrible.

The national electricity objective rightly puts a high importance on the reliability and security of electricity. An unreliable electricity supply jeopardises industry and forces industry to either shut down during blackouts or make provisions for their own electricity supply which is extremely costly to both the economy and the environment. In many developing countries businesses and households are forced to rely on costly diesel/petrol generators. This would be an undesirable outcome for South Australia and the nation as a whole. It is therefore legitimate that reliability of electricity supply remain an objective and be balanced against any desired environmental outcomes.

Price too is a significant objective that must be considered against environmental objectives. Renewable energy often is more expensive, requires significant subsidies and doesn't generate electricity during peak times. For many industries electricity is a significant input cost; failure to keep the price of electricity competitive will have significant impacts to the competitiveness of Australia's industries. Industries that shut down in Australia will simply move to other markets where electricity and other input cost are more affordable. Resulting in no real reduction in greenhouse gases. The cost of electricity in South Australia has increased significantly partially due to the rapid move to renewable energy.

Renewable energy targets are a poor way to achieve reductions in greenhouse gases when compared with other alternatives such as NSW's Greenhouse Gas Abatement Scheme (GGAS) that operated between 2003-2012 prior to be abolished after the introduction of the carbon tax. That scheme achieved significant reductions in greenhouse gases with a minimal impact on electricity prices. That scheme allowed reductions in greenhouse gases to be achieved in the most economical way possible; by comparison renewable energy targets focus on the building of expensive technologies such as wind and solar that cannot provide baseload power or provide affordable electricity.

Renewable energy targets, especially high ones such as set in Queensland, are command and control systems. They significantly reduce the flexibility in the economy to achieve reduced greenhouse gases – for example it may be cheaper to improve existing coal power stations to be more efficient. This is exactly what happened in NSW under GGAS. By Comparison Renewable Energy Targets make great political policies – the politicians get to seem like they're doing something; but they make for poor economics. They make greenhouse gas reductions unnecessarily expensive and contradictory to the national energy objectives.

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This lack of flexibility also has reduced the reliability of South Australia's electricity supply. Having lost their local base load energy capacity after shutting down its coal power stations, South Australia has become dependent on expensive gas during peak times (that can't meet peak demand) and a vulnerable connection to the national grid via Victoria. To ensure reliability South Australia will need to 'gold plate' its poles and wires and possibly build another connection to the national grid via NSW; or it would require significant investment in storage of renewable energy. Had South Australia pursued reductions via other means they could have achieved similar results without the corresponding loss of reliability.

The objective of having electricity that is both reliable and affordable is still today as important as it was when the national electricity objective was set in 1996. While it's important to balance these objectives with desired environmental outcomes, renewable energy targets have proven to be a costly and inefficient tool that contradict the national electricity objective. They should therefore be dropped and other alternatives such as a revamped Greenhouse Gas Abatement Scheme should be considered in its place.

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About the Author

Justin Campbell is on the executive committee of LibertyWorks and holds a Master of Economic Studies from the University of New England.

Other articles by this Author

All articles by Justin Campbell

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