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Behold SA and be scared, very scared

By Tom Quirk - posted Monday, 13 February 2017


States of confusion

The Renewal Energy Target (RET) scheme is a splendid example of the growth of a policy cancer that if not checked will do substantial economic damage. The scheme was introduced during the time of the Howard government with a target of 2% contribution from renewable sources of electricity and has grown tenfold within the federal government jurisdiction and has spread to state governments that aim to double the present federal target of some 25% renewable energy contribution by 2030.

The wholesale electricity market has been bypassed for roof-top solar PV and wind power has impaired the financial basis for baseload power supply.

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The following examines the lack of logic in forming the scheme and the example of South Australia which may well be the best example of what should not be done in mixing renewable energy into state electricity supply systems.

The logic of RET subsidies

Generators of renewable energy in Australia, mainly wind farms and solar PV, are being paid a subsidy of $85 per megawatt hour (MWh) for wind and $40 per MWh for solar PV, as well as state subsidies of order $20 per MWh for electricity produced. These sources of electricity displace that generated from conventional power plants. This is an indirect equivalent of a carbon tax. If one MWh of electricity from black coal is displaced that stops the emission of one tonne of CO2 so the carbon tax is $85 per tonne of CO2. But for brown coal electricity with 1.5 tonnes of CO2 per MWh the equivalent tax is $57 and gas turbines have equivalent taxes of $170 to $213, an increased tax for a lower emitter than the black coal generators! The tax equivalents for these energy sources are shown in Table 1 for wind and solar PV.

The intention of having renewable sources in the electricity supply system was to drive out the highest emitters of CO2 but the cost structure of the wholesale electricity market is such that the coal burning power stations are the lowest cost generators and higher cost but lower carbon emitting generators became more vulnerable to being stood down.

So the wholesale market is distorted by energy from roof-top solar PV that simply varies the demand to be met by the wholesale market while wind farm energy goes into the market to take the going price and in addition the RET subsidy. This is the case for either non-dispatchable or semi dispatchable wind power as a suitable bid price would ensure that the bid was accepted. Finally the RET scheme has a price structure that is the opposite of the intention to drive the highest CO2 emitters from the market.

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The example of South Australia

The latest AEMO report on the performance of the electricity market in South Australia illustrates the major problems of integrating intermittent energy generation into a state supply system.

South Australiahas the highest installed renewable energy supply in Australia. This can be seen in Table 2 where wind supplies 30.0% of demand and roof-top solar PV 6.5%.

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This article was first published in Quadrant.



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About the Author

Tom Quirk is a director of Sementis Limited a privately owned biotechnology company. He has been Chairman of the Victorian Rail Track Corporation, Deputy Chairman of Victorian Energy Networks and Peptech Limited as well as a director of Biota Holdings Limited He worked in CRA Ltd setting up new businesses and also for James D. Wolfensohn in a New York based venture capital fund. He spent 15 years as an experimental research physicist, university lecturer and Oxford don.

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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