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Electricity: no end to the damage regulations are doing

By Alan Moran - posted Friday, 17 February 2017


There is no let up in the lies, ignorance and dissembling that passes for debate on Australian energy policy.

Tanya Plibersek ventured onto the Bolt program and said, in line with green ideology, that the Renewable Energy Target means cheaper prices – a canard also voiced by the ABC insider duo of Lenore Taylor and Laura Tingle and central to the policy of the Victorian and other governments.

In its initial stage, a renewable subsidy does, indeed, depress general prices. Wind gets a subsidy of ~$85 per MWh on top of the $40 it, like other generators, can earn in the market. So the wind suppliers will offer electricity at any time because they earn revenue whatever the price. This drives down the aggregate price but only as long as the unsubsidised generators can cover their marginal costs.

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Marginal costs eventually become total costs once major refurbishments and repairs are necessary. And so it was with the two South Australian coal power stations that have closed and so it is with the giant Hazelwood facility in Victoria.

All this is severely aggravated by gas policy in all states but Queensland which have shut the door on new supplies. So gas, which will always be dearer than coal but plays a useful peaking role, cannot run because any available supplies have been constrained by regulatory policy and gas generators cannot cover their costs unless "directed on" by the market manager. This then (on behalf of consumers) takes the risk that costs won't be covered.

The sorry picture of whether prices rise or fall when governments force the substitution for wind (that requires $110 per MWh for profitable operation) and coal (that requires $40-45 per MWh) is demonstrated by the forward price for electricity shown here for Victoria.

What we have is the tragedy of the world's lowest cost electricity system destroyed by political intervention.

Not only is wind high cost but as we are seeing in South Australia its episodic nature means it does not offer reliability.

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Here is the generation throughout the nation at 6.30 this morning.

 

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This article was first published on Catallaxy File.



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Alan Moran is the principle of Regulatory Economics.

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