Renewables are heavily protected. Yet supporters say they're as cheap as, or cheaper than, fossil fuels. Supporters still want all the government protection they can get, and even higher renewables targets, too.
Is renewables protection efficient, technology-neutral, or fair? Politicians imply 'yes'. In addition to 'green' supporters, energy businesses eyeing the subsidy dollars are also lining up saying 'yes'. They either don't mention, or dissemble about, renewables' full cost, and who pays (ie, the power user and/or taxpayer).
Our motor vehicle and textiles, clothing and footwear industries once sheltered behind high tariffs, quotas and subsidies. This protectionism cost Australian punters heaps. Today, 'new protectionism' in Australia cossets superannuation, the finance sector generally – and, not least, renewable energy targets (RETs).
Some governments pay lip-service to technology-neutrality. Pure 'spin'. Theyalso support RETs. RETs are not technology-neutral. They skew power supply towards renewables, and away from everything else.
Governments want more renewables and also affordable, reliable, power. They support 'new protectionism'. But even if renewables' $/MWh prices match those for fossil or other fuels, they must also supply the same reliable power 24/7, their intermittent generation notwithstanding. How can they?
Using the arithmetic behind my opinion piece, we can compile tables showing the renewables dollar subsidies needed for competitive reliability-equivalence between different costs for solar and wind power, versus those for fossil fuels, or indeed any other energy sources. Four such tables follow.
In these tables, plug in any fossil fuel unit cost, plus any wind or solar unit costs, and the subsidy numbers in the table can be adjusted proportionally. For example, if wind power is $75/MWh, the reliability-equivalent wind subsidy is half-way between the subsidies assuming wind unit costs of $50/MWh and $100/MWh. If fossil fuel costs $60/MWh, subsidy costs are based on those for $50/MWh plus 20% of the subsidy difference between fossil fuels at $100/MWh less $50/MWh (for both wind and solar power).
For the National Electricity Market (NEM):
1. Electricity consumption in 2016-17 was 196.5 TWh (Australian Energy Regulator estimate).
2. In the four tables below renewable power is assumed to be supplied either by wind or solar energy.
3. NEM subsidies for wind and solar for 2016-17 are shown. Costs are higher if we add WA and NT.
The four tables are based on 25%, 50%, 75% and 100% RETs, respectively.
Yellow highlighted figures are total subsidies ($million per annum) required to make 'reliable' renewables cost-competitive with fossil fuels. They're the minimum total NEM costs of our renewables protection racket.
1. NEM renewables subsidies ($million in 2016-17) for reliability-equivalence: 25% RET*
* Based on actual AER-reported electricity consumption in the NEM in 2016-17, and assuming 25% reliance on renewables.
2. NEM renewables subsidies ($million in 2016-17) for reliability-equivalence: 50% RET*
* Based on actual AER-reported electricity consumption in the NEM in 2016-17, and assuming 50% reliance on renewables.
3. NEM renewables subsidies ($million in 2016-17) for reliability-equivalence: 75% RET*
* Based on actual AER-reported electricity consumption in the NEM in 2016-17, and assuming 75% reliance on renewables.
4. NEM renewables subsidies ($million in 2016-17) for reliability-equivalence: 100% RET*
* Based on actual AER-reported electricity consumption in the NEM in 2016-17, and assuming 100% reliance on renewables.
For example, from these tables:
- With a 100% RET, if fossil fuel power averages $100/MWh, and renewables generation costs also average $100/MWh, required wind power subsidies, using 2016-17 demand magnitudes, would be nearly $15 billion per annum, and solar subsidies would be nearly $18 billion per annum. See Table 4
- With a 75% RET, if, say, coal power averages $200/MWh, and renewables costs are half that, at $100/MWh, required wind power subsidies, using 2016-17 demand magnitudes, would be almost $4 billion per annum, and solar subsidies would be over $9.7 billion per annum. See Table 3.
- With a 50% RET, if fossil fuel power averages $50/MWh, and renewables generation costs are double that ($100/MWh), wind power subsidies, using 2016-17 demand magnitudes, would be almost $7.3 billion per annum, and solar subsidies would be over $8.8 billion per annum. See Table 2.
- With a 25% RET, if fossil fuel power averages $100/MWh, and renewables generation costs also average $100/MWh, required wind power subsidies, using 2016-17 demand magnitudes, would be around zero, and solar subsidies would be over $2.1 billion per annum. See Table 1.
On 1 June 2018, (p.9 of the Australian Financial Review) Ben Potter reported the Queensland Renewable Energy Expert Panel (QREEP) found 'subsidies of up to $1 billion' (per annum?) would be needed to reach the Queensland Government's 50% renewable energy target by 2030. See also Mark Schleibs, Taxpayers in dark as they prop up solar, The Australian, 7 June 2018, p.7, on hidden Qld government solar subsidies.
Is this plausible? Queensland accounts for about 28% of NEM electricity consumption. Solar power dominates its renewables supply. Using table 2 above, (and assuming 28% of the solar subsidies therein), Queensland solar subsidies for reliability would be about $1.1 billion per annum if both fossil fuel and solar power costs $50/MWh. As fossil fuel costs rise, the QREEP 'up to $1 billion' subsidy estimate becomes more realistic. As solar costs rise above $50/MWh, it quickly becomes a very large cost under-estimate.
Suppose $/MWh generation costs for renewables match fossil fuels. Assuming all costs raise power prices, what cost increases result from switching from fossil fuels to wind or solar, with enough extra generation and storage capacity to make renewables 'reliable'? Intermittency increases capacity costs a lot – see chart.
- At a RET of 25%, 'reliable' solar power requires $/MWh power increases of over 40%. Zero for wind.
- A 50% RET requires 'reliable' wind and solar $/MWh increases of 40-50% and 70-80%, respectively.
- A 75% RET requires 'reliable' wind and solar $/MWh increases of 60-70% and 80-90%, respectively.
- A 100% RET requires 'reliable' wind and solar $/MWh increases of over 70-80% and 90-100%.
Should we be paying renewables protection money? Most politicians say 'yes'. Many want us to pay even more. How can costs for reliable power fall? When? Will politicians' repeated 'promises' about lower power bills be worth the media cost to broadcast them? Will any cuts be because of renewables, or despite them?
We've time to get answers, (if any). At the COAG meeting on 20 April 2018, all States, Territories, and the Commonwealth, kicked the National Energy 'Guarantee' (NE'G') can down the road (again) until August.
What are the flow-on costs and benefits of subsidised RETs, at present or in prospect? Costs for our economy's competitiveness, living standards, and government budgets are probably large and growing.
Can Australia's solid first-quarter economic growth this year be sustained? I doubt it.
And, despite these direct and flow-on costs, globally, the net emissions reduction benefits are zero at best.
Australian politicians are 'doubling down' on their energy cost gamble yet again. When their power cost gambling goes awry, punters pay. With power costs a crucial input, so, probably, will the entire economy.