September 21st 2019

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Articles from this issue:

COVER STORY Federal Government should abolish Renewable Energy Certificates

ENERGY BP annual Review shows consumption, production up

CANBERRA OBSERVED NSW Labor caught in Panda's paws doing 'whatever it takes'

RELIGIOUS FREEDOM Religious discrimination bill: A litany of questions

FOREIGN AFFAIRS Boris' brinkmanship shakes up Britain, EU

WATER POLICY Angry farmers protest over Murray-Darling Basin Plan ... again

TECHNOLOGY Are we the dumbest devices in the room?

HISTORY AND POLITICS Lord Acton, nationalism and multiculturalism, Part 2

LITERATURE D.H. Lawrence: The Modernist in exile

MUSIC Dialectical transcendence

CINEMA The Farewell: Elegant and bittersweet

BOOK REVIEW Owning up to market imperfections

BOOK REVIEW Heroism and faith under tyranny

BOOK REVIEW The love that comes after love is gone


EDITORIAL Gladys Liu controversy ignores reality of China's interference

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COVER STORY Federal Government should abolish Renewable Energy Certificates

by Patrick J. Byrne

News Weekly, September 21, 2019

The inexorable push to drive Australia towards greater reliance on wind and solar power is pushing up average power prices, increasing the unreliability of the system, and may force the premature closure of remaining coal-fired power stations. This is occurring despite prices falling below zero during times of over-supply.

Governments in Labor states such as Victoria and Queensland have been ramping up the switch to renewable energy, to prove their environmental credentials and prevent a further drift towards the Greens, who want to close coal and gas power stations and back 100 per cent renewable energy.

Traditionally, these states have generated most of their electricity from coal. According to the Financial Review, despite large subsidies over many years for wind and solar power, around 82 per cent of Victoria’s power is still produced from coal and gas, with a further 6 per cent coming from the Snowy Hydroelectric scheme. (AFR, September 2, 2019)

Wind and solar produce about 12 per cent of Victoria’s power.

In order to reach its target of 25 per cent renewable energy by 2020 – this includes hydroelectricity as a renewable energy source – and 40 per cent by 2025, the Victorian Labor Government is now subsidising the installation of solar panels on the roofs of 770,000 homes.

The distorting effect of these huge subsidies is already clear, and will become even more apparent as time goes on.

High electricity prices

The Financial Review reported: “While Australia has some of the highest electricity prices in the world … [on] the first day of spring, abundant wind and solar power and little demand drove the price of electricity in Victoria to as low as negative $80 per megawatt-hour (MW/h), illustrating the challenge of incorporating low-cost but unpredictable renewable energy into the grid.”

This means that, at certain times, more electricity is being supplied to the electricity grid than it can absorb. So, to discourage people supplying electricity, they have to pay for the “privilege”.

In a later report, the newspaper said that the increasing frequency of sunny and windy days when power prices fell to zero was “more than cancelled out by more frequent high prices, defying expectations of a softening in levels overall”.

It cited South Australia, where the electricity power price, set in 30-minute intervals, fell below zero for 9.9 per cent of the month of August, while the average prices in the March quarter soared to $154 per MW/h, just slightly lower than Victoria’s.

These fluctuations play havoc with the viability of base-load coal-fired power stations, which rely on stable demand to supply low-cost power to the grid. Thus coal-fired power stations effectively subsidise renewables through the renewable energy target, which obliges base-load power stations to buy Renewable Energy Certificates produced by wind and solar farms and rooftop solar units. (More­over, they also have to pay coal royalties to the states.)

This is effectively another tax on base-load power and a further subsidy for renewables, which dispels the myth that renewables provide cheaper power than fossil-fuel power stations.

According to the Australian Energy Market Operator (AEMO), electricity prices in August in the eastern states rose to $84 a MW/h, a rise of 12 per cent from June, despite lower demand. AEMO gave no reason to explain why the price rose even as demand fell.

An even more alarming picture emerges when one looks at forward price contracts for electricity, which reflect what large companies expect to pay in the future.

The Financial Review said: “Forward prices are now 29 per cent higher than a year ago, averaging $94 per MW/h, defying forecasts that wholesale prices are set to soften.”

Although federal Energy Minister Angus Taylor has set a target of $70 per MW/h by the end of 2021, forward prices for the March-2020 quarter in Victoria have reached $158.50 per MW/h, reflecting deep disquiet about the impact of renewables.

One of Australia’s largest energy utilities, Energy Australia, which owns the Yallourn Power Station in the Latrobe Valley, has warned that the power station may be forced to close because its operations are becoming uneconomic.

What to do?

A partial solution to this mess is for the Federal Government, which established the Renewable Energy Certificates in 2011 under Julia Gillard, to abolish them and remove the unfair penalty which is crippling base-load power generation.

If, for political reasons, this is not possible, the Federal Government itself should purchase the Renewable Energy Certificates, instead of requiring the large base-load power generators to buy them.

Manufacturing Australia chief exec­utive Ben Eade recently pointed to the dire situation facing Australian manufacturers.

He said: “High energy costs are the biggest risk to manufacturing in Australia. Our challenge is avoiding demand destruction and the closure of key plants.”

The headlong rush into renewables, subsidised by what are in effect taxes on coal-fired power stations, is exacerbating that risk greatly. The Federal Government must act now.

Patrick J. Byrne is national president of the National Civic Council.

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