Summary

The federal government’s National Energy Guarantee is likely to increase reliability in electricity supply, but is unlikely to provide a meaningful decrease in electricity prices because of the continued increase in the penetration of renewables.

It represents little more than a rejigging of the current system, in a way that provides bare differentiation of the government from the opposition, along with adoption of the Finkel report recommendation of a security guarantee.

Politicians need to be honest with the public that more renewable energy equals higher prices. A meaningful lowering of prices would require abandonment of the Paris Accord.

Analysis

• Whether it is called an RET, ETS, CET or NEG mandating any level of renewables, given current technologies, equals a tax on consumers and will lead to increased power prices.
• Removing subsidies while maintaining a requirement to take a certain percentage of renewable energy will not reduce prices for renewables. The marginal renewable energy producer will need a price equal to the price he charges now plus the subsidy to make an acceptable return on his investment. Removing the subsidy means he will have to increase the price of his power by the amount of the subsidy so the end result will be the same, as long as the government dictates how much renewable energy has to be in the mix.
• As baseload power will have to cope with increased levels of renewables, coal-fired power will become more expensive, because of loss of efficiency, and power companies will still increasingly have to rely on expensive open cycle gas generators to guarantee security because only they have the flexibility required.
• The agreement does nothing to decrease the network cost, which is the largest cost in the system. Increased renewable energy will in fact increase network costs.
• Batteries and pumped hydro are not dispatchable electricity, even though the NEG treats them as such. This potentially increases the insecurity of the system.
• Price decreases are not forecast for another 3 years, and then only amount to less than a 5% decrease over the course of the 10 year period from 2020 to 2030.
• Australia needs a decrease in power prices now, and needs a target for power prices which is equal to those of our competitors. Power prices in the USA are approximately 35% lower than Australia.
• Only a slowing of the adoption of renewables until they are able to be cost effective can guarantee cheaper and more reliable power, and this would involve abandoning the Paris Accord targets.

Quote

“We are still waiting for one of the three major parties to admit that it is impossible to serve three masters at the same time.

“The way to the cheapest and most reliable power is viable dispatchable fossil fuel-powered generators. Intermittent renewables will never be dispatchable, so even if they become as cheap, or cheaper than fossil fuel, they can never provide security.

”Incorporating renewables into the mix means investment in backup capacity and higher prices, and hence higher prices.”