The politics of energy is a heady brew. Two weeks ago, Candy Broad, the Energy Minister, announced measures designed to suppress electricity price rises. At the same time she called for additional use of high cost renewable energy which would boost electricity costs.
The government announced that it is to maintain price caps for household electricity. When these were introduced last year, they were set too low and two of the five retailers responded by selling up and getting out of the market.
Prices set too low bring an inefficient and unreliable energy system. This year, however, Victoria has new power stations and the ability to import more electricity from NSW if need be. This will more than offset the effects of reduced Snowy hydro-electricity output resulting from the drought and increased environmental flows. As a result, wholesale prices, which account for about 40% of households' electricity costs, have fallen by almost a fifth. Though government price controls rarely make sense, their present extension is unlikely to bring drastic short term harm.
But Ms Broad is also seeking a 60 per cent increase in the Commonwealth's Mandated Renewable Energy Target (MRET). This requires retailers to include a growing proportion of "green" energy in their total supply. It operates over and above voluntary schemes where retailers offer consumers green energy at a premium price.
The cheapest form of renewable energy is wind generation. Even this is more than twice as expensive as electricity from coal, gas and hydro. Moreover, wind power works intermittently and requires additional costs for back-up support from other generators.
Present MRET policies will require Australian consumers to pay an additional $380-540 million per year for electricity. Raising the requirement by 60 per cent will cost at minimum a further $228-324 million. These costs must be passed on in electricity prices.
One goal of the government in seeking to increase the MRET target is to stimulate the local wind generator industry.
In the bad old days before Bob Hawke took the Government reins in Canberra, tariff protection on goods like clothing was used with the hope of giving a leg up to "infant" industries. It didn't work and generations of Australians were foisted with higher clothing prices for no benefit. The renewable energy plans look to be an equally doomed re-run of this.
As with the push for industry protection, wind power has its vested interests. Traders seeking to create a market for greenhouse credits and windmill developers have joined forces with a claque of green activists who would prefer everyone used a lot less energy anyway. The lobbying of these interests provides a softening up process that makes the government's proposals seem moderate.
In August the Government's Infrastructure Planning Council, oin which green energy interests are heavily represented, called for 25 per cent of Victorian energy to be supplied by renewables by 2020. That's more than double the share under present policies.
Last week another report, commissioned by Origin Energy the largest holder of green electricity credits in Victoria, promoted increased mandatory use of renewables. That report made the implausible claim that increasing the mandatory renewables share to 21 per cent of electricity would only cost 0.2 cents per kWh. Standard generation costs are 4 cents per kWh.
The policy of foisting increased costs on the electricity consumer has recently assumed a politically unexpected dimension. The wind lobby imagined it had the environmentalists on-side. However, many object to the noise and visibly intrusive nature of windmills and are campaigning against them. Their objections are centred on windmills placed in the most scenically splendid areas. These are often the very places where the wind blows hardest and where windmills must be placed.
The silent majority of passive consumers seeking lower costs of living therefore has an improbable ally, which vastly complicates the policy approach.
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