Off target

The 20 per cent Renewable Energy Target (RET), passed in the Senate yesterday, represents a triumph for vested interests in creating negative value.

It guarantees that high cost, inefficient windmills will be built by forcing electricity suppliers (and therefore consumers) to pay a premium on electricity supply, which is funneled back to the owners of the windmills.

In doing so it builds upon the subsidy regime created in the Mandatory Renewable Energy Target, which in 1997 set a target of 9,500 Gigawatt hours to be met.  In order to ensure the target was met, a market was established for the eligible renewables and a fall-back tax (effectively $57 per megawatt hour) was imposed on suppliers who did not meet the objectives set for them.

MRET was added to by state-based schemes, notably the Victorian Renewable Energy Target (VRET) set up by Premier Bracks in November 2005.  Mr Bracks argued that there was a, "lack of national leadership" by the Howard Government in not increasing the MRET scheme and said this, "is costing Victoria -- economically and environmentally -- and cannot be allowed to continue".

It could once have been plausibly argued that, given time and a large enough market, wind power could become competitive with more conventional sources.  When mandatory requirements for renewables were initially discussed, many among the wind farm lobby expressed such confidence.

That view was even shared by some disinterested parties, for example in 1995 in The Skeptical Environmentalist, Bjorn Lomborg, noted how windmills' productivity had improved and went on to say, "In the long run they will undoubtedly become competitive and even cheaper (than fossil fuel plants)".

No reputable authority would claim that today.  Indeed, anticipating a continued lack of competitiveness in the economics of renewable energy, the 20 per cent renewable proposal increases the after tax fall-back price from the MRET's $57 to $93 per MWh.

Nor will any jobs emerge from the subsidy program.  In setting up the VRET, the Victorian Government said it would represent $2 billion worth of capital investment and result in 2,000 new jobs.  VRET was promoted as the crucible for the creation of new high-tech blade facilities which would find a ready world market for their products.  No jobs were created and, in spite of massive subsidies, nor were any new manufacturing facilities.

The costs of the proposed 20 per cent renewable scheme are relatively uncontroversial.  In a submission to the Senate, I put these at $1.8 billion per annum.  The ALP's Senator Cameron sought advice on this estimate from a number of those giving evidence to the Senate Committee examining the proposal to require 20 per cent of electricity from renewables.  While those he had coached provided him with the derogatory comments regarding myself that he wanted, none seriously disputed the costs themselves.

Indeed the costs are relatively straightforward and are based on the premium required for wind power (the lowest cost exotic renewable) and the additional back-up power required to support the intrinsic unreliability of windmills.

Some argue that the renewable provisions contribute to lower levels of greenhouse gas emissions, their ostensible case for a subsidy.  But this is not even true.  If an emission target is to be adopted and if it is to be met at lowest cost, wind would not play a role.  Other forms of energy, notably gas and perhaps eventually nuclear power would achieve the emission reduction goals far cheaper than wind or other renewables.  All a renewables target does is increase the cost of meeting a general emissions target.

So how did the 20 per cent RET get support?

The answer seems to lie in a collection of vested interests and ignorance.  Those with a commercial interest are pursuing subsidies.  They include the windmill suppliers, firms like Vestas and Pacific Hydro and those that are heavy investors in wind facilities, which includes many of the union super funds.

ADVERTISEMENT