Green subsidies costing a heap, we need more gas

September 22nd, 2017

If the chairman of the ACCC, Mr Rod Sims is right, then Australia is about to take the almost unprecedented step of interfering with export contracts to redirect gas to the domestic market.

This is a possible Government step which has attracted a lot of international attention, according to industry analysts – and not in a good way.

If Mr Sims is right in predicting Federal intervention, he is also right in identifying the states as the culprits – getting in the way of responsible development of natural gas resources in New South Wales, Victoria and the Northern Territory.

Speaking in Canberra this week, Mr Sims was clear on this and one other aspect about electricity pricing – the impact of subsidies for renewable energy.

The ACCC had calculated the ‘green element’ in retail electricity prices at 16%. This is only 3% less than the ACCC calculated cost of actually generating the electricity (19%).

So green subsidies are costing Australians almost as much as the actual electricity product generation – and that is with an estimated total real contribution to the national electricity network of 14% from renewable energy.

Put another way: The cost of subsidising renewable energy is 84% of the size of the cost to actually generate the electricity.

[Incidentally, the ACCC’s price break-down also tells us we are paying a lot for distribution and retail, which is why the Government has called for the help of the ACCC to examine the industry and has sought to apply direct pressure to the big electricity retailers. The retail price proportions are 41% network costs and 24% retailing costs.]

That big fact again: Renewables are costing us 16% of our power bills, while delivering only 14% of the power we are consuming. The other 86% of our electricity is being delivered at only 19% of the retail cost to the consumer.

An interesting additional fact is that for all the subsidies, and protests against fossil fuels, the total contribution of renewables to the nation’s energy consumption remains low.

The Australian Government Chief Economist puts the figure at 6%. And of that 6%, biomass (waste) energy makes up more than half the total – significantly more than wind, solar and hydro put together.

As the Chief Economist reported, oil remains the largest primary energy source in Australia, at 38% per cent, followed by coal (32%) and natural gas (24%).

We are due for an update on these figures as they are approaching a year old. We can expect the numbers to have increased for renewables and gas and to have fallen for coal.

Gas consumption has risen as coal-fired power has dropped since the closure of the South Australian coal-fired generators and the Hazelwood plant in Victoria.

It is this dynamic, combined with the reduction in gas reserves in Bass Strait and the Cooper Basin (our other big historical source for natural gas), which has lead to an increase in the scarcity and price of gas.

It is why State leaders in Victoria, NSW and the Northern Territory have been urged by both Federal Government and Opposition to revisit their irrational blockers to natural gas development.

As Federal Energy and Environment Minister Josh Frydenberg said this week, the Victorian Government has put a lid on “40 years’ worth of gas resources”.

“And in the Northern Territory, they have locked up 180 years’ worth of gas supplies,” Mr Frydenberg said, adding that in both cases this was “against the specific advice of Australia’s Chief Scientist to develop these resources on a case-by-case basis”.                

In the midst of the debate about securing reliable electricity supply, and getting downward pressure on prices, one of the nation’s biggest electricity retailers, Energy Australia, stepped in, making a point of the need to get more gas into the system.

Closure of coal-fired electricity generators had caused a jump in prices, Energy Australia executive Mark Collette said, adding that increased supply of gas was needed.

“Wholesale electricity prices have surged in the past two years mainly because of the closure of Hazelwood in Victoria and Northern in South Australia,” Mr Collette said.

“The replacement supply has come as much from gas as from black coal, more so than some expected,” he said.

And then came the message for State political leaders:

“..gas remains an important source of flexible generation.

“If we’re to ease pressure on retail electricity prices, it’s absolutely critical for state governments to lift all bans and effective moratoria on gas development now and encourage responsible development of new supply.”

Mr Collette also pointed to the valuable nature of gas-fired electricity in network demand management, in a system made more difficult to manage because of the intermittent nature of renewable energy and the frequency variations created by small decentralised electricity sources such as rooftop solar.

 “Gas has an important role to play in stabilising the system, particularly as we see more variability in the system with more rooftop solar and other renewables.”

The chorus of opinion is getting stronger and louder.  We can only hope the leaders in Victoria, NSW and the NT are listening.

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