Thursday, December 13, 2012

Pull the plug on electricity shambles

This year thousands of pages in government reports have addressed electricity supply policies.  Electricity is also at the eye of the carbon emission restraint storm that continues to blow, even after the latest fiasco at Doha.

Having started this century with deregulatory and privatisation measures that elevated Australian industry to world leadership in low-cost supply, the electricity sector is reverting to its over-regulated condition before the Kennett and Keating reforms of the 1990s.

The new regulatory morass of controls, together with taxes, has increased wholesale electricity prices by 60 per cent.  Added to this are increases in network charges, many of them government-mandated, together with paper-burden costs.

Though the carbon tax remains the highest-profile measure, its cost-increasing effects may be reduced if the government links it to the European Union's carbon price.  The EU price is likely to stay as depressed as Europe's economy.  Over the longer term the carbon price impact will also be diminished by increased electricity generation from low-carbon emitting gas, which is becoming cheaper due to shale and coal seam technologies.

Even so, unless repealed, the carbon tax will continue to damage industry and consumers.  But its effects will be eclipsed by those of other carbon-restraining measures which are progressively throttling the industry with cost add-ons.

Chief among these are the requirements to use expensive renewable energy to displace low-cost coal.  The commonwealth's energy regulations nominally require 20 per cent of electricity to be sourced from non-commercial renewable sources.  These are high cost and poor quality.  In last month's Energy White Paper the commonwealth boasted that it had forced $9 billion of investment in windmills.  Dubbed by London lord mayor Boris Johnson ''white satanic mills'', windmills cost three times as much as conventional sources to generate electricity.

Even more expensive is the electricity sourced from roof-top photovoltaics, on which more than $3 billion has been squandered through subsidies.  Photovoltaics benefit from a commonwealth subsidy fivefold that of wind.  It has been reduced, but the price remains excessive and is paid up front for the 15 years that the installations are deemed to produce electricity.

In addition, households with rooftop photovoltaics are subsidised by state regulations.  These require energy retailers to buy back any energy not used in the house.  The buyback prices remain over-generous.

The extravagance of the photovoltaics subsidy regime was such that sales boomed, forcing Canberra to split the 45,000 GWh 20 per cent renewable target into two:  the small-scale installations, which were to be ramped up to 4000 GWh by 2020;  and the large-scale facilities, set at 41,000 GWh.  But the Clean Energy Regulator, after previously under-forecasting photovoltaics take-up, now estimates they and other small-scale facilities will actually be running at 11,000 GWh by 2020.This increases the 45,000 GWh target to 52,000 GWh.

All these measures mean the renewable cost subsidy is likely to exceed $7 billion a year by 2020, probably twice the impost of the carbon tax.  At the same time, government-induced price increases have started to suppress demand, by forcing some of our most productive enterprises to reduce their outputs.  As some energy producers have noted, this brings an incidental effect of further increasing the renewable share beyond the 20 per cent envisaged by Parliament.

Carbon taxes and requirements to use exotic renewables have undermined productivity and cost competitiveness in Australia's electricity industry.

None of this has, nor can have, any effect on global emissions of carbon.  Even if such emissions have the malevolent role activists and gullible politicians ascribe to them, the farcical conclusion of the Doha meeting surely hammers the final nail into the carbon suppression coffin.  Only the stagnating juggernaut that is the EU and Australia are imposing emission restraining costs.  It's time for Australia to clean the entire slate and get our economy growing again.

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