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Power off the subsidies: Feel-good renewables hurt everybody, especially the poor

Friday, 01 December 2017

MRC's Policy Director Spiro Premetis writes in Daily Telegraph

Australians have been looking more closely at their energy bills, scratching their heads and trying to figure out why prices rose 108 per cent from 2006 to 2016.

Despite including lots of useless information about comparative consumption and gas emissions, energy bills don’t include the percentage of your account that has been imposed as a result of subsidies such as the Renewable Energy Target (for which we collectively paid $2.7 billion last financial year, in case you’re wondering).

Embedded in your bill could also be subsidies for other people to install solar panels on their roof or for your supplier to compulsorily buy energy from solar or wind farms.

And if the power companies won’t explain how much you are paying for these schemes, it should be no surprise that the politicians who introduced them didn’t understand their impacts either.

Few people could list all the direct and indirect interventions in the National Electricity Market (Australia’s unified energy system, excluding Western Australia and the Northern Territory). Under the cover of this complexity, lobbyists conned governments and you into funding expensive subsidies.

Tony Shepherd, the chair of the panel behind Power Off Power On, a new report into the burdensome flaws in the energy industry, says customers “have a right to be angry” about having to pay for all this policy folly.

After a decade of such policies, Australians are now beginning to realise that not only do subsidies push up prices, but the unreliability of renewable sources does too.

These costs hit the poor the most. The bottom 10 per cent of wage earners spend five times as much on energy (as a proportion of income) than do the highest 10 per cent.

If you can afford to install a solar system, then you can save about $200 per year in costs, thanks to subsidies. But look who ultimately pays those subsidies: the people who can’t afford to throw four or five grand at a virtue-signaling roof installation.

The Turnbull Government has announced the removal of the biggest subsidy scheme, the RET, to be phased out from 2020. This can’t come quickly enough. In its place will be the National Energy Guarantee, which ties reliability to modest emissions restrictions.

It is the most sensible federal policy the nation has seen in a decade, which Prime Minister Malcolm Turnbull and federal Energy Minister Josh Frydenberg discovered when they visited BlueScope’s Port Kembla steel works, an employer of 6000 workers, in Port Kembla, NSW, this week. BlueScope CEO Paul O’Malley told them power bills had dropped by $13 million a year.

“In 10 years as CEO, the NEG is the first time I have seen a sensible strategy to transition to clean energy,” O’Malley said.

But there is still much more to be done. The NEM, which was created in 1998, is a patchwork of jurisdictions and markets that neglects to encourage responsible co-operation, let alone a national interest. Sure, neighbouring states will come to South Australia’s rescue if that state’s renewables fail to meet demand this summer, but the cost of that disruption will not be borne only by South Australians. It will be felt by customers elsewhere in the NEM as well.

Nevertheless, state and territory governments are going it alone by establishing their own subsidies and renewable targets. Further, New South Wales and Victoria have severe restrictions on gas extraction.

As long as coal-fired power generators are being closed down and nuclear remains unpalatable (for some reasons that defy logic), gas will be more and more essential to supply cheap, reliable power for Australian homes and businesses.

But the state governments in NSW and Victoria refuse to allow it to be extracted on the grounds that such extraction is bad for the environment.

Meanwhile, to help avoid blackouts during peak demand this summer, the Australian Energy Market Operator has announced it has, among other things, produced diesel generation to deploy in the event of a crisis.

The net benefit to the environment of all this ad-hoc policy and uncertainty is at best negligible.

Those who suggest renewable energy will create more jobs than they destroy can’t back it up.

Unless you are a sparky installing some solar panels or a construction worker installing a large-scale wind farm, there isn’t a job in it for you.

Jobs in renewable energy are driven by installation activity rather than ongoing operation and maintenance. That is, they are driven by subsidies.

For example, wind generation created about 1670 jobs in 2013-14. Just two years later this had fallen to 580 jobs.

Over this period, we installed an extra 900MW of wind generation. In contrast, the closure of Northern and Playford B power stations in South Australia, which also led to the closure of the Leigh Creek coal mine, saw the loss of 438 jobs.

Australian households and businesses need a government that offers pragmatism, engineering and economics in setting policy.

Prime Minister Malcolm Turnbull and Energy Minister Frydenberg deserve credit for the NEG. The alternative under Labor is a shambles.

Labor’s ideologically driven renewable energy targets will ensure more of the same chaos of the past decade: families driven to the wall and businesses going broke or shifting overseas. Those policy are good for industry players receiving subsidies, and bad for consumers.

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