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Australian Renewable Energy Industry Held Ransom By Utilities Over Coal Payouts

Originally published on RenewEconomy.

LOY YANG POWER STATION STOCKAustralia’s largest utilities are being accused of holding the renewable energy industry to ransom, by suggesting that they will not sign contracts for new large-scale renewable energy projects unless they are paid to close excess coal capacity.

The renewable energy industry has reacted with outrage at suggestions from AGL Energy, the biggest utility, that renewable energy investment in Australia would remain frozen, even if the political deadlock over the renewable energy target was broken.

AGL managing director Michael Fraser, who steps down this month, claimed on Wednesday that the RET was “broken”, and because wholesale prices were so low, and there was so much excess capacity, then large utilities would not sign contracts for new renewable energy projects.

Fraser said this would remain the case even if the current 41,000GWh target was lowered by mutual agreement between the Abbott government and the Labor Opposition. Talks on the RET have resumed in the past week, with indications that a compromise target of around 34,000GWh to 37,000GWh could be reached.

One executive noted that Fraser had been a strong supporter of the RET, and happy with its structure, when AGL was a large investor in renewables. However, AGL has since change the colour of its business, from green to brown and black, with its $2 billion purchase of Loy Yang A, the single biggest emitter in the country, and another $1.6 billion on the Bayswater and Liddell coal plants in NSW.

The suggestion that coal generators should be paid to close is particularly galling since AGL Energy, by its own admission, effectively paid nothing for Liddell, based on the assumption that it was likely to close in 2017, if its major customer Tomago aluminium smelter also closed.

But AGL is now signaling that Liddell could operate beyond the 2022 “technical” end of its life. And it has argued that unless retiring coal-fired generators got payments for “remediation”, then the excess capacity would remain in the market.

The renewable energy industry is at a virtual standstill. Australia has slipped to 31st in terms of investment in large-scale renewables, falling behind Honduras and Myanmar. Once the Bald Hills project and the Portland wind farm expansion in Victoria are complete, there will be no wind generation under construction under the RET.

The renewable energy industry is now suggesting that either the “penalty price” for retailers not meeting their renewable energy quotas be increased, or the country should adopt the UK system, where retailers that meet their target are paid monies by retailers that don’t.

“The intent of the shortfall price within the renewable energy legislation was to discourage liable parties from boycotting the scheme, thereby preventing achievement of the public policy objective,” said Infigen Energy spokesman Richard Farrell.

“The big three retailers have pursued a campaign to reduce Australia’s renewable energy target so as to reduce competition from new entrant renewable energy in their generation and retailing operations.

“Their claims otherwise are clearly disingenuous. The modelling conducted to support the Warburton review showed the RET can be achieved at certificate prices well below the shortfall price, while delivering lower electricity prices for consumers.

“It’s clear that AGL’s intention is to continue to boycott the scheme at the expense of their customers. It is not up to me how to tell AGL to run its business but I suspect its customers would vote with their feet if such a strategy was employed.”

The Clean Energy Council, which Fraser chaired until late 2013, during the company’s “green” days, says the arguments from the fossil fuel generators are bunkum.

“The clean energy industry is confident that, if the current RET review is resolved swiftly, the 41,000 GWh by 2020 LRET can be met,” a spokeswoman said. “This is supported by the Warburton Review that showed the LRET could be delivered without the market going to penalty.

“While the Clean Energy Council acknowledges that there is a current surplus of generation in the market, it is clear that the problem is too much fossil fuel generation capacity – not too much renewable energy.”

The CEC pointed out in a paper last year that independent studies for the government when the current RET was being framed in 2009 made it clear that coal-fired generation would be closed as a result of increased renewables.

Since then, around 20,000MW of fossil fuel capacity has changed hands – including the 6,600MW of coal capacity bought by AGL. The inference is that the fossil fuel generators are trying to re-write the rules after a purchase.

“MMA concluded that reductions in wholesale prices would be offset when “additional renewable generation is matched by deferment of fossil fuel generation capacity and some additional retirement of existing plant”.

“It is erroneous and indeed disingenuous for the owners of fossil fuel generators to now argue that the RET has impacted their businesses in ways that were not anticipated,” the CEC wrote.

“Renewable energy is impacting on the electricity market more or less exactly as it was predicted to. It is clear that the problem in the NEM is too much fossil fuel generation capacity, not too much renewable energy capacity.”

Indeed, AGL itself admits that there is way too much fossil fuel capacity in the market.

It has said more than one-third of baseload plants are surplus to requirements. And as RenewEconomy has reported, most of the new capacity added since then have been fossil fuel plants, in the form of gas-fired generators, which are now being mothballed because gas is too expensive.

Mark Wakeham, from Environment Victoria, says the coal-fired generators have only themselves to blame. They were too greedy when the opportunity for paid closures, through the contracts for closures scheme, was proposed (a mechanism that Environment Victoria supported at the time) and now they are continuing to try to distort the market.

Wakeham suggested the best mechanism may be emissions performance standards of the type that US president Barack Obama is imposing in the US, forcing more than 50GW of coal-fired capacity out of the market with no talk of compensation. The Greens have been mulling a similar proposal.

“Generators are quite happy to point to the ‘oversupply’ when they want to undermine the RET, but are less forthcoming when it comes to withdrawing their own capacity,” Wakeham said.

“As we predicted when contracts for closure was on the table, it was a once in a lifetime opportunity, and the generators blew it with their ambit claims.

“Until as a nation (or collection of states) we have the appetite for an effective price on carbon unadulterated by compensation handouts, we need to be looking more closely at blunter instruments like emissions performance standards to accelerate retirement of our oldest and dirtiest power stations.”

Reprinted with permission.

 
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Written By

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.

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