Published on October 9th, 2017 | by Giles Parkinson0
Murdoch Misleads Readers About Renewable Subsidies & Saudi Playboys
October 9th, 2017 by Giles Parkinson
Originally published on RenewEconomy
It is hard to keep up with the Murdoch media. On a daily basis, RenewEconomy receives emails from outraged readers and mortified energy market players pointing to the latest nonsense and falsehood about renewable energy published in The Australian and the News Ltd tabloids that dominate the mainstream news media market.
RenewEconomy simply doesn’t have the resources to debunk them all – although we did contemplate a daily bulletin called the “Un-Australian” at one stage, but someone beat us to it.
But a recent story in The Australian has provoked us into action. The so-called “exclusive” is their front page lead and is titled “Saudi solar tycoon wins $300 million handouts boost”. The story is written by political correspondent David Crowe, who is not usually the worst of the bunch when it comes to renewables, but he’s got it badly wrong here.
The Australian‘s confected outrage is based around the story that a very rich Saudi businessman (Mohammed Abdul Latif Jameel) is making so much money out of Australian households from the Moree solar farm, and has a son (Hassan Jameel) who is dating Jamaican singer Rihanna at the same time.
What should we do in the face of this outrage and high-profile romance? Apparently we are supposed to agree to pay subsidies to extend the life of the ageing and unreliable Liddell coal-fired power station.
Except that the story is – like so much written about renewables in The Australian – a whole lot of cobblers.
The Australian has been going hammer and tongs against the RET in recent weeks, and broken out in full support of more coal. But like most ardent critics of the RET, including its columnists, it fails to understand the basics of how the RET works.
The source of Crowe’s outrage is the assumption that FRV, owned by Jameel, will pocket the value of the large-scale certificates it generates – currently trading around $80/MWh. The Australian did the sums and worked out that FRV would receive some $140 million in LGCs over 10 years. It writes:
“The Australian’s analysis of the payments to the Moree project are based on an $80 value for renewable energy certificates until 2020, in line with current market prices, and a $60 value over the decade to 2030.”
Great story, except for one thing: It’s not true.
A quick Google search would have informed Crowe that FRV signed away its renewable energy certificates, known as LGCs, in a power purchase agreement for the 57MW Moree solar project with Origin Energy early last year.
Under this agreement it will be paid a “bundled price” – thought to be around $85/MWh as part of a package deal with the Clare solar farm – that includes both the wholesale price of electricity, and the LGCs, for a period of 15 years until the RET scheme finishes in 2030.
It means that FRV will effectively receive no payment at all for the LGCs. It will certainly not, as The Australian story suggests, receive the market price for the LGCs.
Origin Energy has a good deal. Given that NSW wholesale electricity prices have averaged around $95/MWh so far this financial year – it means that Origin is getting a cheaper source of power from Moree, and getting the LGCs it must surrender each year, effectively for nothing.
This is pretty much the case for most solar farm developers now, and wind farm developers too – they are signing long-term contracts with retailers and others for both the output of the solar farm and the certificates, at a price below the current wholesale price.
This is the significance of two of the most recently publicised projects: the Stockyard Hill wind farm in Victoria and the Silverton wind farm in NSW. The contract prices – said to be sub $55/MWh and $60/MWh respectively – include both the wholesale price of electricity and the LGCs.
In the case of Stockyard Hill, that price represents around one-half of the current cost of wholesale electricity in Victoria, so it will likely deliver a big saving for Origin.
And it will get the LGCs from Stockyard Hill for nothing. Goldwind, the developer, is happy to have a price that ensures a fixed return on its investment – and the fact that it can do so at that price tells us much about the low cost of wind energy.
Indeed, few large-scale wind and solar projects are getting any money for the LGCs and are building the plants effectively without an ongoing subsidy.
The retailers are the ones benefitting – but only in the sense that they can meet their RET obligations without having to pay any money.
The threat that they might have to pay money if they don’t sign contracts encourages them to sign the PPAs in the first place. And the only reason why the market price is high now is because those retailers refused to sign any PPAs for several years while they fought to have the RET cut or canned altogether.
The Australian has gotten this wrong repeatedly. It appears to have used the current market price as its basis for assuming that the RET will cost consumers $45 billion over the course of the scheme. It is a ridiculous number that has never been explained.
Still, it has been repeated in numerous columns, including one by former nationals Senator Ron Boswell on Tuesday, and indirectly by Nick Cater in the same edition.
It also used the same argument in trying to embarrass AGL about the revenue it would supposedly receive from the Broken Hill and Nyngan solar arms.
Even if Moree had gone “merchant” – meaning that it could sell wholesale electricity and LGCs at the market price – Crowe’s numbers are way out of sync.
The LGC market price is high right now, because some energy retailers have not locked in enough supply, so they have to top up at high prices. But that price does not apply to all LGCs, only the small number traded on the market.
(Energy analyst Simon Holmes à Court explains this issue further in this Twitter “storm” you can find here).
But with all the wind and solar farms under construction and contracted now, the market price of LGCs is expected to fall to near zero from the early 2020s.
Now, there is no doubt that FRV will make a profit out of Moree, and a handsome one too.
As David Leitch has written, Moree received a grant of more than $101.7 million grant from ARENA and a $47 million loan from the CEFC, but that is separate to any ongoing subsidiary from the RET.
It could be argued that both payments were excessive – like the ARENA grants to AGL for Nyngan and Broken Hill – but that was FRV’s reward for being in the right place at the right time, and because it was prepared to take the risk of building the first solar plant in Australia with tracking modules.
Now, nearly every plant in the country is going to use trackers. And the next round of ARENA grants, in its large-scale solar tender, were just a fraction of its first round.
The Australian story is not all bad news, however. The romantic link between the Saudi owner and Rihanna must surely mean that she will be performing at the opening of the next solar farm.
Hopefully, in a tribute to the tracking technology, Rihanna chooses to sing “Towards the Sun” rather than “Umbrella”. We can’t wait for the invitation.