Bruce MountainDirector

The coming RET Review: some initial reflections

Presentation to EUAA Tasmania Energy Forum

Launceston, 6 March 2014

Outline

• Outcomes so far

• Currently legislated obligations

• How might energy users think about this?

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Outcomes so far

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Over 12 years, around 6,300 MW of additional wind and PV and a little hydro and biomass

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Wind by far the biggest energy producer. Output from new wind + PV + biomass + new hydro now about 6% of national electricity production

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PV has attract by far the greatest subsidy so far. But wind gets production subsidy over 20 years, PV & SWH get certificates upfront

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Cumulatively PV has so far received about twice as much as the rest combined (but be careful in not confusing up-front versus production

subsidy)

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And not right to conclude that rooftop PV households have had a windfall gain

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IRR of 10%

RET payments have grown quickly over the last three years. Mainly as a result of PV

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Per MWh consumed, RET charges risen 5 fold on average over last three years compared to average of previous 10 years

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AEMC projects large scale renewables target will average around 2% of household bill for next three years

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And AEMC says the cost of small scale scheme will decline from around 3% in 2012/13 to 1.5% in 2015/16

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In total, AEMC says RET will be between 2.5% and 5% of household electricity bill

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Currently legislated obligations

Large scale target to more than double over next 6 years

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Small scale scheme

• Covers small, typically distributed renewable generation

• Uncapped, fixed price scheme

• Supply has historically be affected by multiples (and state-based feed-in tariffs)

• Steadily declining supply expected in the short term

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How might energy users think about this?

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Why have a renewable energy promotion policy?

Commonly cited arguments for:

1. It enjoys public support and in a democracy that matters2. Our allies think it is important (almost all rich and many poor countries subsidise

renewables) 3. It reduces greenhouse gas emissions and even if this makes no difference to global

warming, our actions can influence the decisions that others make.4. It’s a hedge against fossil fuel price volatility

Commonly cited arguments against:

5. Public opinion is not well informed. 6. Global warming is not anthropogenic and even if it is, more renewables in Australia

makes no difference. 7. The benefits don’t exceed the costs (even in the long term).8. Costs are declining rapidly and so we would be better off waiting.

18What do you think ?

Are energy users worse off with the RET?

• Climate Change Authority concluded that over the life of the RET, energy users would be only slightly worse off. Perhaps, but impossible to be certain: situation is too complex to model with certainty – modelling completely dependent on input assumptions.

• Utilities, renewables developers and households (that install water heaters and PV) benefit, some more than others.

• Under the RET today’s energy users mostly give more than they take. Most of tomorrow’s energy users may take more than they give, but impossible to sure of this – depends on the design of the electricity market.

• Some significant mistakes have been made so far: state/federal renewables policy co-ordination failures have been at energy users’ expense.

• Renewables provide public benefits (GHG reduction, international approval) and energy users may ask why the Government does not pay for these benefits.

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In conclusion: A quick look at three common questions

• Is distributed generation (PV) deferring network augmentation ?

• Is fossil-fuel generation needed to back-up renewables when “the sun don’t shine and wind don’t blow” ?

• Is renewable generation reducing wholesale prices ?

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Is distributed generation (PV) deferring network augmentation ?

• Circa 3,200 MW of distributed rooftop PV capacity. Will almost certainly continue to grow rapidly, although not at historic rates.

• Generally good co-incidence of PV production and regional peak demands. So, good argument that PV deferring need for network augmentation related to regional peak demands.

• But, household demand usually peaks after the sun has set, so PV not reducing residential peak demands, and so not deferring augmentation on residential feeders.

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Is fossil-fuel generation needed to back-up renewables when “the sun don’t shine and wind don’t blow” ?

• Yes, but:

– we have plenty of spare fossil-fuel capacity and so no additional fossil capacity needed yet.

– If renewables penetration increases significantly, and assuming no progress in demand-side participation and storage technologies, additional fossil fuel (open cycle gas turbine) will be needed.

• Difficult to have strong views on this, considering impact lies quite far into an uncertain future

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Is renewable generation reducing wholesale prices ?

• On balance, probably yes, particularly PV in Queensland and South Australia.

• Wind generation seems to be fairly poorly correlated to times of summer peak demand (when extreme prices are most likely) so impact of wind generation on wholesale average prices is probably not significant.

• New hydro, biomass too small to make any difference.

• Good evidence that high penetration of renewables in Spain, Germany, Ireland, Demark has depressed wholesale electricity prices.

• But, be cautious about assuming permanent or long-term reductions: investment (including in renewables) has to be profitable in the long term to be sustainable. Prices received by renewables generators will have to rise, one way or the other, before investors can be expected to commit many billions.

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Bruce Mountainbruce.mountain@cmeaustralia.com.au

(03) 9664 0680, 0405 505 060

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