Buried in this week’s confronting report into Australia’s future electricity security is a key sentence that underscores how the renewable energy target and wind power can be rightly fingered as the root of all chaos.
The Australian Energy Market Operator confirmed wind generation output during times of peak demand could fall to as low as 2 per cent of installed capacity.
Even when spread geographically across the entire National Electricity Market, wind power could not be guaranteed to deliver more than 5 per cent of its promise.
This means the main technology being underpinned by billions of dollars in renewable energy certificates under the RET is likely to go missing in action when it is needed most.
Renewable industry supporters have distorted the AEMO findings to argue the big risk is that climate change and hotter weather will make existing fossil fuel plants less reliable.
What they ignore is that the wind turbines that are forcing coal plants such as Northern Power in South Australia and Hazelwood in Victoria out of the market are so unreliable they are not even factored into the equation.
Despite this reality, wind generation will continue to receive the vast bulk of renewable energy certificates still to be issued under the RET, which is not due to expire until 2020.
The cost of using a RET to subsidise wind power does not stop at the need to have a ready standby for when the wind is not blowing.
The AEMO report also lays bare the dramatic impact that subsidising intermittent wind and solar through the RET was having on existing forms of power generation, mainly coal.
AEMO says current arrangements cannot provide adequate and sustainable price signals to either maintain existing baseload generation or encourage new developments at the level necessary to maintain system reliability.
In short, forcing intermittent renewables in the market through a RET has distorted market signals to the point that long-term investment decisions can’t be made. AEMO’s “technology-indifferent” remedy is to add new layers to the cascading electricity subsidy payments regime.
There would be new payments to have generation on standby but not included as part of the day-to-day market. This would include the most polluting form of generation, diesel power.
Further subsidy payments would be needed to extend the bedrock of system supply that used to be guaranteed by the high level of coal-fired generation.
Malcolm Turnbull attempted to do this with a deal for AGL to extend by five years the life of the Liddell power station in NSW.
The Prime Minister’s efforts were immediately smacked down by the company, which is keen to hide its massive coal generation profile behind a shift to wind and other renewables.
For financial markets, the short payback time for wind and solar is much more attractive than supporting a new fossil fuel plant that has a 50-year life span. This is even more so when renewable projects are sweetened by government-backed subsidies.
Higher power prices and concerns about system reliability present big political, economic and employment concerns, but for the electricity industry they also represent corporate opportunity.
On one reading, the AEMO report should finally ring the bell on the RET as the method through which to transform Australia’s electricity system.
In reality, vested interests are pushing state governments, vocal lobby groups and public institutions to double down and increase both the scope and pace of the transition to a low carbon dioxide emissions electricity sector.
This is through higher state-based renewable energy targets and the Finkel review recommendation for a clean energy target that would effectively extend a RET-style system to a greater range of generators.
Ideologically, the hope is that the pace of technological developments in batteries, storage and grid management will catch up with the speed of the transition.
Politically, the blame for system collapse will be opportunistically sheeted home to the federal government for its inability to enact a coherent policy response to climate change.
State governments can happily announce aspirational clean energy targets because the RET that underpins them is a federal concern.
At a federal level, no one can escape scrutiny for the current situation. The RET was introduced by the Howard government and was greatly expanded in the Rudd and Gillard years in collaboration with the Greens.
In 2015, the Abbott government scaled back the RET, which is now set to peak at 33,000 gigawatt hours in 2020, about 23.5 per cent of demand.
The RET scheme was split into two parts, a small-scale RET principally for rooftop solar and a large-scale RET for wind and commercial scale solar, in 2011.
Large-scale renewable electricity generators include wind farms and big solar plants that can feed electricity into the national grid and receive the market price for that electricity.
Under the large-scale renewable energy target scheme, generators of large-scale renewable electricity are also awarded certificates by the Clean Energy Regulator at the rate of one certificate per megawatt hour of renewable electricity produced.
This allows renewable energy producers to undercut the price of electricity in the wholesale market because they will make their money on the RET.
The important thing for them is to dispatch electricity to market so that an RET certificate can be claimed. Electricity retailers have an obligation to buy a certain number of these certificates, calculated as a percentage of the amount of electricity they sell.
The cost of buying the renewable energy certificates is passed on to consumers.
While the RET has been moderately successful in forcing new supplies of renewable energy into the market, the flow-on effects are now starting to be felt.
Things came to a head in South Australia last September when the state experienced a statewide blackout in the middle of a storm.
Political pressure has been greatly increased by the relentless increase in the price of electricity to consumers and industry.
Federal Environment and Energy Minister Josh Frydenberg has concentrated on reforming gas markets in a bid to take pressure off wholesale prices. He has forced greater transparency in gas trading through what has been a virtual monopoly and is pressuring governments in Victoria, NSW and the Northern Territory to lift restrictions on exploration and fracking.
Turnbull has put pressure on big gas exporters to reserve supplies for the domestic market and called on electricity retailers to ensure customers are told how to get better deals.
Abbott has called for the reform process to be turned on its head. In an address to the Institute of Public Affairs in July, the former prime minister said it was the RET doing the damage because subsidised unreliable and intermittent power was making baseload coal and gas power uneconomic.
“Trying to fix the problems caused by too much wind and solar power with yet more wind and solar power is perverse,” Abbott said. “The last thing we need is a clean energy target grafted on to a renewable energy target.
“The only way to take the pressure off prices now is to have a moratorium on new wind farms at least until the problem of intermittency is addressed.
“We should stop any further subsidised renewable power and freeze the renewable energy target at the current level of about 15 per cent.
“If this causes a fight in the Senate, at least it will demonstrate exactly who wants lower power prices and who doesn’t.”
Such a big-bang approach would be unlikely to promote the sort of investment certainty that companies say they want.
But Abbott says government should be prepared to “go it alone” if political risk means the market won’t do it.
“The market is the best possible means of maximising wealth but where government has ruined the market that we had 15 years ago, as it has, government must make things good,” he says.
It represents an extraordinary admission of market failure that an effective government takeover is the only solution.
Labor energy spokesman Mark Butler says the opposition is committed to the Finkel recommendation of a clean energy target as a long-term energy policy.
It is difficult to see how this will set a pathway to lower prices.
A CET would provide subsidy payments to renewable and fossil fuel power producers on a sliding scale, according to their greenhouse gas emissions.
Efficient gas and new generation coal plants could qualify for permits based on their lower emissions profile relative to existing coal technology.
The challenge is to ensure that lower-emissions coal or gas plants would have adequate access to market and are not squeezed out by intermittent renewables.
Butler says Labor believes there is a future for coal.
“We have 76 per cent of our electricity currently sourced from coal,” he says.
“That is one of the largest shares in the world but that figure is going down; it is not coming up.
“We have an investment strike under way at the moment because no one knows what the rules are going to be in the coming years for electricity generation.
“The sooner that this Prime Minister is able to confront the Coalition partyroom and come out the other end with something to negotiate with Labor, the sooner households around the country will have some confidence that the power price rises we’ve seen under this government, the reliability concerns they have seen emerge under this government, are going to have some plan to be addressed.”