A few thoughts on the RET Review process


There are a number of significant developments on the policy front currently occurring, with respect to the mix of technology involved in the electricity supply industry – including:
1)  The release of the government’s first budget on Tuesday (13th May) – containing a broad range of closures and spending cuts , some of which affect the broader energy sector;
2)  The RET Review process, with submissions due this Friday (16th May);
3)  The ERF implementation process, with the latest development being some forums publicised (seemingly last minute?) on Friday last week for Wednesday, Thursday and Friday this week.
4)  and, linked to that, the repeal of the Carbon Tax.

Understandably, this has generated considerable unease and commentary in the press, and through social media.

Given their varied potential impact of these developments on the operations on our diverse range of clients (and other opportunities it might bring), we have been giving them (and particularly the RET Review) some thought.

See FULL DISCLOSURE 1 about how we strive to remain technology agnostic.

The following comments have been posted as they might prove useful to readers of WattClarity, either directly in relation to the RET Review process, or in more general terms.

If you believe we have missed or misinterpreted anything significant please let us know with a comment below (or offline) and we will endeavour to add that into the mix as well.  Apologies for this being a little on the long side.

1)  The purpose of modelling, within the RET Review process

On 29th April, I was curious enough to attend a “Modelling Assumptions” Workshop organised ostensibly to invite input into the modelling that would be undertaken for the review.  At the forum we were introduced to the consultants from ACIL Allen (the consultant appointed to supply modelling services to the RET Review Panel).

The slides presented at the workshop provide a guide to the areas in which input was sought – though I’ve seen no communication since that time to indicate what suggestions have been taken onboard, and what have been discounted (given the tight timeframes, I suspect this might just be detailed in the final report).

The discussion, around the slides, focused on three key assumptions feeding into the modelling:
1)  Demand growth projections – which was easily (of the three) the area of greatest discussion {we’ve added a few notes below}
2)  Fuel costs
3)  Technology costs
4)  Carbon pricing was mentioned only to note that it would be assumed there would be none in all scenarios, out till 2030.  Nothing was said about modelling the potential impact of the ERF on the generation sector, despite the sector’s significance in terms of the overall emissions burden.

Clearly, all four areas of assumptions will have a large bearing on the outcome of modelling in any of the scenarios chosen.

There was no discussions about what would be assumed about the ownership structures of generation plant moving forwards (with recent examples in Queensland and elsewhere suggesting that consolidation of the sector opens up a greater range of commercial options for utilisation of capacity – hence outcomes in the market).

What surprised me most, however, was that there was no real discussion about the range of scenarios under consideration (and so were to be modelled) – see slide 4 for the detail that was provided:

2014-04-29-slide4-acilallen

Whilst I can understand that the scenarios had not been firmed up (and that this would not be the role of the consultant, but the panel) it appeared that a gathering of so many interested parties would have provided a good opportunity to gather input on the types of scenarios that could be modelled to achieve the terms of reference.

To some extent, the scenarios to be modelled will dictate which assumptions need to be more accurate than others.


2)  The Modellers can’t all be right!

Even just in recent years, we’ve seen a large number of scenarios modelled by a range of consultants with respect to the RET and yet here we find ourselves yet again, feeling that we need to do some more modelling …

(a)  Were the prior modelling conclusions wrong in some way?

In more general terms, I have to wonder about the way in which market modelling seems to have developed its own mystique to the point where the results of modelling exercises are increasingly often use to “prove” a particular party’s own point of view (which oftentimes seems to be predetermined, even before the modelling has been run).  This seems to be devolving to Consultants at 20 Paces.

If the results of each modelling exercise are viewed absolutely and conclusions drawn on that basis, it’s a truism that they can’t all be right!

Indeed, it’s my opinion that they are all guaranteed to be “wrong” (in absolute terms) – each in their own way.  That’s just the nature of modelling complex systems with multiple interrelated variables, with a forecast time horizon stretching out as far into the future as the NEM has existed in the past.

However, the fact that the outputs of the modelling are almost guaranteed to be wrong does not mean that the process of modelling is worthless.  Indeed, so long as the recipients of the modelling keep in mind what it can be used for (and what it can’t) modelling can prove enormously valuable.

What would seem logical, perhaps, is for the Review process to invest in the collation, comparison and contrast of the previously published modelling results from the established modelling firms – such that we can actually learn from them, and not start from square 1 again, and again, and again…

{there’s a starting list below = but no, I’m not pitching for us to continue the job}


(b)  Were prior modelling assumptions inappropriate in some way?

Again, in this case, it would be a great help to everyone involved if they could be objectively compared and contrasted.


(c)  Has prior modelling become out-dated?

An alternate scenario, however, is that perhaps the market and policy settings have changed to such an extent as to make prior modelling work invalid – for instance:

i.  We all know what an impossible (and thankless) task that the AEMO, IMO and BREE have in preparing demand/energy projections moving forwards 10 years or more into the future.  Bashing the forecaster has become another one of the easy games in town.

ii.  Many have been surprised by the rapid reduction in installed cost of rooftop solar PV.

iii.  There’s also the ongoing uncertainty about carbon – moving from nothing, to an input cost addition, to a potential revenue source for efficiency improvements, and then to…

iv.  I’m sure you can point to others.

If it is the case that the prior modelling has all become out-dated, what makes us think that this latest modelling exercise with ACIL Allen will be any better – as the future of the energy landscape does not seem to be getting clearer than it was before?  Especially because the modelling requires some cases generated out as far as 2030!

Yet past examples lead me to believe that there will be those that point to ACIL Allen’s forthcoming modelling report to intone that it “proves” this or that…


Here’s a sample of the pieces of modelling that have been undertaken recently by the various consultants with respect to the ongoing trajectory of the RET.

If you know of others not listed here, please provide as a comment below and we’ll do what we can to flesh out this table – and for any errors of fact I have made, I do apologise in advance.

ACIL Allen In terms of prior modelling by this firm, we found this reportAchieving a 20% RET by ACIL Tasman (a predecessor organisation) from September 2012 that was used in a submission by TRUenergy to the Climate Change Authority.

This modelling was used to support a position calling for policy to shift to the use of a “real 20% by 2020”.

A number of rumours circulating (or concerns being voiced) currently suggest that something like this might be the predetermined “best case” outcome for the current RET Review.

One of the points of note in this study is that it was assumed that the deployment of new fossil fuelled plant (under scenarios where demand did resume its growth) would adjust their timing of entry such that spot price outcomes were largely the same between scenarios.

TheCIE We noted that the Centre for International Economics produced a paper The Renewable Energy Target – How it works and what it costs in November 2013 for the Australian Industry Greenhouse Network.

(PS – here’s the direct link as the above one has changed)

However this work contained no modelling of its own, and merely referenced other pieces of work.

Frontier Economics We’ve conducted a quick search and can’t find any significant modelling work done recently for Frontier Economics on the RET.

We note that Danny Price is co-chair of the Emissions Reduction Fund Expert Reference Group, so it may be that the company is more focused in that area.

We did encounter Commentary on the RET review and modelling from November 2012 that is attached to a Macquarie Generation submission to the Climate Change Authority for that prior recent review.  We’ve not had time to review this.

IES Advisory On 3rd March IES Advisory published Issue 16 of itsInsider Newsletter on the topic of RET review and its impact on the NEM.

We understand that this report is freely provided (perhaps partly to act as a marketing teaser) so it’s understandable that its lighter on details (such as about the assumptions made) than other commissioned and published reports.

One interesting note is that this report cites that the spot prices under the base case (existing RET) are actually forecast to be higher than under a sensitivity case of a reduced RET – however this is easily understood, given that the sensitivity also assumes the abolition of carbon pricing.

ROAM Consulting Following the commencement of this RET Review, the Clean Energy Council commissioned ROAM Consulting to perform some modelling of the costs and benefits of the RET.  The report RET Policy Analysis was published on 29th April 2014.

Further details are published here by the Clean Energy Council.    Following from this report, there was significant coverage in social media interpreting that the modelling “proved” that wholesale spot prices would be lower with the existing RET than would be the case under a reduced target.

As I noted in a comment here, it’s critical that readers of these modelling reports understand the assumptions that were made in the study (in most cases it’s not strictly G.I,G.O., but it is a clear case of caveat emptor because of the complexities involved in, and various simplifications used in, all modelling processes).

However even my comment was misinterpreted by others as invalidating the modelled results.  To reiterate, understand what assumptions have been made, and you’ll be better able to see:
1.  The conditions under which the modelled results are likely to hold true; and
2.  The (different) conditions under which you can’t be sure that they will, or won’t hold true.

Again, in this study a stated assumption was that there’d be no generation retirements or mothballing.  Hence adding more capacity (whatever the type) into an oversupplied market is likely to drive down prices further.

See Full Disclosure 2 about a common beginning, but separate development, of GLOBAL-ROAM and ROAM Consulting

Schneider Electric On 7th April 2014, Schneider Electric’s Energy & Sustainability Services Division (a successor to Creative Energy Services in Australia) produced a paper with the title of Australia’s Large-scale Renewable Energy Target: Three Customer Benefits”.

Like the IES paper, there is not much detail provided in here about how their model works – hence credible interpretation of the results presented (especially in the limited time I had) is not really possible.

SKM MMA In December 2012, SKM MMA produced a report Modelling for the Renewable Energy Target for the Climate Change Authority as part of its own scheduled review completed not too long ago.

Similar to the ROAM Consulting analysis, this paper notes that (p5):

”a higher RET and higher renewable development is expected to lead to lower wholesale prices, as prices are further suppressed by this additional capacity”

Similarly, though not identical to the ROAM Consulting work, assumptions are made (p7) about how existing plant might respond to a growing oversupply of capacity working to suppress prices:

“Where it is deemed that a generator would not receive sufficient revenue to recover its assumed avoidable costs over a couple of years, this generator is retired and the impact of this retirement on remaining generators is reassessed.”

My reading of this is that it is assumed that spot revenues would need to drop below even just recovery of short-run costs over a couple of years before it would be assumed that the cash-strapped company (or its bankers?) would step in and close the plant.

Windlab A historical review specific to South Australia, but also worth linking here, is the paperPeaking Capacity, CO2 Emissions and Pricing in the South Australian Electricity Grid with High Wind Penetration 2005-2013” published in 2014 – as what seems to be an update to this paper from 2011.

We’ve seen instances where others have used this analysis, which is backwards looking, to imply that the same conclusions are bound to be true moving forwards – whereas (as noted above) the important question to ask would be under what conditions, moving forward, might it remain true – and under what conditions might it not?

If further suppression of pool prices is a (new?) objective of the RET (which seems to be implied in the terms of reference for the RET Review, and is assumed by many commentators on social media), then perhaps questions to be answered could include:

1)  is how much new renewable technology could be added to further suppress spot prices – but only to the point where large withdrawals of capacity from existing plant would tip the balance with prices spiking up?  Realistically, can this question even be answered?

2)  is there a law of diminishing returns whereby escalating annual payments for RECs (because of higher volumes required each year) deliver progressively smaller reductions in average spot prices (because of what’s been termed as the “Merit Order Effect” – which, incidentally, our friends at Meridian/Powershop have created this creative animation to explain)

3)  how could this policy be developed with some flexibility in terms of the target, given that it will be heavily dependent on what happens with demand (growth/decline), moving forwards?

4)  if reduced spot prices are the objective, then should the incentive be skewed towards the regions which show the greatest tendency for spot price increases, moving forwards  – e.g. many of the studies above show the potential for spot prices in QLD to accelerate away from spot prices elsewhere, so should extra credit be provided to renewable technology deployed in Queensland.


3)  Demand growth(?) assumptions

We’ve been posting observations about the emergence of declining demand and its contributing factors for a number of years (here’s a general tag linking many of the articles).

Because our focus has been mainly on the NEM, we’ve a greater awareness of the approaches taken by the Jurisdictional Planning Bodies, and now by the AEMO, in the forecasting of demand (compared with WA, for instance).  It’s not an easy task, especially now that the electricity supply industry is changing so markedly.

Given this uncertainty, we wonder whether the modelling should also include a sensitivity scenario in which demand continues to decline?


For a number of reasons we have been interested in understanding why the demand trajectory has changed so much, in order that we can form our own view of what it might mean for the future.  This report prepared by Hugh Saddler still seems to be the best resource in the public domain to help explain.

If someone knows of something better, or additionally of value, please let us know?


4)  Does the “Age of Entitlement” ever truly end?

There’s been much said in social media (Twitter, LinkedIn, various blogs and other) about what some might see as entitlements, and others see as (explicit or implicit) subsidies – on all sides of the debate:

(a)  There are explicit subsidies that renewable technologies are receiving under the RET, are receiving under the various feed-in tariffs, and (on a project-specific basis) are receiving from specific government funding:

Hence we have a large number of businesses publicly concerned for their ongoing viability (and the livelihoods of their employees – collectively a large number) with mooted withdrawal of policy support for renewables.

(b)  On the other side, the fossil-fuelled generation sector is also seen (by others) as having received assistance through a variety of means including historically socialised cost of network expansion to connect remote generation sources, with respect to the externalised cost of pollution (carbon emissions, and particulates) and in terms of funding and other support provided to encourage development of the country’s coal and gas assets:

The 13% GEC scheme in Queensland (1995 to 2013) is one example of this type of support, which some will see as a success in helping to create the new export industry of east-coast LNG, but which others might blame for increasing the cost of domestic gas across the east-coast by linking to a market that values the gas more highly.

In this case the closure of the scheme at the end of 2013 did not (to my knowledge, at least) elicit anywhere near the level of complaint about the ending of policy support.  Some will inevitably interpret this as a sign of a policy that was more effective, in terms of establishing an industry that could stand on its own feet.

(c)  But that’s not all the “sides” that exist – for instance, currently installed capacity (whatever the technology) would stand to suffer reduced financial return if additional generation supplies continue to be injected into an oversupplied market.  Depending on the nature of the contracting in place, if any, the wind farms in South Australia already suffer lower average spot prices than received by thermal plant, including periods of negative pricing.

With the “Ending the Age of Entitlement” being cause du jour in political circles, I do wonder if it will (can?) ever truly end.

(a)  On the one hand, renewables supporters might point at those on the black and intone that “they should have known that the science (and/or the public mood) regarding climate change was evolving in a certain direction, and hence should wear the cost of investments stranded by that move” – citing case studies of Kodak, Blackberry, fixed-line telecoms, Horse-and-Cart and other companies/industries that were overtaken by technology and/or market change.

(b)  On the other hand, those on the fossil side might point to the renewables sector and reply that “those businesses set up with such dependency on government policy should have been aware of the risk that such policy might change”

– and so the debate would continue to circle…

The federal and state governments will always have policy objectives which they are seeking to implement, and the implementation of these will (on occasions at least) overlap with the functioning of the NEM.  Does this mean that there will always be explicit, or implicit, entitlements?

See FULL DISCLOSURE 3 about how Paul McArdle is a beneficiary of the 44c solar Feed-in-Tariff


5)  Has the RET delivered on its original purpose?

My recollection is that, when the RET was established many years ago, its stated purpose was one of industry development – of giving some renewable technologies a “leg up” such that they could grow to become a meaningful contribution to the energy mix.  My recollection is that it was only later (around when the target was expanded to 45,000GWh) that concerns about carbon emissions reduction filtered into the stated purpose of the NEM – just as, it seems, now spot price suppression is being seen as an additional goal.

(a)  Leaving to the questions of cost & equity, the RET has delivered wins, such as:

i.  providing added funding to encourage the addition of significant amounts of renewable generation into the Australian electricity supply industry, including in the NEM – all without the lights going out

ii.  creating employment for a significant number of people

iii.  diversifying the energy mix used in producing the energy consumed

iv.  providing a distributed generation source that provides individuals a sense of empowerment

v.  delivering spot prices that are lower than would otherwise be the case (all else being equal)

etc…

(b)  However economies of scale have seen much of the technology involved in the deployment of renewable technology has been imported from offshore centres of excellence.  Solar energy, where Australia once had some claims to leadership in terms of research, seems to have become another case where IP developed domestically has largely left the country for commercialisation, leading to us importing what perhaps we could have manufactured and exported:

It’s plausible that perhaps there were no policy & support levers that could have been pulled to produce a scenario where this did not eventuate.  It’s not in the scope of this RET review, and this Review is probably not even the appropriate vehicle – but perhaps this question is another worth asking?


6)  Is there an opportunity, with storage?

If we missed the boat (in terms of making Australia a center of excellence for renewable technology) perhaps there is still an opportunity for storage?

As the share of installed capacity has grown, and the share of production has also grown (though not as fast) questions have been asked about the extent to which (because of technical and/or economic limitations) intermittent generation sources might be integrated into the grid:

(a)  We started to have a look at what this would mean with wind here, as have a number of others;

(b)  Significantly, in 2011 the Australian Government commissioned the AEMO to undertake this broader study into the potential for 100% renewal energy generation in the NEM, with the report provided here – this report was widely circulated in social media with a number of articles in support (like this one from UNSW), along with critiques written (like this one from BNC )

One technology that would make the integration a whole lot smoother (if it were available at scale, and at a reasonable cost) would be storage technology.

(a)  One of our guest authors provided useful insights about three different business models that might be used to support the deployment of storage technology, and secure the a return for the involvement in its deployment.

(b)  There are a number of people who are predicting (and others hoping?) that the price of storage will follow a similarly logarithmic decline to what we’ve seen for solar PV – however others are asking questions about whether the rapid decline in PV costs is uniquely linked to silicon-related characteristics popularised in Moore’s Law (I don’t think we’ve seen other technology – like fuel cells, for instance – see such a dramatic decline in unit costs).

(c)  Just today I read this example of how GE is placing its own bets in terms of the potential for a different energy storage technology.

(d)  Storage even has its own TED talk on another possible technology.

Given the potential benefits that storage might deliver to the Australian electricity system, and a curiosity about whether levers could be pulled to help Australia develop some leading-edge technology that could become a large export earner, I’m wondering whether there is logic for the promotion of storage in whatever the RET is to become?


About the Author

Paul McArdle
One of three founders of Global-Roam back in 2000, Paul has been CEO of the company since that time. As an author on WattClarity, Paul's focus has been to help make the electricity market more understandable.

12 Comments on "A few thoughts on the RET Review process"

  1. This is not impartial. It is clearly pushing for renewable energy. There is not a mention of the much cheaper and batter fit for purpose technology to cut emissions, i.e. nuclear energy. Why not?

    Nuclear power is better than renewable energy for meeting all the important criteria. Renewable energy cannot be justified, on a rational basis, to be a major component of the electricity system. Here are some reasons why:

    1. Nuclear power has proven it can supply over 75% of the electricity in a large modern industrial economy, i.e. France, and has been doing so for over 30 years.

    2. Nuclear power is substantially cheaper than renewables

    3. Nuclear power is the safest way to generate electricity; it causes the least fatalities per unit of electricity supplied.

    4. Nuclear power is more environmentally benign than renewables.

    5. Material requirements per unit of electricity supplied through life for nuclear power are about 1/10th those of renewables

    6. Land area required for nuclear power is very much smaller than renewables per unit of electricity supplied through life

    7. Nuclear power requires far less expensive transmission (much shorter distances and much smaller capacity in total because the capacity needs to be sufficient for maximum output but intermittent renewables average around 10% to 40% capacity factor whereas nuclear averages around 80% to 90%.

    8. Nuclear fuel is effectively unlimited.

    9. Nuclear fuel requires a minimal amount of space for storage. Many years of nuclear fuel supply can be stored in a warehouse. This has two major benefits:

    • Energy security – it means that countries can store many years or decades of fuel at little cost, so it gives independence from fuel imports. This gives energy security from trade wars and military conflicts

    • Reduced transport – nuclear fuel requires 20,000 to 2 million times less ships, trains etc per unit of energy transported. This reduces shipping costs, the quantities of oil used for the transport, and the environmental impacts of the shipping and the fuel used for transport by 4 to 6 orders of magnitude.

    There is no rational justification for renewable energy to be mandated and favoured by legislation and regulations.

    • Peter,
      Nukes don’t make sense for Australia. Capital costs are too high, water consumption is high, peak consumption in Aus. is high. By all means it’s great for the eurozone and the asian power economies.

      Addressing your points:

      1. France has less than half the peak load per capita of Aus. and significant import/export capability with neighbours which helps counter nuclear inflexibility. Their baseload is also higher per person. Nukes are perfect for them but the comparison doesn’t work for us.

      2. Nukes are only cheaper where labour is cheap. The Brits tendered for a new nuke plant recently and the best price they were quoted was the equivalent of $170/MWh. Significantly more than solar or wind in Aus. and they have better nuke experience and easier procurement. BREE reckon $100/MWh with no decommisioning costs and a 60 year life. 60 years is significantly longer than the typical 40. Either way it’s still more expensive than $80 for wind. You’ve probably also noticed that PV is cheaper than retail, can’t see anyone getting residential nukes…

      3. True but this includes hydro which has had some disasters. Renewables and nukes are both much, much safer than coal. The difference between them is not significant.

      4. True but again we are comparing to coal which is much worse. Slight differences between the clean techs is nothing compared with getting rid of fossils.

      5. Sounds right. We are running out of uranium faster than steel though…

      6. True, even though mine area is large. This is why nukes are so great for Asia/Euro. Land is not scarce here and wind, solar and all other industry is much more productive per hectare than agriculture (by a few orders of magnitude).

      7. True but this is only a small part of customer’s costs. The reduced cost of renewables compared with nukes offsets this.

      8. No one is building breeder reactors. They cost too much. There’s no point turning cheap fuel into very cheap fuel if it increases capital costs. Also people get worried about plutonium.

      9. True but again this is an advantage for countries with no resources. We are not threatened by a lack of energy supply.

      Why am I making a big deal about this? Because advocating for nukes distracts from actually reducing emissions from the electricity sector in Australia. Australia is too small to build nukes at scale, or profit from fuel processing. Let’s continue supplying the U to the rest of the world, they need it more than us.

  2. Paul

    Thanks for putting up such a carefully considered and insightful set of comments, including those in relation to the role and uses of market modelling. I don’t have time to respond in any detail, but I will correct you on your recollection about the original purpose of the RET Act. Here’s an excerpt from the 2003 Tambling Review of the operation of the original Renewable Energy (Electricity) Act 2000:

    1.1 In November 1997, the Prime Minister, the Hon. John Howard MP, announced
    a package of national greenhouse response measures, Safeguarding the Future: Australia’s Response to Climate Change, which included the following initiative:

    Targets will be set for the inclusion of renewable energy in electricity generation by the year 2010. Electricity retailers and other large electricity buyers will be legally required to source an additional 2 percent of their electricity from renewable or specified waste-product energy sources by 2010 (included through direct investment in alternative renewable energy sources such as solar hot water heaters). This will accelerate the uptake of renewable energy in grid- based power applications, and provide an ongoing base for commercially competitive renewable energy. The program will also contribute to the development of internationally competitive industries which could participate effectively in the burgeoning Asian energy market.
    1.2 This initiative, now known as the Mandatory Renewable Energy Target (MRET), is one of a number of Australian Government greenhouse gas abatement measures and has a strong focus on renewable energy generation and industry development. This focus recognises that emissions from fossil fuels used in electricity generation comprise around one third of Australia’s total greenhouse emissions, and that increases in market penetration of renewable energy can help displace fossil fuel emissions and improve Australia’s greenhouse and renewable energy industry performance.

    (retrieved via http://pandora.nla.gov.au/pan/121641/20101007-1302/www.mretreview.gov.au/report/index.html)

    I think that makes it clear that a core initial policy objective of the RET and its successors was reduction in GHG emissions from the electricity sector.

    • Thanks Allan

      Thanks, especially, for pointing out 1 of the mistakes I made in the post (it’s almost certain there is more than just that one, so will look forward to other comments helping me see other slip-ups).

      Curiously the one you note illustrates the error in just relying on my memory. Obviously my memory is not what (I remember that) it once was!

      Paul

  3. On “the age of entitlement is over” I dont agree that the RET can be classified as an entitlement. When the MRET was introduced, and through subsequent amendments, successive governments invited companies to invest in renewable energy infrastructure. Whatever the objectives behind the scheme, it was an invitation to commercial entities to invest and help achieve a national goal. It should not be confused with the car industry for example, which effectively would give an annual ultimatum to governments – “would you like to subsidise us or should we go?”

    • Thanks Lane

      “Entitlement” is such a loaded & divisive word – bit like an obsessive focus on “Rights”. Certainly achieves an effect for Treasurer Hockey in its use, but what are the long term consequences?

      Regarding the RET, it seems that there’s at least 2 categories:
      1) Capacity already on the ground and that has been put there on an expectation the RET would continue into the future; and
      2) People who’ve invested in projects not yet on the ground (shovel ready, or still on the drawing board).
      If the RET is changed (which seems likely) what are the implications for (and compensation options for?) each.

      Just one more example of the policy mess the NEM seems to be increasingly burdened with …

      {but it’s not specific to energy – being a software company we’re also reading commentary about changes in the Budget about changes to funding/grant arrangements there, and the effect that this will have on sunk investment}

      Paul

  4. As a quick PS to my article above, this description of the RET on the Government’s website is doing the rounds on Twitter and would have been useful for me in helping me avoid the mistake I Allan pointed out above.

    Perhaps also useful for you?

  5. The “Notes of LETAG meeting” which were leaked and posted on the Australia Institute website in 2004 clarified some of the thinking around the RET. It was ostensibly intended as a response to Kyoto, but was supposed to provide a kick start for innovation and Australian industry – it was never intended as a subsidy for imported wind power. The difficulty is that, once enacted, it created a whole industry of corporations, consultants and lobby groups who relied on the RET since the self-supporting industry development simply didn’t occur. As I recall, in 1997 Robert Hill took a proposal for a $10 carbon tax to cabinet but was rejected. Somewhat ironically, this would have been a far more economically efficient policy and the NEM would have determined the most efficient level of wind and solar, whatever that would have been.

    http://www.tai.org.au/node/1192

  6. Paul –

    To add to your list of recent RET modelling I would add RepuTex’s analysis from April 2014 that looked at the implications of a downgraded LRET on the shape of the electricity mix in the NEM.

    RepuTex used a bottom-up least cost dispatch model that mimics the bid and dispatch process of the NEM with a resolution of 200 periods per year. Important assumptions included in this modelling exercise were the continuation of a fixed penalty price for the RET, the ending of carbon pricing from July 2014, and inclusion of existing and committed new entrants. Scenarios considered included the existing RET, an updated 20% RET, and no RET from 2015.

    One of the main findings was that once the CPM is assumed to be repealed, changing the LRET has much less impact on the resulting renewable capacity that is built. This suggests the combination of carbon pricing (even at EUA equivalent levels) and the LRET are important polices that work together to transition the NEM to a cleaner energy mix.

    As for longer term implications, this study also found that new capacity will continue to favor renewables over coal and gas on a financial basis. This suggests that if NEM baseload demand continues to grow to exceed the capacity of the existing mothballed coal plants, developers will choose large-scale renewables as the most cost-effective capacity to build in the future.

    Public summary slides of the report can be accessed at – http://www.reputex.com/publications/market-update-renewable-generation-powering-down/

  7. Thanks Paul – your questions provide a salient reminder of the context behind how we got to the current situation on RET in the first place.
    If there is mainstream political intent to retain RET as it was intended to work after the expansion in 2008/9, it does seem that a floating target, based on a % of actual load, is going to be a necessary, regardless of the level or the profile to get there. The uncertainties on load forecasts, through PV take up, home efficiency gains, customer price responses, gas pricing, etc, are much greater than they were back then. The idea of predicting those outcomes this time around with a fixed volume target that gets a ‘good’ outcome seem highly optimistic. A ‘good’ outcome means avoiding unintended costs of things like 1. over build of new renewables that don’t assist the demand supply balance and create unintended value transfers eg. between solar PV owners and others, or 2. under building renewables through too low a target that leads to more high emission plant being built and creates emissions levels above the Government’s (or the community’s) policy objectives.

    It will be interesting to watch it play out………

  8. A very good initiative has been taken to save our electricity bills. Usage of solar power also helps in keeping the environment clean.

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