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Gold plated death spiral ahead for fossil utilities

The Palmer United Party’s announcement that it will use its senate numbers to protect the Renewable Energy Target (RET) and Clean Energy Finance Corporation (CEFC), was a breath of fresh air last week, but protection or not, it is increasingly clear that renewables are unstoppable and the fossil industry is having its Kodak moment.

Consumers are projected to spend at least $30 billion on solar panels by 2040. If the RET is retained the public will enjoy lower power prices by 2020, but if removed even more solar is expected to be installed to combat higher prices. No matter what happens, renewables will take an increasing share of the electricity market, and utilities – ageing, inefficient, and totally unprepared for a clean energy transition – are worried, and fighting back.

Which would be curious, if we hadn’t already seem the same game played out so many times in the past. One only has to look at the music and newspaper industries to see how badly it can go for those that refuse to adapt when a great disruptor comes along – or act far too late. Utilities are looking at short term measures to protect their business models by attacking renewables, but this is likely to hasten their “death spiral” by further encouraging consumers to ditch grid connections, leaving them a shrinking pool of customers to recoup shortsighted overinvestment in the grid.

Our new Prime Minister Tony Abbott doesn’t get it, claiming that:

“The RET is very significantly driving up power prices. We should be the affordable energy capital of the world, not the unaffordable energy capital of the world and that’s why the carbon tax must go and that’s why we’re reviewing the RET.” Prime Minister Tony Abbott.

PM Abbott was immediately rebuked of course:

“This is absolutely not true and modelling commissioned by your own government shows this to be the case. The public deserves to be told the concise truth on this issue and most certainly should reasonably expect you to represent facts. On behalf of the tens of thousands of solar workers and almost 5 Million Australians who support solar power and the RET, I insist on an unreserved public apology and correction.” Solar Business Services’ Nigel Morris in an open letter response to Prime Minister Abbott’s comments on the RET.

The RET does impose costs on consumers, that is without doubt. However, its minor impost on electricity bills (a few percent) is more than made up for via the lower cost of energy it has delivered by bringing greater competition to the market. The only way Abbott can argue that the RET is causing “significant price rises” is admitting that network operators have been given what are now clearly illogical incentives to gold-plate the electricity grid, and now that demand has been destroyed by renewable growth they have to make the money back somehow, which means passing poor investment decisions on to customers.

Blaming the RET for indirect price increases in bills – which is what Abbott is doing – is like blaming China for producing too many cheap solar panels, encouraging consumers to start generating their own power. Charging more to recover overinvestment costs will just lead to more people moving to renewables, and so on down the death spiral.

Prime Minister Tony Abbott’s scare-mongering on the RET is not only disconnected from reality given his Government’s own modelling shows power prices will fall if the RET is retained, but has also arguably helped the utility death spiral along by destroying demand.

The price of power from the ABC is an excellent, in-depth piece of background work on just how dire it is looking for fossil utilities, the support they get from government, and just how far they might go to protect their closed market from the looming small scale distributed renewable future.

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