Australia’s disruptive energy revolution defined

I spend a lot of time trying to succinctly describe what is going on with energy, to people in all walks of life.

The reality is, the issues are complex and people on both sides of the argument tend to simplify the issues down into bite sized chunks so we can get our heads around it. This week however, I read an article written by RenewEconomy’s Giles Parkinson which to me, was the single most concise and profound article I’ve read in a long time which summarizes just whats going on. (You rock, Giles, well done)

It highlights several crucial issues which are really at the core of the RET debate.

Firstly, is shows that the bulk of overcapacity in the market has not come from renewables and hence, blaming renewables for the current oversupply is a crock.

Secondly, it demonstrates with great data and references from the utilities that their assets are alreadygetting stranded. The energy revolution is in full swing and by calling for the winding down of the RET they are effectively asking for market intervention – whilst using that same argument against the RET.

Next time you are meeting with a politician, or talking to a friend or neighbour about whats going on and having trouble simplifying the story, point them to this one and Giles Parkinson’s profound prose.

With Giles’ permission I have republished his story below in case you didn’t see it.

One of the main arguments proffered by the owners of Australia’s fossil fuel generation fleet against the renewable energy target has been the massive over-capacity on the country’s main National Electricity Market.

Last year, AGL Energy estimated this overcapacity to be around 9,000MW. The arguments put forward in the submissions to the RET Review have said putting more renewables into the market is counter-productive. Not only will it reduce wholesale electricity prices – and therefore revenues for the coal and gas incumbents – but it is likely to force existing plant earlier than might have been planned.

But whose fault is this overcapacity? The implication for the submissions is that it is the fault of the RET.

But check out this graphic presented by EnergyAustralia retail chief Adrian Merrick at a recent energy conference hosted by UBS. It shows the how much capacity has been added in the last five years.

Wind energy accounts for a little more than a quarter, and there has been a small amount of hydro. Around 70 per cent of increased capacity has come from coal, combined cycle gas plants and peaking gas plants.


Why did they do that? Pretty much for the same reason that the networks asked permission – and were granted – to build $45 billion of new and upgraded poles and wires: they assumed that demand would continue to rise, as it had done for the previous century.

But they ignored the warning signs on energy efficiency and the imminent rise of solar PV.

As the red line shows, demand peaked five years ago and has been falling dramatically ever since.
The generators made the wrong call, and now they want the rollout of renewables stopped – or at least slowed down dramatically – to protect those investments.
This is the point that must be made clear. It is the only reason that generators have for wanting the RET stopped or diluted.

EnergyAustralia, for instance, built some of that capacity. It has already taken a $94 million write down on thevalue of its Tallawarra baseload gas plant in NSW, built in 2009. Other gas and brown coal generatorshave also been written down. Origin Energy has had to convert its newly built Darling Downs generator into a peaking plant, rather than a base load operator.This is the third major myth around the renewable energy target that has been blown in the past week.

Other reasons proffered by the government and its urges to repeal the RET have also been dismissed, even by the federal government’s own hand-picked consultant. These include the contention that the renewable energy target cannot be met, an argument proffered by the major generators who are trying not to sign contracts with wind and solar farms. ACIL Allen – along with global energy supply giants such as General Electric and Vestas – says it can.

The RET also lowers prices for consumers, even if Prime Minister Tony Abbott continues to insist otherwise. The ACIL Allen report admitted to that as well.

The original story “Who’s responsible for over-capacity? Not renewables” first appeared on RenewEconomy. Reprinted with permission.