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Hard on the heels of a doubling of electricity prices, the head of Australia’s largest listed energy utility, Origin Energy, has warned of a heavy new round of capital spending that might place further pressure on power prices.
After the steep rise in power prices over the past five years due to heavy network investment, Origin managing director Grant King said a new round of spending would be necessary to achieve the federal government’s renewable energy target (RET).
This will come as the government is seeking to rein in power prices, hoping that electricity will decline under a ”CPI minus X” pricing regime.
But according to Origin’s estimates, about 2200 megawatts of additional wind generation capacity will be needed annually between 2017 and 2020, ”which will require an enormous increase in activity to 2020” in terms of new investment, Mr King said.
Even though wind power is inexpensive to build, it is difficult to obtain the permits and approvals, and it also needs gas-fired power stations to generate electricity when the wind is not blowing.
This would drive a significant new round of capital spending that would put pressure on power prices at a time when renewable energy was already a big burden on households and smaller companies, he said.
The Climate Change Authority has recommended leaving unchanged the existing target of 45 terawatt hours of electricity sourced from renewable energy by 2020. But declining electricity output will push the proportion sourced from renewables to 27 per cent of the total by then, more than the 20 per cent initially planned.
”We don’t yet know what the RET scheme is costing us and we should have known more about that as a result of the [authority’s] review, but we don’t,” Mr King said.
”At the moment, these are marginal fuels, free-riding on the system. Once that free ride is over, they will have to pay their way, and that will result in increased costs.”
It was likely the proportion of environmental programs such as the carbon tax would exceed that of the wholesale cost of generation for many small and medium businesses unable to access compensation under present arrangements, Mr King said.
Programs to spur the take-up of solar photovoltaics had cost about $4 billion, or as much as $600 a tonne of carbon abated, he said.
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