Taxpayer subsidies to meet state and federal renewable energy targets have reached $3 billion a year and include spiralling hidden subsidies paid for by business and household electricity customers which go unreported in government balance sheets.
The true cost of subsidising renewable energy generation is estimated to have almost doubled since 2011 and is forecast to continue rising as Labor states set even more ambitious targets.
The first study to investigate the complex range of renewable energy subsidies across the country has found that at least $2.95bn was spent by the state, territory and federal governments last financial year, primarily on wind farms and the cost hangover of excessive and now largely obsolete solar roof top schemes.
At least 75 per cent of all subsidies was being collected from electricity consumers in the form of higher prices passed on by energy retailers due to the requirement on generators to source a mandated percentage of wholesale power from renewables. This, the report said, meant much of the subsidies remained hidden as they did not appear in government budgets or accounts, with the remainder being borne directly by the taxpayer.
With parliament due to return tomorrow for the first sitting week of the year, the findings of the report are likely to sharpen the Turnbull government’s attacks on Labor leader Bill Shorten’s policy of a 50 per cent renewable energy target, with the report warning that such targets would require ever increasing subsidies.
The report from BAEconomics was commissioned by the Minerals Council of Australia and conducted by Brian Fisher, a former executive director of the Australian Bureau of Agriculture and Resource Economics under the Hawke, Keating and Howard governments and adviser to the UN’s Intergovernmental Panel on Climate Change. The report warns that state government feed-in tariff schemes to subsidise roof top solar are still costing other electricity consumers up to $1bn a year and would continue for years to come despite most being closed to new entrants due to their spiralling costs.
While the report confirms that the Coalition’s own policy of a 23.5 per cent target by 2020 will also push up the price of subsidies, and therefore power prices, it will strengthen the government’s case to fund the construction of clean coal-fired generation – estimated to be about the same cost as the $3bn paid annually to prop up renewable generation – through mechanisms such as the Clean Energy Finance Corporation or public-private partnerships.
The report said that with the spot price for large-scale generation certificates likely to remain high, it was inevitable that electricity prices would have to rise significantly to meet the higher targets being pursued by mainly Labor state governments.
“The renewable energy target, with its large-scale and small-scale components, is by far the costliest subsidy scheme,” the report says. “In aggregate, Australian electricity customers paid more than $2.1bn to subsidise large-scale power station developers and small customers with rooftop solar installations. Looking forward, and given that the RET will progressively increase until 2020 and given high prices of renewable generation credits, these subsidies are likely to increase.”
Commonwealth subsidies for large-scale renewable generators, predominantly wind farms, amounted to $1.42bn during the 2015-16 financial year.
Federal grants and subsidies for rooftop solar panels totalled $726 million while the state government feed-in tariff schemes for rooftop solar cost $707m for the same period. These subsidies had direct benefits for consumers who took up the schemes before they were closed but the burden would continue, the report claimed, for the majority of electricity consumers though the higher prices for the indirect subsidies.
Direct funding for renewable energy projects through programs such as ARENA also totalled almost $100m. The total figure did not include that spent by the Clean Energy Finance Corporation.
Energy Minister Josh Frydenberg yesterday said the Coalition had been upfront about the cost to its 23.5 per cent target, which would add $60 a year to the average household bill, but the opposition had so far refused to reveal the cost of its aspirational target.
“The battlelines have been drawn. Labor with its 50 per cent RET, forced closure of coal plants, 45 per cent emissions reduction target and an emissions intensity scheme will smash household budgets, send investment offshore, destroy jobs and undermine energy security. All in the name of ideology,” Mr Frydenberg told The Australian.
“In contrast, the Coalition has a technology-neutral approach where lower emissions coal and gas together new developments in storage will play a big role for years to come.”
Opposition environment spokesman Mark Butler denied Mr Frydenberg’s claims that Labor was now seeking to backtrack on its 50 per cent target, claiming it would remain opposition policy.
“If we were elected last year we would have put in place a process with business and with the electricity industry about the best possible design of a mechanism to get to 50 per cent,” he said. “I’ve got an open mind about that, the Energy Market Commission and the Climate Change Authority tell us the best way to do that is through an emissions intensity scheme which is also part of Labor’s policy. Other groups have different views about the best policy mechanism.”
The report blames the legacy feed-in tariff schemes introduced by state governments to subsidise household rooftop solar for a large part of the burden.
“(Feed-in tariff) schemes introduced by state and territory governments some years ago also represent a major cost to jurisdictional electricity customers who paid more than $700m in subsidies to the (then) participants of these schemes,” it says. “A number of these schemes will continue to subsidise participating customers for many years to come. The amount of these subsidies is not transparent. Almost three quarters of aggregate subsidies originate from government mandates that are paid for by electricity customers and collected by third parties. The key implication of how the LRET and the SRES are designed is that while the subsidies paid through these schemes originate from a government mandate, they are generally collected from electricity consumers by third parties (electricity retailers).
“These subsidies therefore do not appear in government accounts and their magnitude is not transparent.”
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