Federal Labor’s pledge of a 50 per cent Renewable Energy Target will be a tax on electricity and is the last thing that Australia needs.
Whether a renewable energy policy is called a carbon tax, an emissions trading scheme or an increased renewable energy target, the end result is an increase in electricity prices and decrease in reliability.
It is also further proof that once you introduce a government program, you can never get rid of it.
The innocuously sounding Renewable Energy Target (RET) actually works as a federally mandated tax on power companies, forcing them to buy more expensive renewable energy. These extra costs in turn are passed on to consumers through their electricity bills.
Currently, electricity generation prices are flat due to excess capacity in the market. But every low-cost coal-fired power station that permanently closes due to so-called environmental policies, increases the proportion of high-cost wind and solar farms. This will ultimately affect system reliability and increase the wholesale electricity price.
Already in Australia, Alinta Energy announced the permanent closure of two coal-fired South Australian power stations in June and Alcoa announced the closure of Anglesea coal-fired power station (formerly used to power its local aluminum smelter) after it was unable to find a buyer.
Environmental policies have also mandated the closure of two gigawatts of capacity in the British electricity grid in the last year alone, while in the USA, it has been estimated that new Environmental Protection Agency guidelines will lead to the closure of more than 72 gigawatts of capacity in coming years.
It is no co-incidence that Denmark and Germany, which have some of the world’s highest renewable energy ratios in the world, also have some of the highest electricity prices as consumers pay for wind and solar plants, as well as the nuclear, coal, gas and imported electricity needed to back them up when the weather is mild.
If renewable energy is as cheap and inevitable as its backers like to claim, then the Australian Parliament wouldn’t need to pass a law compelling energy retailers to buy it.
Labor’s pledge is also at odds with recent developments in the United Kingdom where the recently re-elected Conservative Government announced an end to onshore wind farm subsidies in June and just this week that it was consulting on the phase-out of subsidies for small-scale solar.
These developments in the UK, as well as part-recognition in Germany of the cost of renewables, suggests that – at long last – the tide may be starting to turn.
Australia has some of the world’s highest land, transport and wages costs, a small internal market and is a long way away from many of our major trading partners. Access to cheap energy is one of Australia’s few areas of international competitive advantage. Every energy tax, surcharge or additional regulatory impost chips away at Australian competitiveness.
Price and reliability are the things currently blocking more investment in renewable energy – not a lack of regulation and taxes.