By Giles Parkinson on 10 September 2012 .
Extract from: http://reneweconomy.com.au/2012/why-truenergy-hit-the-panic-button-over-renewables-38441
TRUenergy’s release of a report attacking the costs of the renewable energy target on Friday highlight the fears it has over the impact of wind and solar on its coal and gas-fired generators.
But the renewable energy industry has been quick to point out some giant holes in its argument.
The first is over the cost to the scheme.
TRUenergy suggested that building enough wind and solar and other renewables capacity to meet the 41,000 gigawatt hour (GWh) target would cost $53 billion out to 2030.
Reducing the target to reflect “real demand” might mean only 27,000GWh is required, reducing the cost by $25 billion – a figure designed to attract headline and talk back radio time.
The renewables industry point to numerous flaws in the pricing calculations over demand, the use of inflation indexed costs out to 2030 brought back to sound scary in 2012 dollars, and the assumed cost of the certificates.
The question on demand is a technical one, and apparently is distorted because excludes rooftop solar and older wind farms, which are defined as “negative demand” by AEMO. But the point is that the market operator has been unable to make an accurate forecast of demand one year out, let alone eight, which is why the industry, including TRUenergy and Origin Energy, favoured a fixed target when the target was legislated.
For full details refer: http://reneweconomy.com.au/2012/why-truenergy-hit-the-panic-button-over-renewables-38441
Finally, there is a telling point, as we pointed on Friday, that TRUenergy is worried that renewables will push down wholesale electricity prices to the point where the business case for the current fossil fuel generators is compromised.
This is the merit order effect at work. In South Australia, and in Ireland, and to a lesser extent in other countries such as Germany, the reduction achieved in wholesale prices more than offsets the cost of the renewables energy target. Some estimates suggest that if South Australia’s wind-inspired merit order effect was repeated in Victoria, TRUenergy would lose about $200 million per year in revenue.
TRUenergy, on the other hand, admits that diluting the LRET will push up wholesale prices – enough, it suggests, to encourage the construction of new fossil fuel generation.
As the Germans are finding, the merit order effect is not an excuse to reduce the target. But it is a reason for having a sensible discussion about the structure of the electricity market.
And the question the government, or more particularly the Climate Change Authority, should ask itself is: These companies could have worked to reduce their carbon risk and diversified their generation portfolio year ago – why should they be rewarded for mismanagement?