Opposed to energy subsidies and “picking winners”? You can’t have it both ways.

One of the serial commentors on this site, who opposes the rollout of wind energy, wrote a little while back:

Yes lets subsidise new technologies, we need dispatchable electricity, i have no argument against this. But lets not give money to things that are not new and have been around for years without basically any improvment in performance (except getting bigger) This only breeds complacency and does not let new technologies get a foot in the door.

While this comment was directed against wind turbines, it’s interesting to compare it to the level of support for fossil fuels. ACF estimated the financial incentives to the fossil fuel industries at $12 billion in 2010-2011. Climate funding (including wind) was more like $1 billion.

Cobbora coalmine (source: ABC)

The NSW state government is retaining ownership of the Cobbora coal mine project near Dunedoo, and planning to supply coal much cheaper than the international trading price of thermal coal to generators. In an industry that is being privatised, that is the equivalent of having it both ways.

Victoria now has companies like Exergen planning to dry and export brown coal. If brown coal becomes a commodity traded on the international market (like black coal, petrol or LNG) this could cause the same kinds of economic distortions (or massive electricity price rises) in Victoria’s privatised electricity sector.

And when we consider that the political interests attacking renewables keep crying out that the industry would be non-competitive if it were not subsidised (like our commenter quoted above), it really is a case of wanting to have it both ways.

Giles Parkinson has written the following in an article at Climate Spectator entitled “NSW’s great big coal subsidy scandal”:

…the Coalition and other established business figures have also been railing against clean energy incentives – it’s like putting money on the horses, said Opposition finance minister Andrew Robb last week – and all the while extending support and protection for the status quo.

The Tamberlin inquiry into the NSW energy privatisation has revealed how far that thinking extended into the strategy behind the state’s half-baked, and half-completed electricity privatisation. In short, it found, the gentrader assets would not have attracted any buyers were it not for a massively subsidised and heavily discounted coal supply. It also found that NSW coal-fired power stations depend on  those subsidies to maintain their place in the merit order of the National Electricity Market.

We wrote about that subsidy when it first came to light late last year, when it was also lamented by the government’s then climate change advisor Ross Garnaut, who said it acted against the carbon price. And the Tamberlin report released on Monday reveals that it is even worse than we first thought, and amounts to an effective subsidy of $4 billion to the gentraders that were sold by the government for just $1.5 billion. As the inquiry notes, with a degree of understatement, it’s not entirely clear that the cost of the subsidy exceeds the benefit.

( . . .)

One of the big issues around the gentrader sale was where they would source their future coal supplies. Contracts, mostly from Centennial Coal, were due to run out in coming years, and there was no way the would-be gentrader owners wanted to be exposed to buying coal at the current export price of thermal coal, which is around $100-$120/t. Or anywhere close to that.

So the government set up a tender for the Cobbora coal mine, a massive resource that could produce up to 30 million tonnes a year and may well supply all of the state’s coal-fired power stations by 2020. Whitehaven Coal was the preferred tenderer, but even its offer of supplying coal at $55/t was deemed by Frontier Economics, an advisor to the NSW government, as “exorbitant”. Frontier said, at this price, there would be no interest from the private sector in the gentrader contracts.

So the government decided to commit to spending $1.5 billion to develop the Cobbora mine itself (reversing a near 20 year-old policy), and supply coal to the generators at a vastly lower price. The Tamberlin inquiry blacks it out, but the NSW auditor-general’s report referenced there tells us it is at just $31.16 a tonne. Even at the state’s estimated borrowing rate of 6 per cent (compared to the private sector’s 15 per cent), it is not even enough to cover the cost of production, meaning that the state has got Buckley’s chance of being able to sell it, despite Tamberlin’s recommendation that it attempts to do so.

Read the full article here.

4 thoughts on “Opposed to energy subsidies and “picking winners”? You can’t have it both ways.

  1. We can always go off grid with electric cars (2200AH – enough for 3 days). Bang on some more solar panels, grab a free standing battery pack if you can and cut the umbilical cord.

    Then they can sell their coal power to Ted to heat his Brighton mansion. Insulate your home, cover the north walls with shade, double glaze or get heavy curtains, get in your roof and staple silver sarking to the risers, get solar hot water with heat pump boost (Bosh?), induction cooktops use the least energy, get heat pump reversible cooling should you need it and save money.

    Our conservative governments and mainstream media have lost the plot.

  2. “Then they can sell their coal power to Ted to heat his Brighton mansion.”

    Just like heating Al Gore’s mansions, huh?

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