Who really benefits from reducing the Renewable Energy Target?

18 Aug 2014

This report argues that when it comes to reducing the Renewable Energy Target, the winners will be the big power companies while the losers would be households.

Executive summary

The Renewable Energy Target (RET) is a policy designed—with bipartisan backing—to reduce carbon pollution from the electricty sector and build Australia’s renewable energy industry. Both these objectives are vital to achieving decarbonisation in line with Australia’s national interest in avoiding dangerous climate change, and positioning the economy to remain competitive in a world moving to clean energy sources.

Some power companies and industry associations are now calling for renewable energy investment to be cut back by reducing the RET. Others have called for the RET to be abolished completely.

These claims are false and a distraction from who really benefits from reducing the amount of clean renewable energy produced in Australia. Based on independent modelling by Jacobs (see accompanying technical report) we find that reduction of the large-scale renewable energy target as proposed by some power companies has the following impacts (all $2012)3:

• $8 billion additional profit to coal and $2 billion to gas generators (net present value of future profits 2015- 2030). This is driven primarily by a 7 per cent increase in coal-fired power production and higher wholesale electricity prices. Under current ownership arrangements, EnergyAustralia is the company that stands to gain the most. EnergyAustralia’s potential extra profit is worth about $1.9 billion if the RET is reduced (and $2.2 billion if it is abolished). However, if AGL purchases Macquarie Generation, it would become by far the biggest beneficiary of reducing the RET. The combined additional profits of AGL and Macquarie Generation would be worth $2.7 billion if the RET is reduced. Origin Energy’s total extra profit would be about $1.5 billion. Origin owns the power station that would emit the largest amount of additional pollution under a reduced RET.

• No decline in electricity prices: in fact, they could increase slightly (wholesale prices increase by 15 per cent and retail prices by 2.5 per cent on average in the period to 2030). This is consistent with modelling commissioned by the Government and studies conducted independently by leading economic analysts.

• 150 million tonnes of additional carbon pollution by 2030, and 240 million tonnes by 2040. Higher levels of pollution lead to socialised costs we estimate conservatively to be $14 billion.

• $8 billion lost investment in new renewable energy capacity. New South Wales would be the biggest loser with over $2 billion in foregone investment. South Australia would lose over $2 billion and Queensland over $1 billion.

• $680 million of extra federal spending needed to reach Australia’s minimum emission reduction target by 2020.

As this modelling demonstrates, reducing the RET is a step back from cleaner electricity generation that rewards owners of polluting coal stations at the expense of the wider community. Reducing the RET would improve the profits of power companies but escalate costs for the public through increased carbon pollution and the loss of billions of dollars of investment in the short term, without reducing electricity prices. Cutting the target would destabilise the policy environment for investors, which would raise the costs of power sector investment in the future. Outright abolition of the RET would further increase pollution and undermine clean energy investment.

Instead of reducing or abolishing the RET, the government should build on the policy’s success in mobilising the development of clean energy. Australia’s electricity sector needs to play its full role in achieving our long–term national interest in avoiding dangerous climate change and enhancing prosperity in a world of increasingly stringent carbon constraints.

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