The market is not abandoning coal, the government is forcing the market to abandon coal

Transcript

Senator Roberts: I want to get help with an issue that constituents want to understand and so do I; I don’t understand it. It has relevance to the primacy of energy costs in the budget. I’m hoping to get into a relatively complex area and get your evidence or confirmation on how the renewable energy shortfall charge, under the Renewable Energy (Electricity) Act, works. Perhaps you could bring anyone to the table who has expertise in that.

Mr Parker: Sure. Mark Williamson has the expertise.

Senator Roberts: Thank you, Mr Williamson. I will try to step my way through the legislation here, and you can pick me up where I’m wrong or missing something. The renewable energy shortfall charge applies to liable entities?

Mr M Williamson: Correct.

Senator Roberts: Which is defined in sections 35, 31, 32 and 33, and essentially talks about entities that make a wholesale acquisition of electricity.

Mr M Williamson: Yes. For simplicity, these are typically electricity retailers.

Senator Roberts: Retailers.

Mr M Williamson: Yes.

Senator Roberts: Wholesalers?

Mr M Williamson: The electricity retailers are typically the liable parties.

Senator Roberts: Okay; they are the liable parties because they sell it to the end user.

Mr M Williamson: Correct.

Senator Roberts: Okay. Thank you. That’s great.

Mr Parker: Or large users, people directly purchasing electricity.

Senator Roberts: So large users who buy direct can also be facing these charges.

Mr Parker: Correct.

Mr M Williamson: Correct.

Senator Roberts: Can I get you to explain who the liable entities for the renewable energy shortfall charge are in simple terms—again, retail or large users?

Mr M Williamson: I need to frame and explain the renewable energy target for you. It sets an obligation on these retailers or large users who are buying direct to surrender to us each year a certain number of large-scale generation certificates and small-scale technology certificates. Those amounts are based on percentages set each year in regulation by the minister. Effectively, if you’re an electricity retailer, you take your acquisition of electricity in megawatt hours, you multiply it by those percentages and that tells you the number of certificates that you need to surrender to us. If a liable entity does not surrender the certificates or surrenders fewer than they should, that makes them liable for the shortfall charge.

Senator Roberts: So it’s not power generators and not wholesalers; it’s just retail and large consumers, as Mr Parker said.

Mr M Williamson: Correct; and they’re only liable for the shortfall charge if they do not surrender enough certificates to us to meet their renewable energy target liability.

Senator Roberts: Can you talk me through the large-scale generation certificates that you just mentioned.  What are they and what is the effect of surrendering them for that company?

Mr M Williamson: Large-scale generation certificates are issued for each accredited power station that’s from a renewable energy source.

Senator Roberts: Solar or wind, for example?

Mr M Williamson: Correct. Hydro, as well, is quite common. They get a certificate for every net megawatt hour of generation. Those certificates can be used on the demand side to equip liability, so they can be sold to electricity retailers or big users, or they can be voluntarily cancelled to prove the use of renewable energy. For example, you may have heard of the GreenPower scheme. That operates in a way that businesses who want to have more renewable energy use proven, other than just the statutory renewable energy target, can buy and cancel large-scale generation certificates.

Senator Roberts: So a coal-fired power station would not get them?

Mr M Williamson: That’s correct.

Senator Roberts: Definitely not. Solar and wind would. And purchasers must buy at least 18.64 per cent right now of solar or wind power or hydro.

Mr M Williamson: Effectively, that’s the case. I think that percentage you’ve mentioned is the renewable power percentage and so, yes, those electricity retailers or big users multiply their electricity acquisitions by that percentage. That tells them the number of certificates that they have to cancel to us.

Senator Roberts: I’ve got some figures in front me about the renewable power percentage. I’ll just go through them. In 2001, it started—so that’s 22 years ago—and it was just 0.24 per cent, about a quarter of one per cent. Then it went up in the following year. You mentioned that this is a ministerial directive.

Mr M Williamson: The minister sets these percentages, based on calculations that we do each year, but the actual targets are set in the Renewable Energy (Electricity) Act. A certain number of gigawatt hours of generation each year was set in the act. That got to the target, which is 33,000 gigawatt hours, which is set in the legislation from 2020, and that same number continues to 2030. That 33,000 gigawatt-hour target was reset in mid-2015 by parliament. In the early stages of the scheme, there was a table in the act that set the numbers that dictated where that percentage would be set.

Senator Roberts: Is that table in section 39(1) of the act?

Mr M Williamson: I’d have to ask the general counsel to try to find the right part of the legislation.

Senator Roberts: While we’re waiting for confirmation, in 2001 it was 0.24. In 2002, the following year, it was 0.62, and it had slow increments, mild increments, until 2010. It took 10 years to get to 5.986 per cent. Then, from 2011 onwards, it rose, in 11 years, to 18.64. So it was 5.6 per cent in the first 10 years and there was a 13 per cent increase in the next 11 years.

Mr M Williamson: These were legislated increases. That was the way that the scheme was designed.

Senator Roberts: I want to understand this. First of all, I’ve focused mainly on the climate, because I haven’t found anyone who can give me the science that proves the need for this. But I haven’t focused on the energy, and that’s where I want to go in the future. That means resolving some of the complexities. I want to no-understand this because we always hear that it’s the market that’s forcing coal-fired generators out and that one likes coal. Yet it appears to me, with this renewable energy shortfall charge—a fine, if you like—that it’s actually the government forcing the retail sellers and the end users to buy wind and solar energy or, essentially, they’ll be faced with this fine. Is that correct?

Mr M Williamson: The construct of the scheme is that the retailers should buy the certificates. The shortfall charge is only where they do not choose to or are unable to get the certificates that they need. So it’s the default mechanism. But the way the scheme works is that the retailers should get in and be buying renewable energy. That should bring through more renewable energy, and that’s the way the scheme works.

Senator Roberts: It appears deceptive from one perspective. I’m not accusing you of doing that, but it appears deceptive from one perspective, hidden in the complex legalese. Have you ever advertised to the public that the government, through you, is forcing retail purchasers and large-end users to purchase more and more wind and solar?

Mr M Williamson: We don’t do specific broad community education, but all of this is regularly published; it’s published by other bodies, such as the Australian Energy Regulator and the Australian Energy Market Commission. It is generally well known that there’s an obligation on the electricity retailers. As I said, a lot of electricity users are choosing to buy GreenPower and to go further than the minimum statutory target.

Senator Roberts: What we have is a consumer faced with a choice of buying electricity. If they don’t buy an adequate amount or proportion of solar and wind, they will have to pay a charge in addition to the subsidies that the solar and wind producers are getting.

Mr M Williamson: No. The obligation is set with electricity retailers. There are a lot of electricity retailers. In a competitive market, they should source the certificates at the best price they can and have the lowest level of input cost for the renewable energy target.

Senator Roberts: My point, Mr Williamson and Mr Parker—you can correct me or confirm—is that, in my opinion, now that I’ve had it clarified, this is the most significant intervention in the electricity market that the government has ever conducted, and not just this government but previous governments as well. By ministerial directive via legislation, they’re ratcheting up the percentage of renewable electricity that every electricity buyer has to buy, or face a fine over the course of 20 years.

Mr M Williamson: Let me clarify, again, that the underlying numbers that lead to those percentages are locked in the act, so parliament took a decision to lock those numbers in. We do complex calculations to convert that to a percentage and they are put to the minister. The act sets out the things that the minister must consider. This is all set in legislation that was passed in parliament.

Senator Roberts: Thank you for affirming that yet again. My mistake: I thought I said ‘in the act’, but maybe I didn’t. Doesn’t this confirm that solar and wind are much more expensive? We’ve all been hearing the fluff that says people are going away from coal because it’s more expensive. Solar and wind get subsidies; plus, if somebody buys coal-fired power, the retailers or large-end users can be up for a charge. Doesn’t this really confirm that, without subsidies and without a throttle on the coal-fired competition, wind and solar are too expensive?

Mr M Williamson: Not in my view; I wouldn’t agree with that at all.

Senator Roberts: On what basis?

Mr M Williamson: There are incentives in the form of those large-scale generation certificates that go to the generators.

Senator Roberts: The solar and wind generators?

Mr M Williamson: Correct. Effectively, who benefits often depends on the nature of power purchase agreements between those solar and wind power station operators and the retailers. But, in essence, the numbers—if you look at the Australian Energy Market Operator’s Quarterly Energy Dynamics report, every time that wind and solar are setting the price in the wholesale electricity market, the prices are very low and, in some cases, in negative territory. It’s quite clear that, in fact, wind and solar are driving down wholesale electricity prices, which are also an input to retailers and to all of us as consumers.

Senator Roberts: I would say that’s an aberration. What’s happening is that coal is actually being forced out by the governments—I say ‘governments’ plural—and it’s a direct market intervention in addition to the subsidies. The subsidies enhance solar and wind; the charge slams coal.

Senator McAllister: Senator Roberts, in your questions just now and, indeed, yesterday, you mentioned subsidies. Are there any particular subsidies that you’re interested in? I think it’s been challenging sometimes for witnesses to engage with your questioning, because you don’t name them and I’m just unclear what it is that you’re referring to.

Senator Roberts: Subsidies on solar and wind.

Senator McAllister: Issued by whom?

Senator Roberts: Federal government, state governments.

Senator McAllister: Is there a program in particular that you’re seeking information on?

Senator Roberts: No, I don’t have any one in mind in particular.

Senator McAllister: I see. Please go on.

Chair: Senator Roberts, I’m going to wind you up as well. We can come back to you, if you need.

Senator Roberts: I’d just make the point that the market is not abandoning coal; the government is forcing buyers to not buy coal. That’s the point.

Chair: Thank you for your statement.

Senator Roberts: Thank you very much, Mr Williamson, for clarifying.