Page 324 - Week 01 - Thursday, 17 February 2011
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I still hear as a criticism of feed-in tariffs that renewable energy is expensive. Some renewable energies are more expensive than others; that is undoubtedly true. Perhaps this is more a criticism of certain technologies than it is of feed-in tariffs. However, we must always step back and look at the big picture—we are relying on a dirty fossil fuel source that has never had the environmental cost factored into its consumption. A carbon tax will be the first attempt in this country to factor in the externalities of coal. I am not optimistic that it will be high enough to factor in all the costs or create a level playing field for the investment into renewable energy that we need to see.
I would like to talk a little more for a moment about the costs of electricity, because another criticism of the feed-in tariff is that people will be paid for the energy they generate at a rate that is much higher than the current price of electricity and for a period of 20 years. However, it is interesting to think about that scenario from some different perspectives. Firstly, the predictions are that the price of electricity will continue to rise, even over the next five years. The head of AGL made a presentation last year where he quoted figures indicating that Australian electricity prices may well double in the next five years, not primarily because of green energy policies, mind you, but because of significant rises in generation costs—essentially fuel costs—and distribution costs.
That is a doubling of electricity prices in the next five years. If you start to think about what that means, that begs some interesting questions and puts the current cost of renewable energy generation into perspective, particularly if you go through the next five years. The current price of electricity is somewhere between 12c and 16c a kilowatt hour, depending on what tariff you get and what size buyer you are. That is the retail price. If we take a doubling, we can use 30c in five years time as a round number. Just imagine that that is the scenario.
The current price we are paying for the feed-in tariff is 45c a kilowatt hour. Based on the changing prices and the strength of the Australian dollar, I can imagine that, if the minister uses the legislation for its intended purpose, that price might come down quite a bit in the next five years. If we take the wind back, it went from 50c to 45c. If you take 5c a year for the next three years, you are also back at 30c a kilowatt hour. Suddenly you are seeing price parity in, say, three to five years.
The feed-in tariff contract price is for the next 20 years. So that price is going to stay at 30c a kilowatt hour while the price of coal-generated electricity continues to rise. Suddenly, if you are able to look beyond the end of your nose and think a little bit about the long term, you start to envisage a scenario where people are going to be going: “Oh, my God! That feed-in tariff contract we signed is a bargain.” It is an interesting scenario. There is no formal modelling on this; it is starting to think about what future scenarios might be. It will be interesting to come back in 10 or 15 years and see where the debate is at.
The truth is we do not know what will happen and how the energy market landscape will look in five years. What we do know is that we have to stop using coal-fired power. The sooner we wean ourselves off it the better, and the faster we start the commercialisation of new technologies the better off we are going to be. We will
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