The Subsidies for Renewable Energy: Yet Another Scam, By James Reed

The Centre for Independent Studies has a major report on its website, which discusses the high cost of subsidies for Australia's so-called renewable energy resources, as they are. Renewable energy now comprises 39 percent of the National Electricity Market (NEM), a growth from merely less than 1 percent in the year 2000. This growth, the Green energy advocates say, is due to technological developments which have made renewables much more viable, hence attracting private sector investment. But that is not the entire story.

As we might expect, with an industry tied so closely to ideology, there are vast government subsidies supporting the renewables industry, without which, forced to deal with market forces, it would not survive. "The 2024-25 budget allocates more than $22 billion to boost renewables in Australia. This includes $13.7 billion in production tax incentives for green hydrogen and processed critical minerals as well as the $1.7 billion Future Made in Australia Innovation Fund aimed at developing new industries like green metals and low carbon fuels. Additionally, the Capacity Investment Scheme has been expanded to a target of 32 GW of new capacity nationally."

In the 10 years for the financial year of 2022-2023, the federal government threw subsidies to the renewables industry sector to the tune of over $ 29 billion.Such subsidies include direct government transfers funded by taxpayers, along with transfers from private corporations to renewable energy providers. And the costs were, and still are, passed on by the electricity retailers to the long-suffering public as increased electricity surcharges.

So much for green energy being "cheap."

https://www.cis.org.au/publication/counting-the-cost-subsidies-for-renewable-energy/

"In 2000, renewable energy supplied less than 1% of electricity in the National Electricity Market (NEM) that encompasses Australia's east coast and southern states. By 2023, renewables had grown to supply 39% of the NEM's electricity.^[1]

Advocates of renewable energy often attribute the growth in renewable energy to technological improvements and increased private sector investments. However, these claims are complicated by the substantial government subsidies supporting the renewables industry. Renewable energy proponents contend that initial government support would enable the renewables industry to achieve the technological improvements and economies of scale needed to become independently profitable. Yet, this profitability remains elusive, especially considering there is no foreseeable end to the subsidies for renewables.

Indeed, the current federal government has further increased subsidies in an effort to achieve its ambitious goal of having renewables supply 82% of national electricity by 2030. The 2024-25 budget allocates more than $22 billion to boost renewables in Australia. This includes $13.7 billion in production tax incentives for green hydrogen and processed critical minerals as well as the $1.7 billion Future Made in Australia Innovation Fund aimed at developing new industries like green metals and low carbon fuels. Additionally, the Capacity Investment Scheme has been expanded to a target of 32 GW of new capacity nationally.

This paper quantifies the value of subsidies from the federal government to the renewables industry over the 10 years to financial year 2022-23. It finds that over that time, Australian taxpayers and electricity customers have paid more than $29 billion in subsidies to producers of renewable electricity through federal government schemes. These subsidies include direct government transfers funded by taxpayers and transfers from private entities to renewable energy providers as mandated by government policies. The latter costs are typically recovered by electricity retailers and passed on to the Australian public in the form of increased electricity surcharges.

The analysis focuses on subsidies under federal government schemes to the renewable energy sector for several key reasons. Firstly, the rising cost of electricity is a pressing concern, making it crucial for taxpayers and consumers to understand the extent of subsidies for renewables that ultimately affect their electricity bills. Secondly, with a federal election on the horizon, this research aims to inform the ongoing debate surrounding energy policy by quantifying the scale and impact of federal subsidies to the renewable sector.

Furthermore, the resurgence of public interest in nuclear power — amid discussions by the Coalition to lift the ban on nuclear energy — warrants a comparison of its costs against the backdrop of the renewables industry; which benefits significantly from government subsidies. Measuring these subsidies provides a vital perspective on the allocation of public resources, prompting a critical examination of whether the substantial financial support for renewables could be more effectively directed elsewhere to improve our energy security and affordability as Australia continues down the path of decarbonisation.

The list of subsidies discussed in this paper is not exhaustive. It does not, for instance, consider the following subsidies which are collectively substantial:

• Energy infrastructure projects directly funded by federal and state governments, such as Snowy Hydro 2.0, which has an escalated total cost of $12 billion;[3]
• The Safeguard Mechanism requiring major carbon-emitting companies to reduce their emissions or purchase carbon credits, with one estimate putting the cost at $906 million per year. This mechanism is more focused on abating emissions rather than directly incentivising renewable energy generation;[4]
• State and territory solar feed-in tariff schemes which have provided households with hundreds of millions of dollars in incentives to install rooftop solar systems;[5] and
• Subsidies to fossil fuel generators to keep them operational in order to manage energy reliability risks resulting from the aggressive replacement of these stable generators with intermittent renewable energy sources, which do not produce sufficient electricity during solar and wind droughts. For instance, the NSW Government would have to pay Origin Energy an estimated $200 to $400 million a year to keep the Eraring Power Station open.[6]

The analysis also does not include the cost of administering the government schemes through various bureaucratic bodies. The research is confined to government subsidies that directly benefit the renewables industry and are amenable to policy changes at the federal level. Therefore, the findings presented here should be taken as a conservative estimate of the total amount of subsidies received by the renewables industry.

The subsidies provided under the Renewable Energy Target (RET) scheme are first assessed, then those in the form of federal government grants and concessional loans through the Clean Energy Finance Corporation (CEFC) and the Australian Renewable Energy Agency (ARENA). The paper concludes with a summary of the findings and their implications.

The Renewable Energy Target (RET) is a federal government initiative intended to reduce greenhouse gas emissions in the electricity sector and promote electricity generation from renewable sources. It mandates that a specific percentage of Australia's electricity be sourced from renewables, thereby spurring investment through financial incentives. These incentives are facilitated through the issuance and trading of certificates that represent renewable energy generation. Electricity retailers are legally required to purchase these certificates and surrender them to the Clean Energy Regulator (CER) to fulfil their obligations under the RET.

The RET in its current form consists of two components:

• The Large-scale Renewable Energy Target (LRET) requires electricity retailers to purchase Large-scale Generation Certificates (LGCs) annually from commercial renewable energy projects. Each LGC represents one megawatt hour (MWh) of eligible renewable electricity generation. The LRET's annual target has steadily grown over time, escalating to the subsidisation of 33,000 gigawatt hours (GWh) of renewable energy annually in 2021.^[7]
• The Small-scale Renewable Energy Scheme (SRES) requires electricity retailers to purchase Small-scale Technology Certificates (STCs) from households and small businesses that have installed renewable energy systems like rooftop solar panels or small-scale wind systems.^[8] In 2023, electricity retailers were required to surrender approximately 28.5 million STCs, representing 28,500 GWh of electricity, to meet their SRES obligations.^[9]

Together, the LRET and SRES incentivise the supply of electricity from both large renewable energy projects and smaller scale systems. The financial support granted to owners of these projects and systems is ultimately funded by electricity consumers through an additional charge on their electricity bills.

The exact annual subsidy costs of the LRET and SRES are not published by the CER. Therefore, this analysis estimates the value of subsidies based on average spot prices for LGCs and STCs each year, including weighted-average spot prices for STCs based on transaction volume data reported by the CER for some years. Although it is possible that some retailers locked in lower LGC prices through earlier power purchasing agreements with wind and solar farms and then passed these savings on to customers — thereby lowering the subsidy burden in some years —more precise estimates cannot be derived in the absence of detailed data. The value of subsidies has been calculated by multiplying the annual target of certificates retailers are required to surrender by the average price for the year.