It may just be that Greg Hunt knows he’s never actually going to have to justify his policy ideas to Treasury or the Productivity Commission. But, at the moment, you’d swear he was the Greens environment spokesperson, not the Liberal Party’s. He’s proposing a whole raft of measures to promote the development of solar energy in Australia.
Of most direct short-term interest is the proposal for a national “feed-in tariff” scheme. To explain this, first some background. If you’ve got access to grid electricity, solar panels are currently financial lunacy. The solar system I’m currently being quoted on (thanks to commenter wilful for the tip) costs about $12,000, and generates about $225 worth of electricity every year. By contrast, if I left that $12,000 in the bank, I’d get at least double that after tax. If I put the money into a share fund, over the course of a decade I’d probably do much better again. I’d be able to pay for GreenPower from my electricity supplier, and have a considerable pile of money left over.
So why am I looking at solar cells? Because of the massive government rort known as the Photovoltaic Rebate Programme. Essentially, the government will pay $8000 towards the cost of my 1 kilowatt installation. I only have to pay somewhere around $4000, and it works out pretty close to cost effective.
This is, as previously stated, extremely silly policy. The same government money subsidising wind turbines, or, better still, energy efficiency in government buildings, would achieve far greater emission savings. Even if you want to specifically subsidize solar cell technology - and I fail to see why you would, given that there’s every likelihood that other forms of renewable energy will be far cheaper - it’s still dumb policy. Why? Because the rebate is limited to 1 kilowatt systems. It would make far more sense to build bigger solar arrays on factory roofs, because the cost of building one 100-kilowatt photovoltaic array is much smaller than the cost of 100 1-kilowatt arrays. But the subsidies don’t work that way.
So what are feed-in tariffs - the scheme Greg Hunt is advocating? The Queensland government’s scheme works like this:
The solar bonus of 44c/kWh will be paid for electricity fed into the grid at times when the solar system generates more electricity than the household or business is using at any instant.
The customer’s quarterly solar bonus payment for this excess electricity will be deducted from their total grid-connected electricity consumption charge on their electricity bill.
So whenever you’re generating more power with your solar array than you are using (typically, on a weekday when the house is empty) you get 44 cents per kilowatt hour for the surplus. At the moment, you only get whatever the retail cost of your electricity is - typically around 12-14 cents per kwh.
From the perspective of my personal finances, if I do go ahead with my solar system, it’d be great if a feed-in tariff scheme went national. Assuming that feed-in tariffs were available to both existing and new solar power systems (and that’s how the Queensland one works), the government would have paid for two-thirds the cost of my solar system; then, the other customers of my energy company would pay me triple the going rate for the surplus power I produce. I will have rorted the system twice - and the greenhouse gas savings will be minimal compared to what could have been obtained elsewhere. And investment in more promising renewable energy technology - hot rock geothermal, wind, solar thermal, and so on - goes begging.
Even if the scheme were to be restricted to new solar installations, thus not giving me two bites at the subsidy cherry, it’s still monumentally bad policy. On the upside, it potentially might get rid of the bias towards inefficient micro-power systems (though the Queensland scheme has size limits on the array which still rule out factory-size systems). On the downside, aside from the aforementioned stupidity of picking one overpriced renewable energy technology, it’s one of those pernicious distorting hidden subsidies the economists like to rant about. On equity grounds, most of the people installing solar panels are going to be comfortably middle class like myself, and the subsidy is going to come from all electricity consumers; the poor spend a greater proportion of their income on electricity than the rich do. At least with the photovoltaic rebate scheme the cost of the subsidy is transparently borne by taxpayers. Feed-in tariffs hide the cost in the wider cost of electricity, removing the direct pressure on governments to justify the expenditure.
Given that the Australian Greens aren’t great believers in untrammeled free markets, their support for feed-in tariffs is hardly inconsistent with their broader philosophical outlook. But given that free markets are supposedly what the Liberals do, the mind boggles as to what the economic dries in the party - even the ones who actually think greenhouse is a problem - think Hunt is up to.
It’ll be interesting to see whether, in the fullness of time, feed-in tariffs end up going national, through the Labor governments in the other states adopting this craptacular policy directly, or through a federal approach. From a policy wonk’s point of view, I sure hope not. But I’ll console myself by counting the second lump of cash the rest of you will be sending my way…
One last note: for those LP readers who live in SA or Queensland and own their own homes, I suggest you look very seriously at some solar panels. Exploiting bad government policy may be evil and wrong, but it can be awfully lucrative.
Update: on reflection, I should point out that I think it’s good news that the Liberals have gotten over their ostrich attitude to greenhouse. But just because Hunt has acknowledged something needs to be done, and that clean coal isn’t the one-and-only answer, doesn’t make this particular policy anything other than spectacularly dumb.
I have no intention of putting solar cells on the house I currently occupy, as I will probably only be there for another 3-4 years. However, on the as-yet-unbuilt house I plan to retire to, it will be cost-efective even without massive govt subsidies, as it could easily cost $30K or more to connect to the grid (depending on how many poles would have to go in).
As someone currently involved in a scheme to install just such a bank of
in Ballarat, I’m intrigued to see your policy-based viewpoint on the subject Robert.
My 1kW solar system will come for the princely sum of around $500, plus the connection, metre, etc. expenses. At this price, the system works financially for me at green power prices, even without feed-in tariffs - though apparently the Vic govt is considering this at the moment.
The reason this scheme exists is that some bright spark has decided he can make a buck by installing bucketloads of little systems, getting a discount on the volume, pocketing the $8000 rebate and selling the resultant REC’s. Good luck to him I say.
I take your point Robert about the high opportunity cost of favouring these small systems over other options but isn’t one of the advantages of this approach that the technology is available to be deployed right now? In Vic we’ve got the world’s worst coal-fired power and before we can wean ourselves off it, there needs to be viable alternatives in place. (Witness last year’s decision to extend the coal-production licence for Loy Yang for another 20 years).
One thing that can be said for this $8000 rebate is that it’s one of the few incentives for renewables that ever raised its head under Howard and, as such, its the best (or only) thing we’ve had on the table to promote the use of renewables.
Is a policy of putting PV on every roof really such a dead-end approach?
Aussie: firstly, there are other renewable opportunities available right now - wind power is the obvious one, but there’s also small hydro, biomass, solar hot water, etc. etc. etc.
And, even assuming you want to promote solar, it’d be a lot more cost effective to put solar panels on the roof of a large factory, and have one big voltage inverter, than have 100 or 1000 small ones. The tech is the same - only the scale changes. Have a look at the SolarBuzz solar power price index. Big photovoltaic installations are much, much cheaper per unit of energy than small ones.
Once we’ve got every large roof covered with photovoltaics, then talk to me about small roofs.
Very interesting post.
One interesting point I have is about the aforementioned inefficient micro power systems. I know this isn’t the focus or the point of the subsidies, but wouldn’t a widely distributed micro-generation grid (like solar panels and/or turbines on lots of houses) be more robust than our current ‘energy factory grid’ system?
Personally, I think that distributed power generation would be worth a bit of investment because it has value that isn’t well measured by the market. Although it doesn’t necessarily solve any problems to do with greenhouse gas emissions, like you mention…
Thanks for the response Robert. And particularly the pointer to the Solarbuzz site.
Yep, fair point.
Whilst I can’t disaggree with any of your arguments Robert, there is a little bit of me that is happy to see the government spend money on solar panel rebates. After all, there are a myraid of egregious ill conceived programs that suck up money and provide no discernible benefit (I’m thinking of baby bonuses and the porkbarelling that was so beloved by the coalition.
As someone who is contemplating building a house (in WA) these posts on solar panels are very helpful mind!
rf: this might be an appropriate time to plug Greenlivingpedia, something that I’ve been meaning to post on (maybe this weekend…)
…more robust…
Andos, my personal anecdotal experience has far more problems with domestic solar systems than power outages. I get one or two outages a year, mostly during the middle of the day when I’m at work, while people I know with off grid solar connections are regularly having to fiddle.
Solar hot water rebates make a lot more sense - however these systems make so much sense that it’s easier just to mandate them (or to mandate an efficiency standard). Almost kinda what Victoria has done with five star housing.
Hey, Aussie Oskar, do you have a link to the community action solar plan, in Ballarat, that you are talking about? I heard about it on radio and have been trying to track it down for personal interest only.
Cheers.
I subscribe to ‘Renew’ magazine and there’s some interesting resources on the website of their parent organisation - Alternative Technology Association. One of relevance to this topic is:
[link]
Wasn’t there a leaked document earlier in the year where someone in the Liberal Party had this plan of pushing Labor to go “too far” on IR to cause it political pain? Perhaps that is what Greg Hunt and the Liberals are up to on Climate Change.
Politicians like to sound as though they’re fixing a problem, rather than actually fix problems. A subsidy for PVs on industrial roofs would be certainly be much more effective policy, and of course properly pricing carbon would be far better again, but neither will win votes.
4 to 1 Feed in tarrifs have driven the market strongly in Germany. Choppers fly around looking for vacant roof space to lease from owners. No kidding! There’s a whole group of people who dont own the solar on their rooves.
if you want private solar to take off, this is the way to go. I understand Sth Australia has a 2-1 scheme on the offing/.
I see more political opportunism in this policy, which is really a hangover of the last 11 years where government had been spending small amounts on things that have very little hope of success so that they can be seen to be doing something while reserving the opportunity to say ” see how unworkable this solar stuff is!!”.
Everything is stuck in limbo at the moment with the geosequestration failure reality starting to strike home at the same time as the equally doomed to failure carbon trading structure, which depends heavily on geosequestration to work, is still being thought out. Meanwhile news such as [link] leaves the politicians looking like rabbits caught in the head lights. There are of course the remnants of the oil friendlys such as the the UN food programme guy blaming bio fuel production (based on the highly exaggerated and inefficient US corn ethanol production) for the rising world food prices. Food price rises that have been underway for many years and are really caused by increased food demand from Asia as the head of CNN pointed out the other day.
The clincher will be, I expect, the certain to skyrocket oil prices which will have the effect of shutting down the oil lobby as they realise that they can make more money than they ever dreamed possible selling far less oil at prices tha no-one ever thought possible just 8 years ago. Soon everyone’s energy compass will be pointing in the same skyward direction, and some really sensible energy policy will start to appear.
I take your point about factory roofs versus houses Robert, but I think there are good reasons to promote solar over wind and some of the alternatives. We need to be looking at not only which technologies are the cheapest ways of cutting Greenhouse now, but which have the most long term potential.
Assuming there are not enough good wind sites to keep expanding it forever (and presumably if there were there wouldn’t be the current battles over controversial sites. We need to support technologies that have the potential to be a bigger part of the system, even if they’re currently more expensive than wind.
Not so much picking winners, as picking potential winners, rather than just whoever happens to be cheapest at the time.
Lefty E: and every spare acre in Iowa is covered with corn being fed into ethanol plants. Doesn’t make corn ethanol anything other than a boondoggle to transfer money from Uncle Sam to Iowa corn farmers and, especially, Archer Daniels Midland.
To those arguing for solar, fine - though I still think the argument “we have plenty of sunlight, therefore we must use solar power” is incredibly superficial (and, like I said on another thread, something akin to “Australia has lots of coastline, let’s use desalination”). But solar thermal seems to offer far more potential for providing cost-competitive power at this point in time, and all these incentives don’t help it one jot.
Lefty E, the simple question is, do we want private solar to take off? based on the facts before us, the answer is no!
I’ll restate, solar hot water needs to be made virtually mandatory.
I’m happy for centralised/ mass solar power production to take off too, and on balance, would probably rather invest my money there, if I knew more about the options. I guess I do actually, since I buy greenpower.
Widespread roof solar, is, however, a good way to progressively reduce the baseload that needs to be replaced. It’s also insurance against central power shortages - who knows what drastic measures might need to be taken in 20 or 30 years.
I must confess to being a little underwhelmed by arguments about marginal costs per watt, give the disastrous price of inaction. And every time we revisit this, solar has become more efficient.
why must baseload be replaced, and why by roof-top solar?
Baseload coal-fired, sure, needs eventual eliminating, but there’s no particular reason for centralised power shortages. And the central argument remains that widespread roof solar is not a good way to progressively reduce baseload, and while domestic PV is becoming more efficient, so are other options.
We use solar power to dry our washing: thank you Hills Hoist.
Robert et al: I’m very keen on this feed-in tariff and live in Victoria. When may we expect nice Mr Brumby to announce it? In the forthcoming State budget?
Robert, an interesting post, but your critique of feed-ins per se only applies to the narrow view of rooftop PV feed-ins as SA has done, and the ACT, QLD and Hunt are talking about.
A more comprehensive feed-in law, such as that pioneered in Germany and what the Greens are campaigning for nationally (we have a draft Private Member’s Bill waiting for the Senate to change…), does not suffer from the same problem of pushing small, decentralised power to the potential detriment of larger scale renewables generation.
Our policy would provide targeted, time-bound support to the broadest possible range of renewable energy technologies, giving developers of any scale the kind of support they need in order to convince financiers to give them the money to build. The level of support would be based on a range of factors, such as level of technological maturity, current and projected generating cost, emissions reduction potential, etc, and would be set by an independend board possibly based on the existing Office of the Renewable Energy Regulator for the MRET. The support would last long enough before being scaled down to more or less guarantee investment payback but no more. After that, the technology / development will have to stand on its own feet.
By the way, a word of warning about Hunt’s feed-in promise - he noted at the Climate Action Network Australia conference the other day that his idea was to make the feed-in tariff apply only to ‘net’ metring, not to all the solar you feed to the grid. In other words, you only get the extra payments if you actually put more energy into the grid than you use over given time periods. This would essentially make the scheme useless, as most rooftop PV systems are geared to come close to matching the home’s demand, not provide more energy to the grid than is used. Virtually nobody would get paid…
And a final word - apologies for the long comment - your critique of rooftop PV misses out on the important factor that decentralised solar is really good for grid stability at peak demand. As such, it’s quite a cheap option - cheaper than more centralised peaking gas power plants.
Meant to post this link to a great site for detailed discussion of feed-ins and their benefit. Strongly pro the policy.
joe2,
the plan is organised by a crowd called Beyond Building and the Ballarat scheme was organised through a fantastic Ballarat community sustainability group, BREAZE
Sorry, not sure why the links didn’t work….
Beyond Building is [link] and BREAZE is [link]
Interesting comments, Tim.
I remain unenthused about having “independent experts” deciding what the price of something should be, as distinct from a competitive market where one can be created. But we won’t go over that debate again here…
Glad you agree that feed-ins, as currently proposed, do have serious cost-effectiveness issues. As regards grid stability, is there really much difference in the effects of units at the 100 or even 500 kw size, and the micro-sized domestic units?
If Hunt’s plan really is to pay feed-ins for net metering, that’s going to be a massive subsidy for those with access to capital and large rooftops, paid for by those who don’t. Howard’s battlers contributing, yet again, to the Malcolm Turnbull retirement fund…
Robert, no, you’re right, there’s not likely to be much, if any, difference in the grid stability contributed by 100kW vs 1kW. The point is decentralised generation at point of use at time of peak demand.
Yes, Hunt’s plan will benefit those rich enough to be able to afford more generating capacity than they need, and will charge that back to everyone. Bad policy indeed.
Here’s a question for you which might provoke a whole new post when you get time to think about it. This is deliberately provocative and does not reflect Greens policy per se:
We agree that climate change is incredibly urgent and demands swift and radical action, I believe. You, like Lovelock, are willing to let that temper concerns about environmental and health risks, as I read your position, in terms of support for nuclear, for example (correct me if I am wrong here).
Given that, do you feel that there might be reason to pass over the most ‘elegant’ policy solutions if they may have a lower chance of effecting the kind of radical and swift changes we need to see? Is there perhpas a role for overkill, in elegant policy terms? A role for overlapping policies in order to achieve as much as possible fast? ETS, plus MRET, plus feed-in, plus regulation? Put a price on carbon, but also pay for interconnectors to new large-scale renewables generation capacity, for instance?
Tim: that is an interesting topic! Can’t promise, but will think about it over the next few days.
BTW, perhaps in your copious free time you could outline the Greens feed-in tariff plan at Greensblog.
WRT nuclear, I’d put in a further caveat to your characterisation on nuclear - my view is that the health and environmental effects are very much less than is commonly thought. But, again, that’s an argument for another day.
tim wrote: “By the way, a word of warning about Hunt’s feed-in promise - he noted at the Climate Action Network Australia conference the other day that his idea was to make the feed-in tariff apply only to ‘net’ metring, not to all the solar you feed to the grid.”
Bother!
That messes up all the arithmetic completely.
Feed-in tariff for all power fed in, sez I.
cheerio
Clearly the politicians are not prepared to use climate change ’sticks’ at this point in time, but are more than willing to throw a few ‘carrots’ around. Given that, I think something (just carrots, no sticks) is better than nothing, even though the sticks would be much more effective IMO.
However, I believe feebates for cars and appliances are very saleable, given the the ’stick’ side of the equation does not apply people’s existing costs (petrol, electricity, gas etc).
Ambigulous: In 2007, the Victorian governmentcommitted to a feed-in tariff:
No details yet, but if it’s the same as the Queensland or SA one I’ll be making out like a thief.
If they’re really going to do it this way, it remains craptacular policy, no matter which party is responsible.
Im wondering whether punters will still be eligible for the feed-in tariff if they’ve already flogged their Renewable Energy Certificate? Some installation deals come cheaper if you sell it to the supplier.
Lefty E, that depends on the design and legislation. Accredited Green Power schemes, for instance, cannot double dip with RECs - either you sell your renewable energy for RECs of for Green Power, but not for both. Same goes for the interaction between the NSW GGAS and RECs and Green Power, last time I heard.
I haven’t actually checked how SA’s Act and the ACT bill deal with this issue. Must go and do so…
Lefty E
I dunno, but one is installation, the other is operation - treated separately?
e.g. we got a Vic govt subsidy for installing a rainwater tank, but WE don’t get an ongoing rebate because we’re saving tapwater. But we save on water bills so that’s fine with us
Thanks Tim and Ambi. Let me know if you work it out! Could be relevant to decision making at Keating Towers.
Robert, off the point somewhat, but have you seen this Infinia company’s idea for small-ish thermal electric using Stirling engines?
If they live up to the hype (a big if maybe), it homes or apartment blocks could have one of these dishes on their roof or in their yard, at much better efficiency than PV. (Cost is undisclosed, though.)
Not much use in a Melbourne cloudy winter maybe, but should perform well in Brisbane’s clear sunny winters (and much of summer.)
I also like the look of them ‘cos I would like to see how fast you can roast a chicken in the focal point of that dish!
Let’s say that 1 kW of solar PV capacity installed on your roof costs about $12,000, based on the figure quoted above. With the $8000 rebate, that’s $4000 you need to pay.
Now, based on realistic capacity factors for such a PV system, 1 kW of nameplate capacity will generate about 5.1 kWh energy in total per day - The PV installation industry expresses this as “peak sun hours per day” for any given location. The 5.1 kWh is the actual figure quoted for Sydney, Australia.
Household electricity consumption in Australia is 7 MWh annually in Australia, according to EnergyAustralia. That’s 19 kWh per day.
A 1 kW solar PV installation is just not enough to completely offset your electricity bill and start making money off it.
At a feed-in rate of 44c per kWh, that’s $820 dollars per year offset from your electricity bill - so, the solar PV installation takes just under 5 years to pay off. If you’re selling the electricity at 14c per kWh, it’s over 15 years.
However, suppose you want to consider the case of installing enough capacity to completely satisfy your household electricity needs, so that you can be making money of it all together.
(This all assumes that you’re an “average household”, presumably with several family members in the household, and “average” levels of electricity efficiency)
You’re going to need a system with 4 kW of nameplate capacity.
How much will that cost - well, we might assume that it can be done for cheaper than $48,000 - I don’t know, really, so I’ll just guesstimate $45,000.
Less the $8000 rebate, and that’s $37,000.
Now, you’re generating 20.4 kWh per day, and and consuming 19 kWh, with 1.4 kWh sold back into the grid at 44 c per kWh.
You don’t have any electricity bill - so it’s a pure money source.
That’s $225 per year from selling the electricity, plus $971.5 saved from not having to buy the electricity that you use.
$37,000 / $1196.5 gives you a payback time of 31 years. In all likelihood, that will exceed the working lifetime of the photovoltaics.
With the government rebate of $8/kW capped at $8000, going over that amount gets a whole lot more expensive rather quickly.
Aussie Oskar, thankyou very much for the Beyond Building link. I could not get the BREAZE link happening, sadly. It would be great to hear more of how you all managed to get the critical number of 50 families to make that investment happen in Ballarat. Thanks again.
I would imagine that one point of strong agreement, from what i have read here, is that solar hot water systems are the way to go when ones present system needs replacing. At the very least.
Just to clarify a few small points (as I’m getting one of those 1 kw systems installed), Origin Energy will be paying me the ~14c/kWh that I pay them. The installation company (Braemac) will be keeping the RECs.
Our household usage is far below average (not really sure why, we only do the commonsense stuff, no A/C) so I think we’ll definitely generate just about break-even over the year, quite positive in summer.
joe2,
the BREAZE link is [link]. It worked for me…. If this one doesn’t work for you, I’m sure you can google it.
The thing that got the 100 families to sign up was the offer of a 1kW system for $500 out of pocket. Simple as that. They’ve since gone up to $900 and required that people put up the $8000 before they receive it back as a rebate. They had to do this because the demand was far bigger than the capital they had available.
Out of interest, BREAZE is also facilitating bulk orders of Solar Hot Water systems. Perhaps we’re on stronger efficiency ground there…..
Re #26:
Tim, this is a very important question. I think a role that overlapping policies have is that they provide redundancy, which can be a good thing. For example, while a well designed ETS with the right carbon price/cap may mean that an MRET is not needed. However, if the ETS is poorly designed or the cap is too timid, an MRET becomes more important. For example, an ETS with a weak cap may drive some replacement of brown coal with black coal or gas, but not renewables, which are a good investment if we want very deep cuts in the future. Another possibility is that a weak cap and free permits could lead to a collapse in the permit price, like what happened in Phase I of the EU ETS. Another possibility is that a government with a denialist treasurer could take power and decide that it wants to privatise electricity assets and that it would get a better price if it stops reducing the cap (I hear something similar happened in NSW with the GGAS scheme…). In any of these cases an MRET becomes very important.
While there are other reasons for an MRET, such as the role of learning curves and fossil fuel supply issues, I suspect that this issue of redundancy is the most important one.
I’m not sure how this applies to feed-in tariffs. I personally would rather spend public money on activities like sequestering CO2 with biodiversity plantings using locally indigenous species. In this case the emissions reductions are presently too difficult to measure to include in an ETS but the biodiversity cobenefits are huge.
tim - can you expand a little or hyperlink to bolster that proposition. It’s a killer line if true.
Sorry - forgot to add that Luke Weston can crunch numbers - but he forgets to say that these are all on today’s prices!
As we all know (awak), prices for CO2 based E are on the up & up.
C is the new black. (The bad black, you know.)
Petrol will soon enuff hit A$3.00/litre for eg and likewise the privilege to burn C will come at greater and greater cost - so will the relative cost of Solar come down & down.
Always keep in uppermost mind the special relativities specific to the terms of these debates!
wbb: I wouldn’t get too excited about $3/litre petrol in the short term.
As I understand it, oil production keeps going up, demand is flatlining everywhere except China (a big except, I know), and inventories are increasing.
That’s a recipe for a bust, in the short term at least.
The further question is what happens to the demand curve as petrol prices continue to rise. My guess is that well below $3/litre, the freeways of our capital cities will start to get clogged with cheap commuter motorcycles.
wbb,
not sure what tim will say, BUT if a big part of the wobbly peak were due to a/c thrashing their little hearts out on a sunny day, in those sunny hours decentralised PV would be working heroically to reduce total demand.
There was a bloke (in California?) I think on “4 Corners” last year, standing beside a massive array of PV, saying “these babies have peak output closely matching peak demand - a/c on sunny days - so their contribution is very valuable”.
Go for it tim: I’m not speaking for you, just guessing.
cheerio
wbb, ambigulous is on the right track, but there’s more to the story.
Can I say in advance that I’m at home fighting a flu, so this might not be as concise and well-presented argument as it might be… Apologies.
There are three connected points that, together, make the argument. The first, as ambigulous says, is that the solar power generation curve very neatly matches our demand curve - that is, solar tends to generate most power at the same time as we demand most, on hot afternoons.
Some good info on this can be found in this paper from UNSW and this one from Ausra, David Mills’s company, factoring in some storage.
The second important point is that peaking generation is expensive. Sometimes very expensive, when demand rises fast or supply problems arise (outages at coal fired power stations, or network failures, for instances). Check out this paper for instance. The price for retailers can rise from $35 to $10,000 for MWh very fast. This means it makes good economic sense for retailers to pay householders to install rooftop PV and pay them 4 times the base rate for the power they generate - that’ll still be far less than they would have to otherwise pay on the spot market of the National Energy Market.
Final point is that steep demand rises from a/c peaking and similar place an enormous amount of strain on the energy grid. The QLD govt has estimated that for every a/c unit sold, they need to spend $13,000 on poles and wires to stabilise the grid! So it makes great sense for that a/c demand to be met instead by solar generation at point of use. It flattens the spikes hugely and reduces strain on the network.
OK, I hope that makes sense. Apologies if my foggy mind it foggier than necessary.
“There was a bloke (in California?) I think on “4 Corners” last year, standing beside a massive array of PV, saying “these babies have peak output closely matching peak demand - a/c on sunny days - so their contribution is very valuable”.”
It just makes sense. When it gets very hot the air conditioners whirl away and that happily coincides with panels reaching peak performance. I always prepare for power outages on those days and curse the greedy bastards -old and infirm excluded-who place their comfort above the most basic right of household lighting. I believe there should be an up front cost on those who install air conditioners for alternative power infrastructure.
“I believe there should be an up front cost on those who install air conditioners for alternative power infrastructure.”
Perhaps more helpful would be a levy on new homes calculated on the number and area of north-facing windows without eaves. It’s freaking retarded.
The last time I looked, which was a while ago, a 700 by 1100 mm solar panel delivered 120 watts and cost around $1000. If anyone has more up to date information that would be useful. But keep the scale in mind. It takes a lot of roof space on a domestic dwelling to produce just 1 kilowatt (6 by 1.1 metres per kilowatt), let alone the 4.5 to 6.5 kilowatts that most households would need at peak (if they had intelligent appliances to manage power useage and they wanted to be able to be independent of the grid).
From an Australian domestic politics perspective, perhaps the easiest carbon levy to build support for would be a levy on exported coal only. Such a levy seems to be completely missed by Garnaut’s plan and is a major loophole which is extremely odd since it is such a politically attractive concept.
Such a levy will not in and of itself increase energy prices in Australia. As such this particular levy will have zero impact on the disadvantaged among us. This is a absolute gift politically speaking.
The coal export industry is wildly profitable these days and will remain so for some time with China down to 12 days reserves of coal and still building coal stations like mad. This levy only needs to be less than the difference between the price of coal now and what it was say 5 years ago and the coal industry will remain prosperous especially given its increasing export volumes as compared with 5 years ago. In the truth the levy would only need to be a fraction of that difference to make a huge impact.
Any rational investor in a coal company will have long priced in the risk of taxes on coal and so will not be harmed by the levy.
If this levy were say totally applied to David Mills solar thermal plants then carbon credits could be accrued and those credits simply given to the coal company in return for the levy. Those credits could be sold by the coal company on European exchanges (now that we are in the Kyoto gang). This means the coal company buys something of tradeable value in return for the levy minimising the impact on them and in reality making it possible to make the levy quite large.
This outcome of carbon credit revenues also creates the fascinating and hugely appealing outcome of effectively using foreign capital to assist in decarbonising our domestic stationary generation.
The fact is we know that much of our exported coal will be burnt without offsets. This creates a moral imperative on us to use some of the export proceeds to cause a net reduction in global emissions.
There is no reason such a levy can’t be used in conjunction with Garnaut’s plan for domestic trading since there is appears to be no overlap between them. This seems especially important if we believe that Garnaut’s apparent 60% reduction target by 2050 is not aggressive enough. Its a way to achieve more without creating additional hardship for the domestic economy.
That gets my vote Gilbert. I have long been amazed at the minimal return to Australia for its minerals. Does anyone have a scale of what Australia charges for its coal, iron ore, gold, bauxite, copper, lead, etc.? My impression is that it is free barring some administrative fees for a mining lisense and the selling price is the cost or scaping the minerals up and sticking it in a ship, plus profit. I imagine there is some duty but how much is it and how does that compare to $120 for a barrel of oil?
But the logic of applying a carbon duty has real substance especially as Australia’s coal exports are on our carbon balance sheet (or is that incorrect).
Guys, a levy on Austraila’s exported coal won’t work.
You’re assuming that there’s nowhere else you can ship coal from. That assumption is wrong. China and India have huge domestic reserves; Indonesia is a big exporter.
Slapping a carbon tax on exported coal would just divert customers from us to them without changing the amount of coal mined one iota.
Their coal is even dirtier than ours; hence, the side effect of such a move will be increased deaths from air pollution in China.
Australia may be a geographical island, but it is not an economic one.
Robert
You make the simple error of assuming that the levy will increase the cost of coal to the customer.
My proposal requires no increase in the cost of coal to the customer. It can simply be levied on the supplier after receipt of sale proceeds.
The suppliers happily solid metallurgical coal at $120/tonne. Today its at $300/tonne. They will happily continue to sell it at $280/tonne (to them after the levy) if the levy were $20/tonne.
This will not cause any shift in sourcing by foreign importers.
I think maybe you didn’t read the post.
When businesses face increased costs, they exhibit a tendency to increase prices.
China is a net importer these days and they have only 12 days reserves now at stations and they are still building more stations.
A simple supply and demand equation from economics 101 tells us that the if the threat of source substitution arises as you fear then the Australian exporter will simply drop their net received price to the level where this doesn’t occur if they can make a profit doing so. All evidence is they will continue make a massive profit in doing so. And if you read my post you will see they can accrue an item of saleable value in return for the levy offsetting at least in part any drop in revenue to what they otherwise might receive without the levy.
We need a better objection than that.
Bilb, thanks, the exported coal is not on our carbon balance sheet which is why Garnaut’s scheme misses it. But we know that the importers won’t offset it either. So we can catch it this way.
In my view the accrued credits should not be tradeable in Garnaut’s scheme (keeping that scheme’s integrity), but instead would be tradeable on say a European scheme. This ensures no overlap between the schemes. Since its exported coal then it makes sense that its derived credits would be sold through export also.
Surely you don’t imagine that the Australian coal export industry will completely shut down because their gross receipts (after levy) will only be say 120% more than last year and not 140% more than last year.
Thats just at the gross level.
The net profit analysis will be even more staggering. Lets say the cost of producing metallurgical coal to port is $70/tonne.
Do you seriously imagine they would not agree to export it (gross after levy) for $280 per tonne if holding to $300/tonne meant no sales?
If the export price of coal less the levy was below the COGS then you would have a point. But if you read my post you would see that I said the levy should be less than today’s price minus the price 5 years ago. That wasn’t a random statement I said that simply in order to ensure they remained profitable, thus anticipating and addressing the objection you raised. This is why I was so surprised to see your expectation of zero exports as a consequence.
Re #51:
Robert, while I agree that if we reduced coal exports here then there will be some increase in coal mined elsewhere, I believe that the extra coal mined will be significantly less than the reduction in coal exported (so the total amount of coal mined will decrease). I disagree with Gilbert that costs will not be passed on to customers, some of them will be. The key issue is instead the price-elasticity of demand for coal, and the price-elasticity of supply for coal. A sufficently high levy on coal exports would reduce the amount of coal exported and increase its price. For this increase in price to lead to an equivalent amount of coal mined elsewhere would require one of two possibilities: (1) coal supply is completely price-elastic (the price-elasticity of supply is infinite, or much greater than 1); or (2) coal demand is completely price-inelastic (the price-elasticity of demand is zero, or at least very close to zero, note that the price elasticity of most goods is negative).
I believe the crucial number is the ratio of amount of extra coal mined elsewhere to the reduction in the amount of coal exported. I don’t think this number is 0 or 1, but I think that if it is anything less than 0.9 then there is a strong case for a levy on coal exports.
Inelastic demand is associated with necessities, such as staple foods and so on. If there are substitutes, such as gas, then demand becomes more price-elastic. The price-elasticity of supply depends on factors such as spare-production capacity.
All of this is a bit of an oversimplification, because there are issues such as substitution with other types of coal. The elasticities of metallurgical coal are likely to be different to thermal coal as well.
Robert
The purpose of the levy as described isn’t to reduce coal exports, the most likely medium term future is increasing exports, constrained only by our port bottlenecks. Given enough red wine I might even wager that a 100% levy (conditional upon it buying the coal exporter carbon credits they could sell in Europe) would make no difference to Australian export volumes. To be absolutely clear though I don’t propose anything remotely this extreme
The purpose of the levy is instead to raise funds to decarbonise our domestic stationary generation. This purpose has merit for many reasons. Chiefly though its because Garnaut is inhibited from doing enough because of the domestic pain he would cause due to the constraints on his scheme.
However there is more to the story. In the event the levy were sufficient to eventually fund (along with Garnaut scheme) total domestic decarbonisation then its a reasonable bet that we would have by then developed a formidable skills base in the area of decarbonisation. At this point we should expect that the coal export levy will be earning more than ever since industry projects coal exports will be 50% higher by 2050.
So with the skills base in place and domestic decarbonisation achieved and the ever higher levy revenue we can then start phase II of the journey. We can deploy our well developed decarbonisation skills overseas and commence building clean plants in other countries all funded by the ongoing coal export levy.
Once we start building clean plants overseas this would for the first time directly attack the foreign demand for coal and at that point (and not before) we would expect the scheme to cause coal exports and levy earnings to slowly fall ultimately bringing the process to an end when coal revenues can no longer support a levy. That day is a long way away, my grandchildren likely won’t see it.
It is feasible we could continue to own the foreign plants we build and thus derive revenues from their subsequent ongoing sale of clean energy.
Of course this may not be such a good idea if you are committed to a nuclear future. In that case its best to do everything possible to dissuade any initiative (such as this) that might (for no domestic political penalty) fund solar thermal generation.
The more successful domestic solar thermal plants we build the weaker the case for domestic nuclear generation. I imagine a committed nuclear lobbyist would be building a strategy (using all the delightful tactics of the tobacco and coal lobbies without too much concern for the greater good) around thwarting David Mills and his ilk.
Peter
You must also need to keep non-price constraints in mind, like port bottlenecks. Such constraints can mean no matter what the international price (above a certain level), the Australian export volume will not change, meaning momentary prevailing elasticity is indeed zero.
We would not expect this to be the case forever (or even very long) of course. The elasticity will not be constant, it will vary as the constraints vary.
Yes, bottlenecks would decrease the price-elasticity of coal supply in the area that experiences the bottleneck.
I think that what I would like to see is slightly different to what Gilbert is proposing. I would like to see a price on coal exported that is sufficiently high that there is a reduction in production compared to baseline if the country that we export to does not have some sort of price on carbon. I think this price should eventually approach the expected social cost of carbon (which will cause reductions in production). A small coal export levy would still be a good start.
I should mention that hardly any of the coal we export goes to China, our biggest customer by far is Japan, consuming 44.2% of our exports, by comparison only 2.4% of our coal exports go to China. A summary of our coal exports are here.
The issue of elasticities I mentioned in my previous post also applies to other greenhouse-intensive commodities that we export such as beef and aluminium. If we reduce production of these quantities while attempting to reduce emissions, how much will production increase elsewhere, leading to increases in emissions?
I was thinking about this issue one weekend and playing with some partial derivatives and came up with an equation that may help answer this. My background is mainly in mathematics rather than economics, so if any economists (or anyone else) has any comments, then they would be appreciated. Maybe someone has done this stuff before, in which case I would love a reference
I am assuming ‘market clearance’, so the total quantity of the good supplied is equal to the total quantity demanded. I obtain:
R = Q_o E_s/( Q_t E_d - Q_o E_s)
where:
R is the ratio of the change in supply overseas to the change in supply exported;
Q_o is the quantity supplied from overseas;
Q_t is the total quantity;
E_s is the price-elasticity of supply;
E_d is the price-elasticity of demand.
The whole issue of spillovers and carbon leakage seems to relate to this stuff. If reducing coal exports decreases emissions overseas, then this may be an alternative to assistance to TEEIIs or border adjustments.
Robert, it’s one of Humphrey’s maxims of government (I know it’s the opposition, but still):
1. Something must be done.
2. THIS is something.
3. Therefore, THIS must be done.
Petrol will be A$3 per litre in four years time, Robert. Absolute production figures are up - but it’s production figures relative to demand that sets the price. Demand is increasing faster than drilling and refinery output.
Also, new oil is always more expensive to produce than the oil we used yesterday. The latest big oil strike is 6km under the sea in Brazil. That oil will come with a hefty premium attached by the time it gets to your local 7/11 in about ten years time.
The only cheap, geophysically speaking, oil left is in geopolitically very expensive places like Iraq.
(I saw on Dateline last night that Chavez is using the oil weapon in a most imaginative way! Donating it to New Yorkers who can’t afford to heat their tenements any more. Cheeky bugger.)
And thanks for the explanation, tim. Perfectly clear.
I am on board with Gilbert’s levy and all. And think that Peter Wood’s equation looks very sexy. If it’s mathematical content is as good as it looks then let’s decrease exports and have a levy. Do both.
Yes, it is good. Resilience from distributed production is a good thing. During the recent lengthy wind-related power failures in Melbourne, or house kept running as it failed over to use PVs and batteries [Link].
There would be a high total cost of Melbourne’s outage - and the cost to residents whose freezer contents all thawed out and went in the bin.
Also, do you realise that buying greenpower places no requirement on retailers to reduce their purchase/supply of coal-fired power by a corresponding amount, and they can’t actually do this as they don’t have real time feeds to know how much renewable power they are actually getting at any point in time?
[Link] Their energy purchase is based on forecasts from the previous day and other parameters such as day of the week, weather etc.
I think we have a prisoner’s dilemma.
I did a bit of googling and dug up some elasticity figures (see here and here). Estimates of the price elasticity of supply of coal were between 3 and 10; estimates of the price elasticity of demand for coal were between -0.1 and -0.4. World coal production is about 5340 Mt, Australia produces 308 Mt and exports 239 Mt (using figures from here).
Substituting into the equation in post #60 gives values of R between -0.87 and -0.99. This would suggest (if my equation is accurate) that if we reduce coal exports by 1 metric tonne, then between 870 kg and 990 kg would be mined elsewhere.
What to do in a prisoners dilemma depends on both ethical and strategic issues (although a cartel, reducing Q_o, would be nice!). Climate change is full of prisoners dilemmas (as has been discussed by people like Stern and Garnaut elsewhere). Needless to say, if no-one cooperates and reduces emissions (directly or indirectly) then the planet is pretty stuffed.
Peter
Your analysis appears consistent with what both Robert and I expect in comments above. That is reducing tonnes exported from Australia will make no appreciable difference to global export volumes in at least the medium term. Where Robert and I differ is I doubt his claim that a coal export levy (that ensures continued profitability) will make an appreciable difference to what we export. The result (insofar as global export volumes are concerned) is the close enough to being the same either way. In that regard all three of us essentially agree.
I agree with your point that a levy is most valid in cases where the customer does not offset. I disagree with your dismissal of China as an importer of our coal. It is not the immediate demand, it is the trajectory of demand, or more precisely the expected share of future volumes that counts. As a mathematician you should understand this. It also doesn’t matter who our present customers are exactly, what matters most is total expected future imports from each customer since it is an open market.
Where I appear to differ most critically from Robert is I believe that directing the export levy to domestic decarbonisation through funding clean energy generation has merit. Extra funds for clean generation will have the effect of reducing domestic emissions more than Garnaut will be able to. This seems important enough to pursue. Basically its a way of achieving more without more harm to the disadvantaged voters since a coal export levy in and of itself won’t inflate domestic electricity prices.
I see the biggest domestic political obstacle to decarbonisation is the perceived voting power of those expected to experience higher energy prices. Accordingly a strategy (like a coal export levy) that sidesteps that domestic obstacle increases the likelihood of domestic decarbonisation occuring.
I think that bloke was talking about concentrated solar power which is a high temperature power station process, rather than the photovoltaics used on home roof installations.
Here’s one story.