Half of power price increase due to push for renewable energy

Half of the expected 5.83% increase in Queensland electricity prices next year is the result of Federal Government policy changes to the Renewable Energy Target (RET) scheme – changes which are designed to encourage investment in large-scale renewable energy generation (e.g. solar, wind and geothermal).  This was made clear in the Queensland Competition Authority’s draft decision yesterday :

Changes to the Federal Government’s Renewable Energy Target (RET) scheme account for 2.91 percentage points of the increase. Had it not been for these changes, the increase in the BRCI [Benchmark Retail Cost Index] for 2011-12 would have been 2.92%.

Based on the Courier-Mail’s calculations (Power bills to rise by $100 in hike for fifth year running), this means the Federal Government’s changes to the RET scheme will add around $50 to the average annual electricity bill of $1,774.  This is an order of magnitude greater than the estimated impact of $4 per year reported in a March 2010 Department of Climate Change fact sheet (Enhanced Renewable Energy Target).

There is a big debate in Australia at the moment about whether we should impose a price on greenhouse gas emissions (a carbon price) next year.  What may surprise many people is that there already is a carbon price of sorts.  Through the RET scheme, we’re paying more for electricity because electricity retailers (e.g. Energex) are required to source an increasing percentage of their electricity from renewable sources, with a target of 20% by 2020.

The problem is that it isn’t clear that the RET scheme is cost-effective and it wouldn’t be cheaper to secure the same level of greenhouse gas reductions through an emissions trading scheme (ETS) or carbon tax.  In the absence of the RET scheme, but with an ETS or carbon tax, greenhouse gas emission reductions may come through greater gas-fired power generation, which is cheaper than renewable energy.

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