The sun isn’t shining on ‘old energy’ sectors

Victoria’s brown coal-fired Hazelwood plant. Photo: Mick Tsikas

Got a call from AGL the other day offering a 12 per cent discount on the electricity bill. The catch was that, if we had solar panels, we could forget about the 12 per cent; only a 7 per cent discount was on offer.

This was highly suspicious behaviour. You know something is wrong if you get a call, out of the blue, offering you an unsolicited discount on anything.

Electricity prices have run too high. Renewable energy is rapidly getting cheaper, more efficient, and power companies are desperately trying to lock in customers and stave off the incursion from renewables.

This phone call was merely one shot fired in the generational war between “old power” and “new power”.

Deutsche Bank released a research report last month which predicted solar energy was well on its way to replacing conventional fuels as the major source of energy in the world, generating $5 trillion in revenue by 2030. That’s $5000 billion.

At the moment, there are 130GW of solar installed; 1 per cent of the $2 trillion annual global electricity market.

By 2050, Deutsche said, solar would have captured 30 per cent of the market.

The rise in renewable efficiency has been spectacular. “Grid parity” is nigh; already there in half of all countries. In the first half of 2014, 30.8 per cent of electricity supplied to the German grid came from renewables. Solar was 7 per cent of this. On its biggest day ever, however, it contributed 30 per cent.

Meanwhile, the Liberal government in NSW is seeking a mandate to privatise the state’s electricity transmission and distribution assets. Although demand for electricity is falling and the outlook for growth is flat, the mooted $20 billion price tag for half the grid is probably realistic.

The world is awash with cash and demand for monopoly infrastructure assets by both corporations and institutional investors is a no-brainer. If the state could get 27 times EBITDA ($1.7 billion) for privatising the Newcastle coal port, it should reasonably expect to get at least 20 times EBITDA for half the grid.

That 20 times represents a 5 per cent gross cash yield; not too bad given the low risk of electricity assets and that long-term bond rates in the US are just 2.5 per cent, so twice that is a tidy return.

Hopefully, the state will not offer any regulatory inducements in the small print to the deals to boost its sale price. Such would only hurt consumers – reeling from a doubling in retail power prices – more.

Meanwhile, it has been under-reported here but India has detailed a radical shake-up in energy policy which has ramifications for Australia.

Handing down the nation’s budget, the Indian Finance Minister announced a five-fold increase in renewable energy installations, higher taxes on coal and a cut in excise on solar hot water systems.

India’s intrepid and well-articulated energy policy stands in stark relief to Australia. If our national energy policy were actually articulated, it might be “let’s keep on digging ever bigger holes in the ground, cross our fingers and hope for the best”.

In Queensland, the new government seems to be sheepishly pushing ahead with the bizarre Galilee coal project even though it is hardly economic, environmentally damaging, and even though India, also in its budget declarations, is also pressing for higher domestic coal demand and less reliance on imports.

As Queensland presses on with the nation’s biggest coal project – predicated on exporting thermal coal to India – India has announced a target to possibly cease all thermal coal imports over the next two to three years.

Even Indian power group Adani, which is the prime mover in the Galilee project, is on board, announcing $US9 billion ($11.5 billion) worth of solar projects in the past month alone.

Among the Indian initiatives, there is a doubling of the coal “cess” (tax), which doubled only last year. All the proceeds are used to fund renewable energy.

By 2020, the country aims to have electrification of the remaining 20,000 villages, including by way of off-grid solar.

In its plan to increase renewable energy capacity by 175GW by 2022 (from its current 34GW), the Indian budget is targeting 100GW of solar, 60GW of wind, 10GW of new biomass and 5GW of run-of-river hydro installs.

“We have an opportunity to avoid excessive dependence on fossil fuel-based energy systems and carbon lock-ins that many industrialised countries face today,” the government’s new economic adviser, Arvind Subramanian, said.

This is as much about energy security as it is about being green. Still, compared with our energy policy, it is particularly visionary and decisive.