Tuesday, 14 August 2018
Tonight I'd like to speak on the ACCC's recent electricity pricing inquiry. Specifically, I'd like to offer my support for the ACCC's recommendation No. 24, which is that the Small-scale Renewable Energy Scheme be abolished by 2021. The ACCC say in their report:
In light of the dramatic reduction in solar PV installation costs, the ACCC considers the case for a subsidy for small-scale solar installations is now weak, and is of the view that the SRES should be ended earlier than its currently scheduled end date in 2030.
This year there are $1.2 billion of subsidies under this scheme. With the way that scheme works, that $1.2 billion actually gets added to everyone's electricity bill. When everyone gets their bill from one of the retailers, that is smeared across it. Across the chamber and across the parliament over the last two days since we've returned from the winter recess everyone has been talking about lowering electricity prices. Here is a way that we can knock at least $1 billion off. As I said, this has cost $1.2 billion. We could knock that off and bring electricity prices down if we accepted this recommendation. The only reason for not accepting it is if we were to listen to the noisy green rent-seekers who want the subsidy to continue.
I'll explain how the subsidy works. Someone installing solar panels on their roof will get a $40 rebate for every estimated megawatt hour their rooftop installation will generate out to the year 2030. I have a few calculations from a group called Solar Choice. I will give an example from New South Wales. Where your solar panels are located in Australia will affect the generation you get. In New South Wales you would generate more electricity through your solar panels than you would in Victoria and in Tasmania. In New South Wales a five-kilowatt installation would cost you $8,600, but you would get a subsidy of $3,340. Many people don't even know that they are getting that subsidy, because it is written in the contract that the installer gets it. So they would pay $5,260 out of their pocket and that $3,340 would simply get added onto everyone else's electricity bill.
In fact, even large industrial premises can take advantage of this scheme. Under this scheme you can install up to 100 kilowatts, which is around 400 solar panels. Even though the all-up cost you may pay out of your pocket is $113,000, the rebate you get—the cost to everyone else who uses electricity—is $68,260. They are the estimated costs in New South Wales.
What has the Grattan Institute said about this solar scheme? In 2005 they drew attention to this scheme. I'll quote directly their report entitled Sundown, sunrise by Tony Wood and David Blowers. They said:
… lavish government subsidies plus the structure of electricity network tariffs means that the cost of solar PV take-up has outweighed the benefits by almost $10 billion.
That is $10 billion wasted. They went on:
By the time the subsidies finally run out, households and businesses that have not installed solar PV will have spent more than $14 billion subsidising households that have.
So this is also simply a reverse Robin Hood scheme. Those renting and those living in apartments are subsidising those who are able to afford to install solar on their roof at the cost of a $14 billion wealth transfer. And they conclude:
Australia could have reduced emissions for much less money. Governments have created a policy mess that should never be repeated.
And also, not only is it adding costs to electricity it is also completely economically inefficient. In fact, it is little more than a Ponzi scheme.
If we look at what the levelised cost of energy from a rooftop solar scheme is, we have the Australian Energy Council's Solar report from January 2018. They give a levelised cost of energy for different discount rates, for different cities and for differently sized installations. I'll give the example, again in Sydney, of a five-kilowatt solar installation. They say that the cost after the subsidies is $120 a megawatt-hour. If we put the subsidy back in, we are getting a generation cost of $180 a megawatt-hour to generate that electricity. So what we're actually doing is turning down our coal generators, that have a marginal cost of around $35, and subsidising something that costs $180 a megawatt-hour. Imagine if you were running a factory which was producing goods for $35 a unit and you decided to close that factory down, and you opened another factory to produce that same good for $180. That would be clear economic insanity. But this is exactly what this scheme does.
It's the same if we look at it, again for a large industrial installation—something which is 100 kilowatts in Sydney—a factory at $120 a megawatt-hour, with the subsidy already taken out. If we put that subsidy back in, again, we are north of $180 a megawatt-hour. While that may make sense for that particular building or that particular household, as the Grattan Institute points out, the only reason for that is that the cost of the transmission lines is not actually costed economically. Again, I quote from the Grattan Institute. They say:
A second subsidy associated with solar PV relates to how electricity is priced.
It goes on for solar households:
Since they consume less electricity overall, they pay less than other households do to use the network.
… solar households on average place as much strain on the distribution network as those without solar PV do.
So when you put those costs in, the economic inefficiency of this scheme also calls for it to be stopped.
I have also heard some talk that Australia has this great competitive advantage: we are the sunburnt country. But when you look at our coastal regions—in Sydney, Melbourne, Adelaide and even Brisbane—and where they're being installed, the solar PV outputs from those solar panels are no greater than many other places in the world. Here are some numbers as examples. The solar PV output from one-kilowatt solar panels in Sydney is 1,397, and in Melbourne it's 1,295. Compare that with places like Egypt that are rolling out one of the largest coal-fired power stations in the world. In Cairo, it's 1,802, and in Aswan it's 1,926. So on average, they're generating more than 29 per cent more electricity from a solar panel—29 per cent more than in Sydney and 39 per cent more than in Melbourne. It's similar in India. In India you'd be able to generate more electricity in many major cities than you would in Australia. So we have no competitive advantage.
I call on all members of parliament: let's work on this together. Let's not try and score points off each other about protecting renewables or something. We can save Australian consumers. We can save the worst-off consumers, those hardest up, $1.2 billion if we could get together and both adopt the ACCC recommendation, which I commend to the House.