The renewables subsidy shuffle

As the renewable energy transition falls further behind schedule, the public subsidies to bring it back on track continue to mount. The Minns government in NSW is putting taxpayers on the hook to extend the life of the Eraring coal-fired power station and on Thursday stumped up an additional $1.8bn for renewable energy storage and transmission lines. One billion dollars will go towards an Energy Security Corporation to invest in community batteries and virtual power plants, and a further $800m will go towards grid updates to progress the Central-West Orana Renewable Energy Zone, near Dubbo.

The new funding follows a warning from the Australian Energy Market Operator that the renewable energy transition is behind schedule and there are risks to both electricity prices and supply. The NSW government admits the planned development of so-called renewable energy zones has stalled. Delays and cost inflation have become the key features of the promised renewable energy transition, with other major projects over budget and behind schedule nationwide. These include the Snowy 2.0 pumped hydro project where costs have blown out from $2bn to more than $12bn. The cost of the HumeLink transmission line to get power from Snowy 2.0 to market has risen from $1bn to $5bn. The Marinus Link connector to enable Tasmania to be a battery for the nation will now cost $3bn for half the capacity, which experts say makes it unviable.

With Chris Bowen’s $20bn transmission plans in cost chaos and facing community opposition, investment in the renewable energy projects that was supposed to flow into them has stalled. There is a very real prospect that government will continue to be called upon to sweeten the pot. Certainly, this is the experience everywhere else. In Britain, the country’s biggest offshore wind farm project has pulled the pin and the industry is demanding the UK government rewrite contracts that were supposed to guarantee project profitability. The same thing is happening in the US, where large offshore wind developers are asking for an average 48 per cent price adjustment. Developers say their costs are increasing faster than inflation and projects will “not be economically viable and would be unable to proceed to construction and operation under their existing pricing”.

Ironically, Joe Biden’s Inflation Reduction Act, which includes tax credits to offset project costs, is adding to the cost pressures. The Wall Street Journal has noted that the climate lobby says power from wind and solar is cheaper than from fossil fuels, but that’s true only with generous subsidies and near-zero interest rates. It says price adjustments that renewable developers want in New York would make solar and wind two to five times more expensive than natural gas power. This is a warning for everyone. The cost pressures in Australia’s renewable energy transition are already plain to see. Mandating a target without a clear plan to get there was only ever going to end in tears.