Garnaut – Renewable Energy Not The Electricity Price Rise Culprit

A recent update paper from the Australian Government’s climate change advisor, Professor Ross Garnaut, has confirmed that renewable energy is not the major culprit in electricity price rises and acknowledges its increasingly important role in distributed generation.

The notion that renewable energy sources such as solar power substantially drive up electricity prices is a bandwagon that some corners of the media have been happy to jump on and stay on, even while much has been published to bust that myth.

Professor Ross Garnaut has weighed in on the argument in his latest Climate Change Review Update, published last week.

The paper states recent electricity price increases have mainly been driven by increases in the costs of transmission and distribution; an issue that Minister for Resources and Energy, Martin Ferguson, warned of in March last year.

However, the report states “there is a prima facie case that weaknesses in the regulatory framework have led to over investment in networks and unnecessarily high prices for consumers.”

As an example of the low proportion a fiscally responsible feed in tariff initiative has on electricity prices, the update provides the example of South Australia, where the cost of feed-in tariffs comprised around 0.5 per cent of an average household electricity bill in 2008-09. The South Australian feed in tariff currently pays 44 cents per kilowatt hour for solar electricity exported to the mains grid, surplus to the use of the building on which the solar panels are installed.

With the cost of moving power to households in terms of transmission and distribution making up around half of the price of electricity, Professor Garnaut also sees the increasing importance of distributed generation, including small scale home solar power systems. He believes distributed generation technologies will become more cost effective and competitive and in some cases they will offer major benefits in terms of avoided emissions, network losses and infrastructure expenditure.

However, the writing may also on the wall in regard to the future of solar rebates and feed in tariffs for new connections. Professor Garnaut suggests the renewable energy target and subsidies for new roof top solar could be phased out as the Government’s proposed carbon price rises, or feed-in tariffs replaced immediately by more efficient measures for new investments.

Professor Garnaut’s “Transforming the electricity sector Update Paper 8” can be viewed in full here (PDF).