$4 billion in coal subsidies in NSW?

The Auditor-General of NSW released a report today condemning the previous Labour government’s implementation of the Solar Bonus Feed-in Tariff Scheme, which became political hotpoint last year when it was found that it would go severely over budget. The irony is that the Auditor-General’s report comes on the heels of an article by Climate Spectator that estimates an effective $4 billion subsidy to the Cobbora coal mine to keep the price of coal low enough to facilitate the sale of the state’s gen-traders to private firms.

A bungled scheme, not a bungled technology

The Auditor General’s ‘Special Report: Solar Bonus Scheme‘ (pdf), was compiled under Premier O’Farrell’s Liberal Government, which earlier in the year stopped the scheme in its entirety. The Solar Power incentive scheme, originally budgeted for $362m, is expected to eventually cost between $1.05 and $1.75b by 2016, the earliest point to which rates are guaranteed, and at which point the scheme may be reviewed.

Among criticisms levelled against the previous government’s handling of the scheme were: no specific targets agains which progress could be measured, no cost-benefit analysis undertaken by the government prior to implementing the scheme in 2008, little action taken by the government to reduce relevant risks (e.g. contingency planning, etc), not even ‘elementary’ operational controls. The report is sure to be ammunition for those who believe that decision to invest in renewable energy infrastructure is a misconceived and poorly planned one. With the bad press that the Solar Bonus Scheme has been receiving, it might be easy to mistakenly think that there is a problem with the idea of policies that encourage the uptake of solar PV at all. This is not the case, and there are subsidisation success stories elsewhere in the world.

Solar Power not to blame for the scheme’s failures

It is important to note that the report makes no claims about the viability of solar power as a bankable or worthwhile technology. Looking at the global scene, it is not difficult to find counterexamples of how the subsidisation of renewable energy sources can be effective. Germany is the shining example, but there are numerous other success stories from the European continent, as well as the United States, often in places where sunshine is not an abundant resource. It is also possible to point to instances within Australia itself where subsidy reductions can came more softly than the abrupt and absolute withdrawal support: although they have their own issues, Victoria and South Australia are two such cases.

NSW’s Solar Bonus Scheme enabled 130,000 households and small businesses to install solar systems with the confidence that they would see strong returns on investment and payback periods as short as 3-4 years. This spurred unprecedented, widespread and rapid uptake of residential and small-scale commercial solar installations throughout the state, and in the process created a new booming industry where there previously was none. Now, with notable exceptions, the ‘soft’ infrastructure of the solar power industry–the people with the skills to do the job–sits withering in the aftermath of the withdrawal of the subsidies that allowed it to boom.

Fossil fuels once had a place, but what is their future?

Subsidisation of fossil fuels–from exploration to infrastructure–is not news. Solar Choice has written previously about subsidies to the coal industry in NSW which take both direct and indirect forms. Subsidies were brought into place long ago promote an industry and utilities that were deemed to be beneficial to society at large. Access to affordable electricity something that society is undeniably better off having than lacking. The issue is that the problems associated with coal and other fossil fuels are well known; land degradation and CO2 and other types of pollution. Subsidies have to change to reflect the values and knowledge of the society as it stands. Coal-fired power plants, while still necessary, should be on their way to being phased out.

NSW government would keep coal price down through subsidies

Giles Parkinson, for Climate Spectator, explains how the NSW government has tried to keep the price of coal down by subsidising production at the state-owned Cobbora coal mine. A decision was made by the government to maintain ownership of the mine in order to guarantee ‘long term fuel supplies at well below market price’, according to Parkinson. The exact amount of subsidisation that would occur is undisclosed, and has in fact been blacked out in the Tamberlin Inquiry (commissioned by O’Farrell) over the Keneally government’s handling of the sale of the state-owned gen-traders. Climate Spectator has worked out that development of the mine under state ownership would effectively result in an estimated $4 billion of subsidies to the gen-traders, which were sold for just $1.5 billion. Even the government’s then climate change advisor Ross Garnaut commented that the subsidisation of the mine would be counterproductive, working against a carbon tax, should one be introduced (which it since has).

Introducing a new order of things, as famously noted, is no easy task, even when it is evidently a necessary one–transitioning from fossil fuels to renewable is a case in point. Nigel Morris, of Solar Business Services, puts the issue nicely into perspective:

With a fair comparison, we could then ask ourselves one simple question: “Do we want to keep subsidising energy technology that has benefited from decades of support, but has a rapidly diminishing future and rapidly escalating cost or, do we want to switch these subsidies to emerging energy technologies which have a massive emerging future and a rapidly diminishing cost?”

The fact that the the amounts that the government would contribute towards the mine were ‘blacked out’ in the Tamberlin inquiry is indicative of the government’s knowledge of the double standard being applied. Climate Spectator notes:

In short, this inquiry tells us, the coal-fired power stations in NSW are unable to compete with other power sources unless their coal is supplied at around one quarter of the cost of export coal. Given that Cobbora has the potential to supply 30 million tonnes of coal to the state’s coal fired power plants by 2020, as noted by the Australian Energy Market Operator, the lost export revenue potential from the mine could amount to some $2.7 billion a year, at current prices.

Resources and links:

ABC News: “Cobbora coal mine branded a waste of money

Climate Spectator: “NSW’s great big coal subsidy scandal

Business Spectator: “O’Farrell fields an electric shock

© 2011 Solar Choice Pty Ltd

James Martin II