Why have we fallen for the ‘cheap renewables’ magic tricks?

A quick comb through the details also shows there is more to come. The higher hedging costs to accommodate unpredictable rooftop solar exports won’t bite this year – but will eventually.

The competition allowance for retailers (which was cut to avoid big increases last year) will be reinstated when trimmed mean inflation dips below 3 per cent. Today it’s 3.2 per cent.

There is precisely zero cause for future optimism about prices turning a corner. Every excuse has been exhausted. The claim that renewables would push down prices has been decisively proven wrong.

The burning question is: How did we fall for it? What startling magic trick made us believe it?

All is now clear, since the peak lobby group of the renewables industry attempted to wave the wand, one more time, just a week ago.

The Clean Energy Council announced that modelling it had commissioned from Jacobs, a global consultancy, showed that slowing down the renewables rollout would increase the average household bill by $449 per year in 2030.

In doing so, it has let the curtains slip and revealed the apparatus that tricks the eye.

Punters befuddled by how different models seem to produce such contradictory results need only to imagine any magic trick where a rabbit appears from a hat, or a dancer emerges unscathed from a box sawn in half.

What you think is one is actually two. Or what we think are two, are actually connected as one. And so it is with “the modelling”.

There are actually two types of models in view, where we think there is one. On close examination each conceals a hidden trapdoor through which a clear-picture true cost can escape.

One type of model concerns itself with the cost of buying and running the machines that make our grid, and ignores the dynamics of the market that delivers end prices.

The Integrated System Plan, produced by the Australian Energy Market Operator, is this type. It attempts to tally up most of the major costs of building and financing the system they model. But it doesn’t follow through and model all those assets recovering costs through bidding in a market, and pointedly never attempts to predict final prices.

The “cheapest pathway” claim derived from the ISP was always misleading. It was only ever meant to say that building to the same renewables target would cost more without any transmission.

The Clean Energy Council commissioned Jacobs to do a different type of model. It ignored the cost of building wind, solar and batteries, and what capital costs they would have to recover.

Their starting point is a host of generating assets that are already constructed and financed (somehow), now happily bidding into an energy market. Some of those bidders have been attributed high marginal operating costs due to their reliance on scarce carbon-based fuel such as coal and gas. (Hiss, boo!) Some of those bidders have no marginal cost, because their fuel is the sunshine and wind. (Hooray, applause!)

And lo and behold, when you crank the handle on a set of opaque bidding assumptions (which we assume mean wind and solar bid close to zero, and others at marginal cost), a market with an extra 20GW of wind and batteries in the mix produces lower wholesale prices on average.

No surprises. But the hidden trapdoor through which the costs escape is revealed when Jacobs spells out just how low those wholesale prices are expected to be. On page 23, Figure 4-5, its chart shows the base case (when the 82 per cent renewable energy target is hit by 2030) wholesale energy prices are expected to average just $36/MWh. That’s less than half the actual 2021 average of $79/MWh, which was a conspicuously low due to Covid. The average for calendar year 2024 was $125/MWh.

Those wholesale prices are so low that there’s not a chance that any new energy project could be financed if that was what they could sell their energy for.

Now we can see the dancer’s legs dangling beneath the stage as the saw purports to part her midriff. There is a higher cost that’s been concealed. The gap between costs and revenues must be covered by something. And that something is subsidies, at a scale hitherto unimagined.

Unwittingly, the renewable energy industry’s peak body has revealed the scale of the cost shift to taxpayers required for their construction to be plausibly consistent with lower bills. The scale of the handouts they expect is staggering.

Since the total cost of the Capacity Investment Scheme, (the federal government’s subsidy initiative to drive the investment to hit its renewables target) has been kept secret, it’s worthwhile sizing up.

First, there’s no chance that wind generators could capture the $36/MWh average the CEC proposes, since spot prices are depressed when renewables are abundant. Today wind only gets about 60 per cent of the average spot price, and it would be much less in 2030 with more than double today’s wind in the system. $20/MWh for wind in CEC’s modelled world would be lucky.

Even the much-criticised GenCost report places stand-alone wind costs between $70 and $116. That’s before any transmission, storage or firming.

Taking a real project (Hills of Gold), a large and modern wind farm of 47 turbines with a small battery, would require $126/MWh in order to comply with initial planning approvals. Future projects may cost more.

In any case, it’s now clear what the renewables industry is fighting for: its future funding. It won’t come from power bills, certainly not in any world where they are lower.

Three-quarters of the finance will come from taxpayers, via the Capacity Investment Scheme. This could cost taxpayers around $8bn annually to fund the increase in wind alone projected to be required by 2030.

The rush to renewables will cost us dearly. There is no evidence to suggest otherwise, and never was.

Aidan Morrison is the director of energy at the Centre for Independent Studies.