Green Energy: Not Cheaper Afterall?
I seem to recall that from the outset, one of the key messages being disbursed by the proponents of the energy transition to non-carbon-based energy sources was that that clean, ‘green’ solar and wind generated electricity would drive down electricity prices for consumers and businesses and be far more economically efficient than coal, gas, and oil. l also remember being sceptical about the enthusiasm with which this message of “cheap electricity” was being broadcast.
It's been a while since then, and recently I have been noticing surprisingly similar comments coming from two enterprises developing solar and wind sourced electricity projects. The Australian Financial Review article (AFR) of 4 November 2023 by James Thomson entitled “Deal drought puts a green question mark over Macquarie” reported Macquarie Group chief executive Shemara Wikramanayake believes governments with massive targets for renewable energy need to realise they will have to pay more to incentivise the necessary investment. Ms Wikramanayake is quoted as saying:
“It’s a big wake-up call for the world. If we want to bring on the supply of renewable energy that we need, we’ve got to step up prices – and we can afford to.’’
A week or so later, in its 15 November 2023 article by Jenny Wiggins entitled “Canadian group highlights the trouble with Australia’s energy ambitions” the AFR reported that the Canadian group OMERS Infrastructure is steering clear of Australia’s planned renewable energy zones, saying the delays in planning and development are pushing up costs and making investments too risky. OMERS claims it’s struggling to close investments in renewable energy projects because of rising interest rates, higher inflation, supply chain disruptions as well as scarce and expensive labour. A senior representative said:
”There are issues with the ‘‘bid-ask spread’’ of what people are willing to pay for energy and what can be delivered in the current market.”
On the same day, another article entitled “The power behind the takeover battle for Origin”, written by Jennifer Hewett, refers to OMERS and its managing director Kevork Sahagian saying it decided to invest in Australia in late 2021 with ‘‘fairly grand ambitions’’. Mr Sahagian said there are significant challenges facing Australia’s energy transition, including higher costs, lack of resources and, importantly, the difference between what energy customers are willing to pay and the price it can be delivered for in this market. He said:
‘‘I think there needs to be some convergence to help facilitate the next wave of investment. I think it is happening, but it’s happening very slowly.’’
It’s likely other players in the ‘green’ energy market are facing similar pressures. At last, the truth is slowly emerging, that ’green’ electricity will not be as cheap as it was portrayed and the increased energy prices resulting from the move to carbon-free electrification are unlikely to be temporary. The real cost of the energy transition is already being felt by Australian consumers who are facing significant difficulties making ends meet in today’s challenges economic environment, and these recent comments suggest high electricity prices in eastern Australia could be a reality for a long time.
The news articles referred to in this commentary can be found via the links below:
1. Deal drought puts a green question mark over Macquarie written by James Thomson for the Australian Financial Review
2. Canadian group highlights the trouble with Australia’s energy ambitions written by Jenny Wiggins for the Australian Financial Review
3. The power behind the takeover battle for Origin written by Jennifer Hewett