The problem with `green power'

Andrea Bunting

In last week's Green Left Weekly, (#282) Andrew Woodroffe commended the recent introduction of green tariffs for NSW and Victorian electricity consumers. Dubbed "green power", these schemes allow electricity consumers to pay a premium on their power bills, and in return their electricity retailer undertakes to purchase enough electricity from renewable energy sources to supply that consumer's needs.

Green power is promoted as a way of increasing renewable electricity generating capacity, and in the long term helping to bring down costs so that renewable energy can compete with coal and natural gas. Since coal- and gas-fired power stations are major sources of greenhouse gases, the development of renewable electricity generation can help to avert global warming.

Green power also taps into the widespread public support for renewable energy: surveys here and overseas have shown that a high proportion of consumers are prepared to pay more for electricity generated from renewable sources.

So where's the problem? First, experience from other countries warns that "green power" schemes might not lead to any increase in renewable generating capacity at all! Many electricity retailers already purchase renewably generated electricity from hydro power stations. As long as supplies of hydro power exceed the demand for green power, the electricity retailer can claim to be supplying all the green power requested.

In NSW, the Sustainable Energy Development Authority (SEDA) has foreseen this problem and is offering to accredit green power schemes. SEDA's accreditation program requires the electricity company to plan for new renewable energy resources, but by 1999 only 60% of green power sold must be from these new resources.

Secondly, why are such schemes voluntary? The only electricity consumers who will sign up for green power will be residential customers and the (very) occasional small business which trades on a green image. Don't expect big business to sign up.

So why not make green power schemes compulsory? In the UK, for example, electricity customers pay a fossil fuel levy of 10% on their power bills. Some of the funds raised are used to develop renewable energy power plants -- although the original intention of the levy was to subsidise nuclear power.

But rather than make business pay more for electricity, the Australian government is doing the opposite. The recent restructuring of the electricity industry and the creation of competition have enabled very large electricity consumers to reap a windfall. These so-called contestable customers are now able to negotiate substantially lower prices for electricity. It is hardly surprising that the government will not compel business to pay for green power.

The voluntary nature of green power schemes also amounts to a distortion of people's professed support for renewable energy. It is probably true that a majority of people would be willing to pay a bit extra on their power bills for renewably generated electricity, as indicated by surveys from Australia, the US and Europe.

But it appears that such surveys do not distinguish between support for a compulsory scheme and a voluntary scheme. Electricity retailers offering green power often show surprise when only a small proportion of people who support renewable energy actually sign up to buy green power. But as the US economist Eugene Coyle has pointed out, people are willing to pay as long as everybody contributes. Business must also pay its fair share.

Finally, green power schemes perpetuate the myth that renewable energy is expensive. While this may still be true for solar electricity, it is not the case for wind energy. Indeed, the south coast of Australia has excellent wind resources, comparable to some of the prime locations in California where wind power has flourished.

The electricity companies still tell us that electricity from coal is cheaper than that from wind and publish the unit cost of each to prove it. What they fail to reveal is that the cost of electricity cannot be calculated objectively. There are many assumptions built into these calculations, assumptions which may be highly questionable.

The first assumption relates to the value of "externalities" -- the environmental, health and social costs associated with electricity generation. Although there is much debate about how to quantify these costs, it is generally acknowledged that the externalities associated with coal-fired power generation are substantial and, if included, would significantly drive up the cost of electricity generated from coal.

But despite uncertainties about the appropriate level of these externalities, there is no excuse for giving them a value of zero, as is usually done in Australia.

Other assumptions which affect the calculated price of electricity include the discount rate -- which depends on the availability of finance for capital expenditure, and the company's profit margin -- and the forecast electricity demand (which has been notoriously inaccurate over the past two decades).

So as part of any future greenhouse strategy, the cost of electricity should probably rise, and we should all be encouraged to use less of it. But under present conditions this would significantly disadvantage people on low incomes.

In the cooler parts of Australia, winter electricity bills can already be very costly. Indeed, people on low incomes, particularly those in rental accommodation, may find that their household energy bills -- electricity plus gas -- greatly exceed those of people on higher incomes.

The vast majority of energy expenditure within the home is for heating and hot water. Rental property is often provided with no form of heating, inadequate insulation and electric hot water systems which use the day rate tariff.

Tenants must provide their own heaters, which are invariably electric. The cost of running electric heaters and hot water systems can be three times higher than those which use natural gas. The greenhouse gas emissions for these electricity appliances are about five times higher. Yet governments will still not legislate to require property owners to provide rental property which is suitably insulated and with appropriate appliances.

A proper greenhouse gas reduction strategy requires attention to all aspects of energy supply and use. Schemes such as green power are not only ineffective, but also divert attention from more productive strategies for the development of renewable energy, and they allow government and industry to continue business as usual.

This article was posted on the Green Left Weekly Home Page. For further details regarding subscriptions and correspondence please contact greenleft@peg.apc.org

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