30/05/2012 - 10:49

Solar scheme cost keeps getting bigger

30/05/2012 - 10:49

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The state’s feed-in power tariff has been a costly program, although the full cost may never be revealed.

The state’s feed-in power tariff has been a costly program, although the full cost may never be revealed.

IN May last year I was relieved when the state government chopped the feed-in tariff for renewable energy generators, namely rooftop solar panels.

The tariff was 40 cents per kilowatt hour for power delivered, after taking out power used.

Back then, nearly 46,000 households had taken advantage of this system, blowing the budget and forcing the government to react by cutting it to 20.83c/KWh.

As we know now, that still wasn’t enough to slow the installation rates and contain the ultimate cost to the government. Recent reports show that poor information and communication between state agencies, departments, and the responsible ministry resulted in the number of rooftop solar installations going well beyond the intended capacity.

Given the state government’s strong record on getting value for money from the Building the Education Revolution stimulus funding, the outcome for solar panels is disappointing.

The cost is now estimated to be $450 million over 10 years in terms of payments to households for generating electricity. That is a huge blowout, and it doesn’t even recognise the real cost of what is, in the main, middle-class welfare – because the people who could afford a solar panel system typically could have afforded the cost of traditional electricity.   

Of course it wasn’t just generous incentives coupled with the falling cost of solar units that helped move the herd. The government’s own electricity price rises also proved a catalyst.

This is a double-edged sword, because by shifting households onto solar at a time of price rises, there is also a loss in government income. Given there are 87,752 customers registered for the Renewable Energy Buyback Scheme – 75,966 of whom registered under the FIT scheme – there is potentially a lot of revenue lost.

On the basis of 40c/KWh, the average household using a typical 1.5KW photovoltaic system would cost the government about $200 a year in direct payments for electricity production; but the real cost to the state was closer to $650 a year per household rooftop solar if the lost revenue to government was included.

I don’t know what the estimate is under the 20.83c/KWh scenario, but forgone revenue of $450 per household per year ought to stand.

It is also worth noting that average generating capacity in the area managed by Synergy is around 2KW, so nearly a third more than what the above figures were estimated from.

And what about the cost to Western Power? The power system in the state’s South West has not been designed to have 80,000 small generators, coming in and out every time a cloud goes overhead. Wait for that cost to be revealed.

Super returns

AS many readers will know, I have a bit of a bee in my bonnet about industry funds and their reliance on illiquid infrastructure investments, which like all investments received an inflated valuation during the booming period before the GFC.

I have used as an example our formerly biggest home-grown industry fund Westscheme, which has since been subsumed by national giant AusSuper.

One of Westscheme’s biggest single investments was the Great Energy Alliance, which controlled the Loy Yang power station complex.

In 2007, Westscheme valued its share in GEA at $109 million and in 2008 $105 million. The size of that share was not disclosed but I understand it was 5.7 per cent. Subsequent Westscheme annual reports did not disclose the value placed on this individual investment.

Loy Yang, a big user of brown coal and heavy CO2 emitter, was hit in the GFC due to its high debt and then, no thanks to the industry funds’ mates in the Labor Party, a carbon tax.

This week, GEA’s biggest shareholder AGL got the go-ahead to buy-out the other 67.5 per cent from various shareholders for $448 million. From my back-of-the-envelope calculations, a 5.7 per cent shareholder would receive less than $38 million. That is 34 per cent of its 2007 value; a shocking rate of return. 

It makes equity losses on the share market during and after the GFC look very reasonable. But you never heard this in industry fund advertising.

Repeatability

ONE of the benefits of having global management consulting names in town is that they bring a bit of external speaking talent out here as well, something that meshes well with the local consultants such as Oyster and Barrington Partners, which have proved adept at getting local business leaders to discuss their companies.

Recently I enjoyed hearing Bain & Co’s James Allen speak about his latest book Repeatability, which he co-authored. 

Mr Allen was an engaging speaker, so I can only presume his communication skills permeate through the book as well as they did at the lectern. Having not had a chance to absorb this book yet, I’ll note that Mr Allen has a strong record in the field. The mantra of the book, though, appears pretty easy to absorb – complexity kills businesses and successful ones find activities they are good at and can easily repeat.

The book, like the talk, is full of high-profile examples that, although mainly consumer products companies, makes it easily connectable to any reader and can be adapted to any company, according to Mr Allen.

CEO Sleepout

I AM doing the Vinnies CEO Sleepout in June and have also set a target to reach in fund raising.

While I admit to being quite competitive in many facets of my life, asking people for money so I can reach some form of target is not necessarily in my comfort zone. Nevertheless, it is for a good cause and I have consoled myself with the idea that if I spur a few real CEOs on then I have done everyone a favour. 

If you fancy helping me to challenge the CEO leaders then visit the CEO Sleepout website or go straight to this location:http://www.ceosleepout.org.au/ceos/wa-ceos/profile/?ceo=2101

• mark.pownall@wabn.com.au

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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