Green pain coming

COLD comfort though it might be for the coal industry, as it labours under the weight of low prices and political attacks, but there are positive signs on the horizon, especially if you look at events in Germany, as Hogsback did this week. There you can see the start of a long-term recovery in coal production.

Tim Treadgold

The problem, as it always is with anything described as long-term, is recognising that there might be years waiting for the signs to morph into bankable good news.

However, what is happening in advanced western economies such as Germany and Australia is the slow dawning of what it really costs to try and replace reliable, bulk-load, sources of energy with erratic and high-cost renewable power.

And when we talk about bulk load we’re talking about industrial-strength power of the sort that drives the factories that create the jobs everyone craves, especially at a time of high and rising unemployment.

Subsidies, a word barely mentioned by coal’s political opponents, are the root cause of the turn which The Hog can see as the underlying weaknesses of solar, wind and other forms of renewable power are progressively exposed.

In Australia, the issue has started to surface but remains just background noise in the overall energy debate with comments criticising multiple layers of subsidy for green-power schemes invariably taking a distant second place to the headline grabbing claims of the anti-coal brigade.

This week’s suggestion from Green Party leader, Christine Milne, that the Australian government’s $83 billion Future Fund sell all stocks with exposure to coal was the latest example of the deep-seated financial illiteracy dominating the debate.

What Senator Milne fails to understand (or perhaps she does) is that dumping $3 billion of coal-linked shares onto an already depressed Australian stock market would have a devastating effect on the companies involved, their employees, and the overall Australian economy.

She might not like it but coal is an absolutely essential ingredient in the way Australia works, and easily the cheapest source of energy which, in tough times, assumes an even greater level of importance than when times are good.

To see where people such as Senator Milne want to take Australia it is worth looking at how the German experiment in green power has evolved. Rather than being the “powerhouse” of Europe the once mighty German engine is sputtering under high and rising power costs.

It is too early yet to describe evolving events in Germany as a crisis but as politicians, industry leaders, and ordinary households start to digest the importance of a gathering of obscure European bureaucrats last month the alarm bells will ring loudly.

European Energy Commissioner, Gunther Oettinger, warned that subsidies for green power would have to end or Germany could be hit with punitive fines potentially amounting to billions of Euros.

A formal inquiry by the European Commission has been launched into Germany’s system of paying massive subsidies to companies producing electricity from wind and solar power after complaints were lodged by several neighbouring countries.

Last year, according to the German news magazine, Spiegel, wind farm and solar array owners were paid €18 ($A 24.9) billion in direct subsidies so their electricity could compete with that produced by coal and nuclear power stations.

According to Spiegel the subsidies developed as a key part of the country’s Renewable Energies Act. If that sounds like something that has developed in Australia over the past 10 years that is because it is.

Under the German system producers of wind and solar power have been offered a guaranteed, fixed price, for the electricity they produce over a period of seven years.

“The entire subsidy system is supposed to come to an end when green energy becomes competitive,”Spiegel said. “That, at least, is the theory”

However, what is slowly dawning on the German government is that green power dreams are becoming unaffordable. The solar and wind systems are simply not delivering at the price (or volumes) promised, and the squeeze on coal has made it extremely competitive – which means the subsidies must rise as coal becomes cheaper.

To put a big number of what the green power drive is going to cost Germany over the next 10 years start thinking €100 billion as a starting figure with households discovering that 19% of their electricity bill comprises the green-power subsidy, and growing.

With an economy already burdened by social welfare subsidies the last thing Germany (or Europe) can afford is a rising bill for electricity subsidies. However, that is exactly what is happening and The Hog reckons it should not take too long before someone says enough is enough.

Will that signal the return of coal? Possibly is all that can be said today, but at least the first signs of the worm turning can be seen in Germany with other countries to follow.

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