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Australia’s slashed renewable energy target - The impact

BY CONNOR ROBERTS  The damage done by the recent reduction of Australia's Renewable Energy Target cannot be overstated. 

To date, over A$10 billion worth of investment has been directed to Australian large-scale renewable energy projects. Primarily, this is because previous investments by major local and global investors were based on the legislated renewable energy target (RET), and the presumption that the 41,000 gigawatt-hour (GWh) target would be in operation until 2020.

An agreement reached by the Coalition and the Labor party in June reduced the RET by 20% and ended a year-long impasse between the two political parties, which had stalled development plans in the renewable energy industry and threatened the existence of the RET altogether.
Although the new RET agreement is beginning to restore confidence in the industry, the outcome will have a dramatic impact on potential renewable energy project investment and the energy sector as a whole.

Before going any further, let’s first understand what the Renewable Energy Target is…
The RET is a market mechanism, implemented by the Australian Government in 2001, designed to reduce greenhouse gas emissions in the electricity industry, and to promote the generation of additional electricity from green energy sources.

The RET works by allowing small-scale system owners and large-scale power generators to produce certificates for every megawatt of power generated per hour. These certificates are then purchased by electricity retailers in charge of selling electricity to businesses and households. This way, the market provides financial incentives to both owners of small-scale renewable energy systems and large-scale renewable energy power stations.

Back to the fixed GWh target…

The previous 41,000 GWh target would generate sufficient revenue to recover investments already made. However, now that Tony Abbott’s government has scaled back the target to 33,000GWh by 2020 for large-scale renewable energy projects, investments made under the policy (especially existing large scale renewable energy projects) are likely to suffer financial failure or distress.

The approval of the RET reduction marks an end to a 15 month stalemate between the Labor Party and the Coalition, but what does the new target mean for the future of renewable energy industry in Australia? The new legislation makes Australia the first country in the world to reduce a renewable energy target, just a year after it became the first to abolish a carbon tax.

Australians primarily use electricity from gas and coal fired stations as well as some renewable energy sources such as small-scale solar rooftop panels, solar hot water, large-scale wind farms and hydropower facilities to power their homes and businesses.

The Australian government argues that the reduced renewables production target is necessary because the overall energy consumption has fallen from the initial projected amount for 2020. However, many clean energy stakeholders have pointed out that the reduced target will result in the loss of billions of dollars in potential revenue from large-scale projects, as well as thousands of jobs.

Andrew Bray, the National coordinator of the Australian Wind Alliance feels that the government’s move to slice the RET was a clear indication that it had "learnt nothing" from the Warburton review. He further noted that its own commissioned research had revealed lower projected electricity prices over the longer term period with the RET unchanged.

"What the government has indicated is that it wants to increase the massive profits of big power companies by charging everyday Australians more for their electricity," Bray said in a statement.

Uncertainty in renewable industry investment

One of the difficulties for renewable energy projects is the up-front cost of development. Currently renewable energy projects at the feasibility stage are approximated to cost AU $21.8 billion in total, compared with just AU $9.1 billion which represents fossil fuel projects that have almost the same power generating capacity.

However the comparison fails to take into account the total cost of fuel over the entire life of a fossil fuel project. This doesn’t mean that investment in fossil fuels projects is more viable. On the contrary, while alternative energy projects involve higher up-front costs, they also deliver substantial long-term benefits. Contrary to this, the federal government has attempted to abolish government organisations established to support large-scale renewable energy projects, including the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC).

Most of the recently completed generation projects were initiated several years ago, and even though newer projects are expected to enter the planning stage, it is unlikely that many will go beyond the feasibility stage. Indeed, if the RET remains in its current form, and without the support of the ARENA and CEFC, the industry’s ability to support renewable energy projects from the concept level to deployment stage will be thwarted, plunging the sector into a state of stagnation in terms of investment.

John Grimes, Chief Executive of the Australian Solar Council says that following the RET reduction, no changes have been made to small scale solar of less than 100 kW, and the solar hot water schemes remain “open for business”.

In other words, alternative energy in Australia will only be based on the use of proven technologies such as wind and solar, at the expense of less recognised energy sources such as wave or geothermal energy. While this may sound like good news for the solar industry, renewable energy technology innovation, for which Australia is known internationally, is likely to desist.

Fossil Fuels remain dominant

In the words of Lane Crockett, the General Manager of utility Pacific Hydro: "What reason can there be [for this cut] other than to protect the coal industry?" In its Electricity Gas Australia 2014 report, the Energy Supply Association of Australia revealed that about 88% of power produced (192,205 GWh of the total 218,000 GWh registered for 2012-2013) comes from fossil fuels. Most of the rest comes from hydro power, which falls outside the RET. Solar, wind and biofuel sources of energy account for just 8000 GWh.

What this means is that if Australia is to meet its newly approved 33,000 GWh target, the alternative energy sector has to quadruple its current output level, which has been stalled as a result of the stalemate. Promoting more investment in large-scale renewable projects is thus critical.

The federal government’s rationale for the reduction is that, based on future projections, 41,000GWh would be far more than the initial 20% of the overall energy output that the RET scheme was expected to deliver. Contrary to this view, future energy projections are highly uncertain, and depend on a host of factors including the country’s economic growth.

For instance, as stated earlier, the most recent (2012-13) annual power production figure stands at 218,000 GWh. Based on this level of demand and assuming it remains constant until 2020, taking 20% of that would give you 43,600 GWh of renewables. Obviously more than the previous 41,000 GWh target. So why widen the gap even more by reducing the target?

According to Darryn Van Hout, the editor of the renewable energy customer care website, Australian Solar Quotes, the reduction of the RET will deliver a serious blow to the industry. “The reduction of the RET means the loss of 8000GWh of large scale renewable energy investment. It also tells investors that the federal government has a hostile attitude towards the renewable energy sector. This means major local and foreign investors with interest in these projects will have less confidence in the long-term viability of project investment and development.”

Future economic growth towards the 2020 target requires more electricity generation, not less, unless the Australian government retains the economy in neutral state - something that is highly unlikely following a report on growing resource exports in its Energy White Paper.

Investment Pipeline

A report from the Bureau of Resource and Energy Economics suggests there is approximately 1540 MW of serious renewable energy projects (253 MW of solar and 1287 MW of wind) in the pipeline. Meantime, the government’s Energy White Paper indicates that 75% of current coal-fired power plants have exceeded their expected useful life. The government has guaranteed stakeholders in the industry that a “technology-neutral” approach to generation of future energy capacity will be adopted. In this regard, more gas and coal plants are expected to be built before alternative energy projects to ensure the Australian baseload power needs are met.

This confirms that the government is intentionally minimising the renewable energy industry. It is channeling increased resources towards further exploration in the gas and coal industries, thereby increasing revenues from exports, as opposed to delivering sustainable energy security for the future by diversifying investment in renewable energy.

Even though the small scale solar scheme remains intact and the RET’s biannual reviews will now cease, the real damage done by the reduction of the RET cannot be overstated.

ABOUT THE AUTHOR

Connor Roberts is a journalist and copywriter. He works in the Australian renewable energy industry, and is a frequent contributor to Solar Energy News and Australian Solar Quotes.

FURTHER INFORMATION

Australian Solar Quotes: https://www.australiansolarquotes.com.au
 

Posted 10/07/2015 by Libi Israeli

Tagged under: renewable energy , renewable energy targets , Australia , Carbon Tax

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