Wednesday, September 24, 2014

Who killed the Renewable Energy Target?

It’s not actually dead. But…
Written for Green Left Weekly:

With news that the unlikely climate conscience of the Palmer United Party is holding firm, it appears that the Renewable Energy Target and some associated Federal programs will not be abolished yet. But manufactured uncertainty may yet be enough to bring large-scale wind and solar projects to a standstill.
The Abbott government came to power with a promise to kill Australia’s climate policies, and its actions to date show this is one of their priorities. They have achieved their explicit aim – to repeal the carbon price – and are following up with attacks on the other climate and renewable energy programs.
Even if they fail to pass all the required legislation to remove all these, the climate of regulatory uncertainty may be enough to stop investment. If the renewable energy industry isn’t killed, it may end up languishing on life support.

Australia’s Renewable Energy Target requires that bulk electricity buyers, like the retail companies that sell electricity to the end user, prove they have met the renewable energy target by buying certificates from renewable energy producers. If they fail to buy enough certificates, which will begin to happen if more renewables are not built, they pay a set fine.
It now appears that the big energy retailers and generators are willing to risk paying those fines, rather than see more renewable energy stealing the profits of their assets in big coal power stations.
This sad state of affairs isn’t as new as some critics of Abbott may think. The Renewable Energy Target has seen the boom/bust pattern before. It originated as a policy of the Howard government, for a 2% renewable energy target, and when this achieved ahead of schedule, the target was abruptly scrapped.
The election of a Labor government in 2007 saw the re-introduction of an expanded target, for a total 41,000 gigawatt-hours of renewable electricity by 2020, about 20% of what was then forecast as 2020 energy demand. Yet almost immediately, by 2010, this policy was suffering dire problems.
The government had decided to make an extra incentive for household solar by allocating five certificates for every unit of solar installed. This multiplier made solar very successful, but created a massive oversupply of certificates, and the big energy retailers were able to buy up cheap and store them to meet subsequent years’ obligations.
The result of this was that the certificate price has been held down ever since, and as a result, the construction of new wind farms slowed to a near standstill, compared to the rapid pace of construction in the earlier years. We may not know whether this was a deliberate sabotage of the RET by Labor, but anyone familiar with the pro-coal agenda of then Energy Minister, Martin Ferguson, will have their suspicions.
The multiplier for household solar was moved to a separate, small-scale renewable energy program, which removed the source of the problem, but left the oversupply in the certificate market untouched. It would have worked its way through the system, but the big energy companies (like Origin and Energy Australia) began to use this opportunity to argue that the RET should be reduced or abandoned, because (they said) the lag in construction meant it was unlikely enough renewable energy would be built by 2020.
More recently, their real agenda has surfaced. Energy demand began to fall in 2010 (and continues to do so), quite unexpectedly to the energy industry. Declining manufacturing, increasing solar power, and energy-wise consumers are likely the reasons.
This changes everything for the big energy companies. When the target was set, it was reasonable to assume that in 2020 Australia would be using a lot more energy, and it wouldn’t hurt to have a percentage of the new energy coming from the upstart renewables industry. They could even invest and make money off it.
When it became clear energy use was falling, however, all that changed. 41,000 Gwh of renewable energy would mean that their existing assets in gas and coal power would be unable to sell all their energy: their profitability would be gutted.
This is why these companies want the RET dismantled – or at least moved to a floating 20% target, which would perpetuate uncertainty in the industry. The past two years have seen big wind farm and solar projects put off time and time again, as the RET suffers from review after review, first under Labor, and now the Coalition. Why would anyone start building a wind farm now, if it may be stranded without a support mechanism when it is completed?
What should be clear is that, although the Abbott government wants to inflict the mortal blow, the RET was already reeling from multiple attacks. To reverse the attacks and see renewable energy rolling out rapidly (as it did in the years up to 2010), we need more than to prevent the RET being axed: we need to revamp it.
Friends of the Earth is supporting state renewables targets to take up the slack being left in the crippled Federal scheme, calling for Victorian parties to adopt such a target for the coming state election. There is no reason such targets would need to limit themselves to the weaknesses of that Federal scheme, and they could be set higher.
If Victoria built all the wind farms currently holding planning permits, it would provide at least 25% of currently forecast 2020 electricity demand. South Australia saw a massive expansion of wind power under the RET, and now has over 30% renewable electricity, largely wind, built in less than a decade. Other states could follow suit, especially if you consider the potential for large-scale solar to be included in the target.
The key weakness in current policy is that it is subject to double uncertainty: the uncertainty of a market in renewable energy certificates, which has been manipulated by the big players; and the uncertainty of hostile governments that have put a big question mark over the target’s future.
Renewable energy technology is relatively simple, is becoming cheaper every year, and as multiple studies have demonstrated, could reliably supply all of Australia’s energy before 2030.
Parties supporting serious action on climate change need to consider just what would be in a serious renewable energy policy: we haven’t had one since at least 2010, and now is a good time to reflect on that. And more to the point, we need to end the uncertainty by ensuring that parties which firmly support a rapid rollout of renewables are the ones in power in future.

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