Government and Renewables – Submissions

There are a couple of consultation and submission processes open at the moment, which have the capacity to significantly change the way Government engages with the renewable energy sector.

The first is a process to discuss ARENA’s (The Australian Renewable Energy Agency, formerly ACRE (the Australian Centre for Renewable Energy, which I worked on)) funding strategy:

Submissions—draft general funding strategy.

And second, there is a review into the Mandatory Renewable Energy Target:

Renewable Energy Target

ARENA is a statutory authority outside of departmental/ministerial structures, governed by a board of industry experts. They are allocated money in the Federal budget, and then decide how to spend it. ARENA inherited a couple of programs already running and with contract management responsibilities to complete, such as the REDP, (renewable energy demonstration program) Solar Flagships and a few other little odds and ends. Full list here.

I hope this consultation process does influence their decisions, as the past few years have been difficult in renewable support programs. The very large ones, such as Solar Flagships, have struggled to get contracts signed and money out the door. Why? It’s hard to put a finger on any one cause, but my suspicion is that as the programs become more ambitious (Solar Flagships would use $1B to fund “the largest solar plant in the world”) the risk profile extends beyond what government wants to engage with. Most of these programs are on a 1:1 or 1:2 funding agreement, meaning private sector funds must be secured before the government will sign.

There is a giant body of work on how government should engage with renewables, the cornerstones of which are the Wilkins review from 2008 and the Garnaut review from 2011. Of these gigantic documents, chapter 6 of Wilkins is particularly interesting, discussing the most effective way for government to support renewable energy technologies. The thrust of this is that government involvement should be related to how “mature” the technology is, and that the earlier they intervene in the innovation pathway the more beneficial to the Australian economy. On the pathway from Basic Research -> Technology Research (application) -> Market Demonstration (which includes “demonstration scale” then “Pilot scale”) -> Commercialisation -> Market Accumulation -> Diffusion/Acceptance, government should stop being involved somewhere around demonstration/pilot stage then let the “pull” of the market do the rest. My understanding is that this is how ARENA will operate, so expect to see a change from the giant projects of the last few years, to more of the early stage/university research projects. This submission process will flesh out whether or not the rest of the sector think this is a good way to go.

The RET review has been a big deal in the press, as everyone in the industry has an opinion on it. As an example, here is piece from Climate Spectator, summarising some of the industry opinions.

The RET was created in 2001 as a way of supporting renewable energy. I won’t go into the mechanism in too much detail today, but I’ve talked about it previously here.

The “problem” that is being reviewed here is about the target. Originally the RET was created to ensure 20% of Australia’s electricity came from renewables, but it was legislated with a giga-watt hours target; not a percentage of generation target. This seems esoteric at first, but it means they projected what electricity use might be in the future, and calculated what 20% of that is. However, since electricity use has dropped in the last three years, those projections are now too high and it looks like the RET is going to lead to more than 20% renewables as a result.

Why is that a problem?

A lot of people don’t think it is a problem; too much renewable electricity seems like a good problem to have. But the difficulty is that the RET drives up electricity prices. Not much, compared to network costs in the last few years, but that *is* the purpose of the policy; it is a “cross subsidy” where the costs are smeared across all consumers and renewables are supported. So with the political pressure of higher power prices, there is a temptation to bring the RET back to 20% of actual generation, and reduce upward pressure on prices. But, the flipside of that is what will happen to the renewable energy sector? The concern within the sector is that changing the target will reduce incentives for renewables, which is true, leading to projects falling over or becoming unprofitable. Whether or not this is true remains to be seen, but I would expect most of these sorts of projects would include a bit of REC price volatility in their revenue estimates. Obviously though, this straw might be the one that breaks the camel’s back.

What to do then? Grant King, CEO of Origin Energy has suggested raising the target to 25%, but also moving the date back 5 years. Essentially just extending that same rate of growth, out past the end of the program. They could reign the target back in and fix it to a percentage of all electricity again or do nothing. It’s a tough call, and I’m glad it’s for Minister Combet to make, not me.

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About evcricket

Extreme gardener, engineer and bird nerd. View all posts by evcricket

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