A 'real 20%' would halve the renewables build

In announcing the appointment of its panel to review the functioning of the Renewable Energy Target the government was at pains to emphasise that it had no predetermined agenda or outcome in mind and would be open to ideas. 

This was perhaps said with the intention of reassuring stakeholders that they hadn’t already made up their minds to slash or abolish the Renewable Energy Target as is currently embodied in legislation.

Fears tend to focus on the government reducing the target as currently embodied in legislation down to a level that has been termed a “real 20 per cent” market share (with that market defined in a way that actually has a series of carve-outs that mean it is lower than actual Australian total electricity generation). The current legislation specifies a fixed amount of energy to come from large-scale renewables which, in combination with separate support for solar, is expected to overachieve on a target of renewables making up 20 per cent of power consumption.

Yet this statement about having no pre-determined agenda could also be interpreted another way: that in spite of repeatedly promising in the lead up to the election that the Coalition supported a target of achieving “20 per cent” renewable energy by 2020, it would be willing to abandon such a promise. 

Climate Spectator asked a spokesperson from Minister Hunt’s office about whether they could rule out changes to the scheme that would mean renewable energy fell short of 20 per cent share. The spokesman said they would not be ruling things in or out and did not intend to pre-empt the review.

A similar question was put to Ian Macfarlane at a February 18 press conference, which received a similar answer:

There are numerous examples prior to the election where both Greg Hunt and Ian Macfarlane stated that the Coalition supported a 20 per cent RET. One example was a speech by Hunt to the Carbon Expo in November 2012:

“I would like to re-state that the Coalition supports a 20 per cent Renewable Energy Target. This has been a long-held bi-partisan position.”

The government always tried to be vague about precisely what this commitment to 20 per cent renewable energy actually meant, given that the current legislation specifies a fixed amount of energy not a percentage of electricity demand. For those engaged in the renewable energy sector and those concerned about climate change, the Coalition let them think that this might mean no changes to the current legislation. For those, like incumbent power generators, whose commercial interests are threatened by renewable energy, that they let them think this might mean the legislation would be changed to scale down the RET.

For those with an eye for the numbers, Origin Energy and TruEnergy’s push for a so called “real 20 per cent” would be devastating for the renewable energy industry. This was revealed by the Climate Change Authority in its 2012 review of the scheme. But this didn’t take into account the fact that over 2012 and 2013 hydro generators substantially upped their output and hence the supply of renewable energy certificates. This was partly due to plenty of rain, but it also reflected a push to take advantage of a time limited opportunity – higher power prices supported by a fixed price on carbon emissions. Pumping out lots of output within a short window of time meant these generators exceeded RET baselines and allowed them to create more Renewable Energy Certificates than normal given the amount of rain.

Based on the latest December estimates from Green Energy Markets, a specialist analyst of the market for renewable certificates, if the RET legislation were left untouched we would need around 4600 megawatts of renewable energy capacity to be installed before 2020 to meet the target.

But if the target is reduced to 20 per cent of eligible demand then it’s almost halved to 2650 MW. The profile of supply is illustrated in the chart below.

The problem for the sector is that there is a huge overhang of certificate supply from exceeding targets in prior years. This overhang of certificates is illustrated by the black dashed line and takes some time to be used up. On top of existing already built and committed projects we need 700 MW in 2017, 1600 MW in 2018 and 250 MW in 2019 plus two large-scale solar projects planned for Moree and Bungendore near Canberra.

This is a small fraction of the pipeline of renewable energy projects under active development in Australia.

Supply of renewable energy by source to meet a revised 20 per cent of eligible demand target

Source: Climate Spectator analysis based on Green Energy Markets and SKM-MMA data