A win for renewable energy from RET Review

A few minor changes aside, it appears the renewable energy target will remain largely untouched after the Climate Change Authority (CCA) finalises its review by the end of the year.

In its preliminary report, released today, the CCA calls for the large-scale renewable energy target of 41,000 GWh to be left alone, despite it likely representing about 25 per cent of total electricity generated in 2020. It also suggests the "broad structure" of the small-scale renewable energy scheme be retained, with the schemes to continue operating separately.

The paper is welcome news for the renewables sector after enduring a rocky few months where there was seemingly a concerted push to cutback the scheme, led by Origin Energy, TRUenergy (Energy Australia) and eastern state governments, particularly New South Wales and Queensland.

The policy is a crucial one for the sector, a rare piece of bipartisan clean energy policy in a tense political environment. If, as many expect, the Coalition wins the next federal election, then great risk surrounds the $10 billion Clean Energy Finance Corporation and carbon pricing, leaving the renewable energy target to do the heavy lifting in the deployment of renewable power (as shown in the graph below of current government policies).

Source: CCA Discussion Paper.

The CCA saw investment certainty as outweighing the money saved in the short-term by reducing the scheme.

Modelling done for the review found the cost impact of reducing the fixed target to more accurately hit a 20 per cent target was fairly modest. The current 41,000 GWh target would indeed lift retail prices for the consumer – but only in the order of $28 per annum through to 2030 (compared to the reduced target modelled of 26,400 GWh). The current target would however, weaken wholesale prices as opposed to changing to a reduced target.

Can it be met?

There has been plenty of discussion as to whether the target can actually be met, with Origin particularly worried about the extent of development required to meet the large-scale target.

“The expansion required in each year beyond 2016 represents several multiples of what has historically been achieved in any prior year. This totals about 9,000 MW over a four year period, or over 2,000 MW per year – compared to about 2,000 MW over the past decade,” the company said in its submission.

But the CCA pointed to the current pipeline of wind projects, which, if all built, would clear the 9,000 MW figure. Indeed, the stats below show more than 13,000 MW of wind is currently on the cards.

Source: AEMO.

Add this to a smattering of large-scale solar projects, largely those that will come out of the Solar Flagships scheme and there is no doubt it can be met, although new wind farm guidelines in Victoria and New South Wales appear a threat to much of the slated development in those states.

Uncertainty is seen as the greatest barrier to reaching the target by many players in the sector, with the Climate Change Authority looking to reduce that by altering the timing of its reviews – from two years to four years.

Indeed, the two year review is untenable given there is a six-month process for carrying out the review, then likely several months after for the government to debate and discuss the recommendations. As a result, there is practically a year between one review being dealt with and the next starting.

“On balance, the Authority considers that … full reviews every four years, will provide an appropriate balance between policy flexibility and investor certainty. It is therefore the Authority's preliminary view that reviews occur every four years with the next review occurring in 2016,” the CCA said.

Such a move does require a change to the legislation and if this cannot be achieved, the CCA would instead continue with reviews every two years but narrow the scope of the review. This would reduce the prospects of investment paralysis while the review is carried out.

A narrower scope would see the CCA focus on “only administrative issues as they have arisen and the eligibility of any new technologies that have emerged.”

Minor changes

The CCA has proposed a number of tweaks to improve the scheme, which include:

-- Allowing emissions-intensive, trade-exposed industries to trade their partial exemption certificates to any liable party, not just their electricity supplier;
-- Providing opt-in arrangements to allow large energy users to better manage their own compliance costs;
-- Converting the SRES clearing house to a ‘deficit sales facility' (whereby new certificates are only allowed to be entered on the transfer list when the clearing house is in deficit);
-- Expanding the number of organisations who may accredit small-scale installers; and
-- Canvassing possible cost containment measures for the uncapped SRES scheme.

The preliminary view of the Authority was that new small scale technologies should be considered on a case-by-case basis for inclusion in the SRES, but none were considered suitable for inclusion at this time.

The Authority also argued the case that solar water heaters and heat pump water heaters should never have been eligible for the scheme in the first place and suggests these as well as any other 'energy displacement' technologies would be better suited to an energy efficiency ‘white certificate scheme'.

Now we wait for a final report and a response from the Labor and Coalition parties. It seems hard to envisage further information might come to light that would sway the CCA from the views outlined in today's report by December however. And given both sides of politics have already signaled support for RET as it stands presently, the CCA's recommendations give no grounds for this to change.