An Infigen and Origin Energy grand compromise

At the All-Energy conference today, Miles George, chief executive of renewable energy developer Infigen Energy, and Steve Davy, CEO of Hydro Tasmania, effectively conceded we need to look at revising the level of the Renewable Energy Target.

Both said the level of uncertainty surrounding what the new government and oddball Senate (although they didn't use those precise words to describe the senate) might do to the RET legislation makes investment in new capacity impossible at present. In addition the withdrawal of the carbon price and the depressed nature of electricity demand means the price of electricity may be too low to support new investment, even if the regulatory uncertainty was removed.

On that point Kane Thornton, Deputy chief executive of the Clean Energy Council noted that because coal generators are reluctant to exit the market, prices could remain low for some time, unless a generator is given a push by government to exit.

Add to this the fact the new minister responsible for energy, Ian Macfarlane, publicly stated last Thursday that he wants the RET put “on a sustainable basis”, which would appear to say he thinks the current target is too high. At the same time by saying they intend to review the target next year, the federal government has effectively frozen any commitment to invest in new plant for another year. This acts to almost make Macfarlane’s concerns self-fulfilling, as it squeezes the amount capacity that needs to be built to meet the target into a short five year period. 

Also some of the projects built towards the tail end of this decade would be faced with little more than 10 years support from the RET when they really need fifteen years.

Faced with such circumstances the renewable energy sector has to consider whether they might be better off compromising on the level of the 2020 target to get some greater certainty over their longer-term future. 

Miles George pointed out rushing to meet a 2020 target with 2 gigawatts of wind projects per year for a few years followed by a bust isn’t desirable. While he felt the target could still be met, he wondered out aloud whether the industry would be better off with a slightly reduced target to 2020, but support for further construction of capacity out to 2030.

This is not that far removed from what Grant King CEO of Origin Energy outlined to me in an interview several weeks ago (Grant King gets it right), stating:

I probably personally slightly prefer a higher RET target later. I actually think 30 [per cent] by 2030 with a tail to 2040 is far more sensible than our current scheme, for example.

Could a grand compromise be achieved between the renewables sector and incumbent electricity players? 

At present it seems some time off. And even if they could come to a joint position, there’s nothing to say it will be a compelling proposition for the government to adopt.