CLIMATE SPECTATOR: Has Combet got it in for solar?

Climate Spectator

On the weekend the Australian Financial Review carried an interview with Greg Combet, where it stated:

Climate Change minister Greg Combet revealed he was prepared to make further changes to the small-scale renewable energy target, which requires energy retailers to buy solar credits……….. "What is important in the transformation of the energy sector is large-scale renewable energy,” Mr Combet said.

The report went on to add:

"The Climate Change Authority will review the RET but it is understood one option canvassed in government is to scrap the small-scale renewable energy scheme. Mr Combet said the reduction of the multiplier would take cost pressures out of price rises but indicated he was still concerned by the impact of the small-scale renewable energy scheme.”

This was then followed on Monday by a report in The Australian that stated:

Mr Combet told The Australian yesterday the government had no intention of increasing the RET, and the review would focus on the administration of the scheme. He said it might also be asked to examine concessions for rooftop solar panels. [underlining my emphasis]

Climate Spectator followed this up with Minister Combet's office and was told that the Small-Scale Renewable Energy Target was always going to be reviewed as part of the broader review by the Climate Change Authority of the Renewable Energy Target. They also stated that the Authority's recommendations cannot be inconsistent with the objectives of the RET legislation and they recognised the importance of regulatory stability for investment confidence.

This response is reassuring for the solar PV and hot water sectors. Yet at the time of writing, Combet's office was unwilling to confirm or deny whether the government itself, independent of the  Climate Change Authority's review, was actively investigating a further scale-back in support for small-scale renewables, or even abolishing support altogether. One would hope this could at least be ruled out.

On top of these news reports, Combet's public commentary seems to suggest a degree of scepticism about the potential for solar to make a meaningful and affordable contribution to Australia's future emissions reduction efforts.

Due largely to Combet's own government's policies, Australia has moved from being little more than a pimple on the global market for solar PV, to becoming the largest residential solar PV market in the world last year – bigger than Germany – and one of the top ten markets overall. In addition, the cost of installation for solar panels in Australia (excluding the cost of modules and inverters) has halved. Also the level of federal government policy support for solar PV has dropped from $8000 per kilowatt to $1600 per kW during the period of this incredible growth. Yet you would struggle to find a single example where Combet points out his government's incredible success in solar.

Instead Combet repeatedly uses solar PV as an example of high cost abatement. On Channel Ten's Meet the Press on Sunday, he stated:

"Guess what the cost of deploying solar panels on rooftops costs, per tonne of greenhouse gas emissions it's reduced? Anything up to $400 a tonne of greenhouse gas emissions that are reduced.”

He made a similar point last night on the ABC Television's Q&A program.

In the past it was certainly true that support policies for solar PV were little more than an expensive window-dressing exercise to fool concerned Australians that the government was doing something about global warming. And the cost per tonne of CO2 saved was astronomical. But this has changed.

Based on the current spot market price for small-scale Renewable Energy Certificates or SRECs of $26, the level of support provided to solar PV from the SRET is now around $52 per MWh of electricity generated (2 SRECs at $26 for each deemed MWh of generation). This equates to a cost of abatement about a tenth of what Combet is citing, and comparable to the level of support required for large-scale renewable energy projects.

The cost of support for solar PV had a major blowout in 2011, but the cost of support will drop dramatically due to a plummet in the price of SRECs to $26 now, versus close to $40 back in March 2011. In addition the number of SRECs awarded for the first 1.5kW has been cut by three fifths, and will halve again by next year. These perceptions of high costs haven't been helped by state electricity price regulators failing to realise this drop in the SREC price.

And solar PV has now reached a level of scale that is capable of substantially shifting electricity markets, acting to suppress wholesale electricity market prices in Germany, and starting to even lower prices in Australia. The installed power generation capacity predicted for solar PV in developed nations over the next decade dwarf those of nuclear, exceed coal, and are not all that far off wind and gas. Those that invest in power generation may have previously thought solar was a bit of joke, but they are taking it deadly seriously now.

Support for solar PV needs to phase down over time and act to automatically adjust to prevent massive cost blowouts. But let's not pretend that somehow solar PV should be fine competing against fossil fuels with a carbon price at $23 per tonne of CO2. This falls well short of correcting for the damage these emissions will cause and we are still a long way from a level playing field based on a carbon price alone.

With the halving in the number of renewable energy certificates small PV systems are eligible for next year, the dramatic reduction in state feed-in tariffs, and a price for SRECs which has shown a capacity to readily drop in response to surges in supply, Combet and Energy Minister Martin Ferguson should be careful in rushing to make further changes to the SRET.