Cut to RET of no benefit to manufacturers - Aust Industry Group

The key representative body for the Australian manufacturing sector, Australian Industry Group, has said that reducing the Renewable Energy Target would deliver little, if any, savings on energy bills for its membership while increasing investor perceptions of risk in the Australian energy sector.

However, AiG has also said that the target should still be adjusted downwards because of concerns about whether it is practically possible to build enough renewable capacity to meet the target given the short amount of time left to 2020.

The AiG’s submission to the government appointed panel reviewing the RET notes:

...a number of studies exist [it references four energy market modelling studies] that investigate costs of the RET and likely changes to it, and these all point to the one conclusion: that, given the widely corroborated effect of the RET in lowering wholesale prices, significant reductions in the RET would deliver mediocre or negative benefits to energy users.

AiG chief executive Innes Willox said in a press statement:

“After consulting with our diverse membership and reviewing the evidence currently available, we have judged that reducing the RET is likely to cost energy users as much in higher wholesale prices as it saves them in direct RET charges.”

Such a statement coming from the industry body with a genuine membership base in manufacturing should carry considerable weight in the political debate surrounding what to do about the RET. 

While there are a range of other industry groups such as Business Council of Australia and the Australian Chamber of Commerce and Industry that have been highly critical of the impact of the RET on manufacturing competitiveness, the reality is that their policy positions are not informed by a deep membership base in manufacturing.

ACCI is to a large extent a conservative political shell that has no actual real companies as members, just other industry associations. Its senior staff over the years have usually been Liberal Party staffers, often serving as former advisers to Liberal Party ministers and shadow ministers. Also, the current CEO Kate Carnell used to be a Liberal Party politician and past CEO Peter Hendy is now the Liberal Party member for Eden-Monaro.

And the Business Council of Australia’s position is driven largely by members deeply involved in energy supply. In particular, Origin Energy’s Grant King is said to exercise considerable influence over the council’s ultimate policy positions, with members outside the energy supply sector having little involvement.

Tony Abbott has largely justified the need for a review of this scheme on the basis that it was placing “pretty significant price pressure” on energy consumers and he was concerned about the global competitiveness of Australian manufacturers.

But with AiG echoing what most energy market modelling analysts have found, which is that the RET has little, if any, impact on increasing net energy costs for consumers, this largely puts Abbott’s concern to bed.

Instead, the issues for the review to address become more about:

1) Whether the target can be practically achieved given the limited amount of time left to 2020? And also whether such a renewables construction rush to 2020 followed by a cliff in investment is sensible and helps better prepare the country for the challenge of decarbonising the economy?

2) Is there a benefit to society from bailing out incumbent electricity generators from the losses in profits they are experiencing from their failure to foresee reduced electricity demand, which justifies changing a government policy which many of them already knew about prior to making many of their investments? And does this benefit outweigh the losses from reduced investor confidence and heightened risk premiums that will be applied to investments that will be vital to decarbonise the economy?

AiG’s submission suggests that there is a major problem in relation to point 1 above that means we need to lower the large-scale renewable energy target for 2020. But they argue this cut should be to “a level that is practically deliverable in 2020, but no further”.

This is likely to lie substantially above the levels being pushed by energy suppliers of a “real 20 per cent”. This would require a level of large-scale renewables project construction well below that already banked up with a range of approvals.