Devil in detail of Renewable Energy Target Review

The devil in the detail of legislation covering the RET Review means it may be used by Origin and some industry lobby groups to undermine investment stability in renewable energy.

The Climate Change Authority is due to provide an issues paper this month outlining the kinds of things it will consider in its review of the Renewable Energy Target. While Climate Change Minister Greg Combet’s speech at Clean Energy Week indicated the government had little interest in large-scale changes to the scheme, the Coalition’s Ian Macfarlane was less emphatic, and indicated they would be guided by the findings of the review.

Even if the findings of reviews such as this one are not taken-up by government immediately, they still tend to have a lingering influence over policy deliberations for many years to come. Industry lobby groups and government bureaucrats have a habit of carrying the torch for particular recommendations many years after they may have been rejected by the government of the day.  

As an example, the Productivity Commission undertook an inquiry into energy efficiency issues in 2005 that was nothing more than ideological claptrap, and could have passed as a pamphlet from the Institute of Public Affairs. Yet the report is still regularly referenced today as some kind of source of authority on what government should do about energy efficiency.

So even if this government is uninterested in large-scale change of the RET, the findings of the RET review matter.

Investors in renewable energy are hoping that the Climate Change Authority will take a very constrained interpretation of their scope for the review. Climate Spectator has reported on how several industry leaders including AGL’s Michael Fraser, Pacific Hydro’s Lane Crockett and Green Energy Trading’s Ric Brazzale believe that regulatory uncertainty and significant tinkering of the RET will undermine investor confidence. This was reinforced by a meeting of the major solar industry representatives who agreed that the RET, while not perfect, did not require wholesale change.

Yet there is potential for the Climate Change Authority to interpret the scope of its review quite broadly. The review is primarily meant to be about whether the Renewable Energy Target is delivering on its objectives as set out in the Renewable Energy Act. On face value these objectives below suggest the review should be relatively benign for investors in renewable energy:

a) To encourage the additional generation of electricity from renewable sources; and

b) To reduce emissions of greenhouse gases in the electricity sector; and

c) To ensure that renewable energy sources are ecologically sustainable.

However there is some devil within the detail of this legislation beyond the words above, which when combined with the legislation governing the Climate Change Authority, mean the review will be used to undermine investment stability in renewable energy.

This is perhaps best illustrated by an Origin Energy presentation Climate Spectator surreptitiously obtained. This presentation, given to the umbrella lobby group for major carbon polluters – the Australian Industry Greenhouse Network – outlines how Origin Energy believe the legislation could be interpreted in a way that could be consistent with a major reduction in the target for renewable energy.

The slide below, taken from the presentation, circles in red a clause from the Renewable Energy Act and also a clause from the Climate Change Authority Act, which Origin Energy will use to press for a reduction in the target.

Slide 4 taken from May 2012 Origin Energy presentation given to Australian Industry Greenhouse Network

Looking at the presentation in the context of Origin Energy’s recent advocacy and own commercial interests, it appears they will argue that the Authority should downgrade the RET because:

-- It does not support a diversity of technologies, with wind as the predominant beneficiary. The presentation states with reference to wind power, “Only one large-scale technology is now contributing towards the expanded target. This technology has other costs which are not necessarily taken into account.”   

-- The RET’s costs per unit of electricity and therefore impact on households and businesses will be higher than originally anticipated because electricity demand in 2020 is now expected to be far lower than originally forecast.

Judging from the comments of other industry lobby groups it seems likely that Origin Energy will not be alone in its creative interpretation on the Renewable Energy Act and Climate Change Authority Act.

It also illustrates why the Authority cannot review the RET in isolation, and needs to consider the broader context in which the RET operates.

While the RET provides relatively undifferentiated support for renewable energy, which is not ideal for technological diversity, the Australian Renewable Energy Agency and the Clean Energy Finance Corporation are supposed to act in concert with the RET to address this problem.

Also while an economy-wide carbon price will deliver lower cost abatement than the RET, it’s highly likely to be abolished by an incoming Abbott government. At least the RET will largely halt the rise in emissions from the electricity sector even if the carbon price is rescinded. And I’d place a lot more faith in effectiveness of the RET than a Direct Action policy, which at present is so vague as to be little better than the policy equivalent of vaporware*.

*As detailed by Wikipedia, Vaporware is a term in the computer industry that describes a product, typically computer hardware or software, that is announced to the general public but is never actually released nor officially cancelled. Vaporware is also a term sometimes used to describe events that are announced or predicted, never officially cancelled, but never intended to happen. The term also generally applies to a product that is announced months or years before its release, and for which public development details are lacking.