Drafting our energy future

In a wide ranging speech, Martin Ferguson, Federal Minister for Resources, Energy and Tourism, outlines the federal government's clean energy plans.

A transcript of a speech from Martin Ferguson to the Clean Energy Council's Strategic Advisory Forum.

We all recognise the potential clean energy can play in Australia's future energy mix.

Accordingly, the Australian Government has established a package of measures and instruments to help realise this potential.

Central to the government's Clean Energy Future package is an ambitious target of reducing our national emissions by 80 per cent of 2000 levels by the year 2050.

Clearly if we are to meet this target then ambitious levels of investment in our clean energy sector will also be required.

I’d like to use today’s event to clearly outline what the government is doing to provide the necessary conditions for investment in the energy sector and the role for clean energy .

I also want to discuss the importance of managing risk in the delivery of government programs.

Specifically, if we don't carefully manage risk then we undermine the confidence that is necessary for the clean energy sector to maintain high levels of government and community support.

The challenge of attracting investment

As you know, the Australian Government is working hard towards the introduction of a carbon price on July 1 this year.

This is a decisive move towards lowering emissions from electricity generation and industrial activity.

The government recognises that many companies here today face significant challenges in getting projects off the ground.

Many companies are finding a generally risk adverse investment environment following on from the global financial crisis.

There is also private sector reluctance to invest in clean energy technology because it needs further refinement and greater efficiency before investors are confident of reaping sufficient returns.

The result is that the industry is confronted with a 'Catch 22' – companies are reluctant to invest in clean energy until it is technically and commercially proven, and yet it cannot be proven until investors are willing to take the risk to invest.

All of which means that progress towards large-scale commercial demonstrations has proven particularly slow in this environment.

Yet there are good reasons to be optimistic about clean energy, and with more than 600 member companies participating in the Clean Energy Council, I see clear signs of this.

The Government is creating the foundation upon which clean energy investors can build.

The carbon price and the Renewable Energy Target will be powerful mechanisms for prioritising the development of renewable and lower emission technologies.

And through bodies such as the Australian Centre for Renewable Energy (ACRE) and the Australian Solar Institute (ASI), the government has already been investing heavily in driving down the costs of renewables and driving technological improvements.

This investment will continue from July 1 this year, with the establishment of the Australian Renewable Energy Agency (ARENA), consisting of an independent board and CEO with responsibility for administering $3.2 billion of consolidated government funding.

I will soon appoint the inaugural ARENA board, whose members will draw on skills in the development of technology, commercialisation, business investment and governance.

A chief executive officer of ARENA will follow.

Building on ARENA's work will be the establishment of the $10 billion Clean Energy Finance Corporation (CEFC).

An expert panel is finalising how the corporation should operate but its clear intent is to identify gaps in the market in order to finance commercially competitive large scale clean energy developments.

Once the expert panel finishes its work, the government will be in a position to introduce legislation into the Parliament.

Collectively, measures in the Clean Energy Future package provide the groundwork – the bedrock – to delivering new investment in clean energy.

Having established this foundation, it will now be up to industry to work within this framework to deliver reductions in carbon emissions and to lead a technological transformation.

Building confidence and managing risk

Yet there are two important aspects of the Clean Energy Future package that cannot be quantified by money.

Namely, how do we as a government and you as an industry manage risk and build confidence in clean energy technology?

How we manage risk in the allocation of taxpayer funding and the administration of programs will be crucial to the success of ARENA, the CEFC and the sector as a whole.

Public confidence is critical to continuing government support.

With this in mind, it is vital ARENA and the CEFC are run with integrity and support robust and sensible clean energy developments.

Industry members must also respect the independence of these new agencies.

In my view a lot of confidence in the industry can be undermined by unsuccessful grant applicants liberally criticising the government's decision not to allocate money to them.

People are entitled to be critical of government programs they have participated in, particularly where it leads to improvements in how we administer these programs.

But these criticisms ought to be delivered in the appropriate forums.

In terms of the direction of one particularly important clean energy program, Solar Flagships, ARENA will assume responsibility for it from July 1 this year.

That means it will not be a decision for the government as to whether a second round of Solar Flagships funding occurs.

Rather, it will be for ARENA to determine, through the independent board's own funding strategy, what further support exists for large-scale solar projects.

I want to be clear that ARENA and the CEFC will be independent – not only from the government but also from short-sighted misinformation campaigns run by interest groups that think they alone know the answer to Australia's energy security challenges.

Just recently we have seen a campaign, using grassroots environmental groups across Australia, to pressure the CEFC into funding 2000 MW of large scale solar.

This kind of misinformation campaign ignores and misrepresents the government’s substantial commitment to large-scale solar, not least through the Flagships program but also through the Australian Solar Institute.

And I say to the energy autodidacts making these kinds of unreasonable calls: if you want the community to continue their significant investment in renewable energy then you should respect the independence and expertise of ARENA and the CEFC.

Indeed, from July 1 it simply won't be credible for these groups and their political bedfellows to construct conspiracy theories about the government deliberately undermining the administration of renewable energy programs.

Building confidence in the industry means that we need to honestly engage with the broader community about the challenges and benefits of developing the clean energy industry.

We are committed to addressing the challenges of delivering clean energy – which is a long way removed from the cheap criticisms of minority party politicians more interested in generating donations and recruiting members.

When you lay out the Clean Energy Future package – a $23 a tonne initial carbon price, $17 billion of investment in clean energy, and a $20 billion cross-subsidy through the RET – it becomes pretty clear that support for clean energy is at historically high levels.

I think all of you will appreciate that this significant support, administered with independence and integrity, will go some way towards reducing the risk in investing in these technologies and building community confidence.

But the government cannot do this alone.

The clean energy industry needs to stand on its own two feet.

New options for clean energy technology must continue to face market forces so that only commercially sustainable business models are developed.

There are two good reasons why we leave it to the market to determine the best technologies for Australia's energy mix: 

-- Firstly, it selects which technologies are the most cost effective, which is important for maintaining our economic competitiveness whilst minimising cost of living pressures on households; and

-- Secondly, because markets test how a technology operates in practice and then improves their utility through further research and development.

That's why it is irrational for governments to pick winners and promote one technology over another.

We will support demonstration projects that familiarise investors with new technologies, and the private sector can then develop the successful business models.

The Renewable Energy Target

Turning now to an issue I know is on the minds of many in the renewable energy sector – the future of the bipartisan Renewable Energy Target.

To date, the RET has been successful in bringing forward renewable energy projects, particularly in wind and household solar PV. 

As you would be aware, a legislated review of the RET is due later this year.

I am aware that many of you here today are advocating for no changes to be made to the RET.

I recognise the importance of investor certainty to this sector and the implications changes could have in terms of investor confidence.

However, it is importantly to remember that, like the institutional arrangements I have outlined earlier, this will be an independent review conducted by the Climate Change Authority.

I encourage you to make your views known to the Authority.

Energy White Paper

Just as I also know a lot of you have shared your views on the Draft Energy White Paper.

Since the draft paper was released last year, a series of consultations have occurred in state and territory capitals, and the government has received a large number of submissions from industry and bodies like the Clean Energy Council.

Consistent with our Clean Energy Future package, one of the four priority areas indentified in the draft is accelerating clean energy outcomes.

As the draft White Paper highlights, and as I have emphasised today, this will require ongoing support for research and development, as well as removing barriers to new investment and identifying market gaps that interfere with the uptake of clean energy.

An exciting period

In closing, ladies and gentlemen, building confidence in government support and private sector investment in clean energy is crucial to its commercialisation in Australia.

In return, industry must work with government to carefully manage the risks involved in large-scale public investment in clean energy programs.

With the government lowering the risks and increasing incentives for investment, we are on the cusp of an exciting period of activity.

Ultimately, under the Clean Energy Future package, it will be up to industry to get out there and take advantage of this vastly improving environment, to promote your skills and technologies and to attract the investment needed to make your vision a reality.

I wish you the best of luck in this endeavour.

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