Government issues renewables death warrant

It appears that optimistic speculation that the government would abandon its jihad against renewable energy and all things clean energy was wrong.

Industry Minister Ian Macfarlane has confirmed, in response to questions from the media today, that the government intends to slash the large-scale Renewable Energy Target. But it could be far worse than just lowering the large-scale RET to 26,000GWh in 2020 instead of the current target of 41,000GWh.

Macfarlane, and then Minister Hunt via Twitter, have said that they would not seek to change arrangements for “household solar”.

Yet the scheme that provides upfront rebate support for household solar systems – the small-scale Renewable Energy Scheme, or SRES, operates up to system sizes of 100 kilowatts. Household systems tend to be no bigger than 10kW at a stretch and generally are 5kW or below. This suggests a radical cut to the SRES where systems above 10kW or possibly 5kW would be pushed into the large scale Renewable Energy Target, or LRET. This would mean any growth in sales of these commercial rooftop systems would come at the expense of the utility-scale renewables projects such as wind farms.

So utility-scale renewable energy project developers will see a double whammy:

1. The large-scale RET would be reduced from 41,000GWh down to something like 26,000GWh.
2. In addition, a significant portion of this reduced target would be consumed by the growing commercial solar rooftop segment. This is running at a relatively modest level of under 100 megawatts per annum at present. However a range of major solar retailers see this as their key source of growth and are optimistic about expanding sales to this market.

However, the growth of the commercial solar segment is also likely to be throttled by the fact that they would no longer be eligible for upfront rebate support with a move to the LRET. Nonetheless it adds another highly unpredictable variable of uncertainty for wind farm developers making bankers even more nervous about financing wind farm projects.

But it gets worse.

Macfarlane in his comments to journalists appeared to endorse the Warburton recommendation of capping any growth in the Renewable Energy Target to a maximum of 50 per cent of any annual growth in electricity demand. So while the target for 2020 might be set at 26,000GWh, if electricity demand were to continue to grow very slowly or not at all, then the large-scale target would be throttled back.

This would add another dimension of uncertainty that is likely to get financiers especially nervous. It is likely to further hike up the cost and reduce the availability of finance for utility-scale projects.

The one piece of good news, if you could call it that, is that Macfarlane said he was keen to address the large overhang of excess renewable energy certificates, or LGCs, weighing down the spot market price for these certificates. However, no detail was revealed on what the government has in mind and how it might act to protect the value of existing renewable energy project investments, which were made on the assumption of a far larger renewable energy target than 26,000GWh.