Grant King gets it right

In an interview with Origin Energy chief Grant King we find something to agree on - a boom in wind power followed by a bust is not good policy. 30% renewable energy by 2030 is one alternative he floats, but don't expect to see Origin lobbying for it.

I agree with Grant King, Origin Energy’s chief executive. Yes, that’s right, I agree with someone I’ve been persistently critical of.

In an interview* with King, he points out that we’re now looking at a situation where we have such little time left to meet the Large-scale Renewable Energy Target that it will drive a boom in wind farm construction and then, after 2020, there will be nothing for many years – a bust.

All that effort and capacity we’ve built up will then atrophy and go to waste.

He also claims, to my disbelief, that he never advocated for reducing the Large-scale Renewable Target from 41 terrawatt-hours (TWh) to 27 TWh. This has been termed a “real 20 per cent” policy because it is aimed at ensuring renewable energy did not represent much more than 20 per cent market share of electricity demand, now that demand growth has declined significantly.

Here’s a snippet of what was said:

Tristan Edis: Well, I suppose one of the things you’ve said is that [the RET] should be a real 20 per cent. I know people [the Energy Supply Association, for example] have talked about moving back to a percentage-based scheme rather than a fixed gigawatt hours or fixed units of energy [target]. So you don’t actually have a preferred position? You don’t necessarily believe that we should move to a percentage-based target?
Grant King: I think there are great possibilities. I probably personally slightly prefer a higher RET target later. I actually think 30 [per cent] by 2030 with a tail to 2040 is far more sensible than our current scheme, for example. And one of the reasons is that our current scheme now has so little time left that all it’s going to do is cause more wind to be built at a high unit price with little advancement of technology or any other stated objectives of the scheme when it was brought in.
Tristan, I think it’s a really, really important point that what happens when people throw points in for discussion and say this is not working as we intended, people don’t debate the facts, they target the legitimacy [of the person] … they say 'well, you’ve got vested interests'. I have not said the answer is 'X', ever. I’ve said 'we could do this, we could do that', but to properly really know what … [we] need to know what problem it is we’re solving for.

This was a bit of a surprise to me. In reading Origin Energy’s submission to the Climate Change Authority, it states:

... we are advocating a one-off adjustment to the volumetric (GWh) target … Our estimates of a real 20 per cent target in 2020 are based on the assumptions on page three of this submission. Such assumptions would imply an LRET target of about 27 TWh in 2020.

Nonetheless, King makes a legitimate point. We need to ask whether a rush of wind farm construction followed by a bust will leave Australia better prepared to decarbonise its economy. We don’t want to build-up firms’ and individuals’ skills and capabilities in wind power only for them to be left to rot on the vine after 2020. Also, we need more than wind power if we are to successfully decarbonise the economy.

A Renewable Energy Target that had a longer time frame, even if it ramped-up slightly slower but ended up at a higher level than 41TWh, may do a better job of building Australia’s capabilities in low carbon electricity technologies.

Also, greater thought needs to be given to how policy could drive a diversity of low carbon energy options beyond wind, while minimising the dead hand of politicians and government officials picking and choosing their preferred projects.

But there are great risks in playing with the target.

Delaying the point at which a policy starts to really bite could completely undermine the investment credibility of the policy. Investors will come to believe that when push comes to shove politicians go to water on policy to reduce emissions, as they’ve done with the carbon price.

It also emboldens lobbyists representing polluters to continue to undermine such policies. We’ve had more than a decade’s notice that the law would require a very large build-up of renewable energy capacity. But for the most part the liable companies, in Origin Energy and Energy Australia, have bided their time.

This can create a self-perpetuating cycle. Investors and polluters don’t make the necessary efforts required for a government target to be achieved because they don’t take it seriously. As it becomes apparent the target will be very hard to meet, government waters down the target to avoid companies paying penalties that impose costs on consumers without improving the environment.

This self-perpetuating cycle would flow through to emissions reduction policies more generally, not just renewable energy, and would undermine any future emissions trading scheme.

So while I agree with King that the Renewable Energy Target as currently designed is problematic, I have great concerns surrounding what they’ve advocated as an alternative. Reducing the Large-scale Renewable Energy Target to 27 TWh by 2020 would completely pull the rug from underneath companies that made investments in developing large-scale renewable energy projects. I would also note that Origin and other electricity generators that have advocated for reducing the RET to a real 20 per cent, have not explicitly supported increasing and extending the Renewable Energy Target after 2020. So we’d still end up with a bust scenario.

In following up on the interview with King, I asked an Origin spokesperson if his 30 per cent by 2030 Renewable Energy Target idea was something Origin was considering adopting as a formal position. It's not.

We now face a situation where the Coalition has completely undermined the investment credibility of a carbon price. If they also slash the Renewable Energy Target to a “real 20 per cent” investors are unlikely to take a government seriously about targets to reduce emissions for a very long time.

*Click here for the full transcript of Climate Spectator's interview with Grant King on carbon pricing.

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