Kick the RET past 2020

This weekend Australia's best footy teams will go head to head in the NRL and AFL grand finals. For many players this will be the pinnacle of their sporting careers; the culmination of years of training and development.

Just like in football, the Australian renewable energy industry is full of talented individuals and companies keen to showcase their potential. They are fit, primed and ready to go. But do they have the support systems in place to see them through the finals?    

The report Our Clean Energy Future: 100% Renewable Energy Powering Australia's future, released this week, argues that Australia needs a banded safety Renewable Energy Target (RET) out to 2030, to ensure steady growth in renewable energy to create a diverse competitive energy sector that can decarbonise faster, and avoid damaging boom bust scenarios.

The report finds that under three carbon price scenarios and no increase in the RET beyond 2020, as is current policy, the deployment of most renewable technologies will begin to stall by the end of this decade. For some technologies – such as geothermal and solar thermal – deployment could stall for more than three decades.

There would be numerous negative consequences of stalling renewable energy industries. The effects would vary depending on the industry, but could include: bankruptcies, industry contraction, job losses, lost skills, loss of industry learning, reduction in competitiveness, reduced economies of scale, lost opportunity to come down the cost curve, and ultimately higher cost in the medium- to long-term.

The consequences for our energy industry would be reduced diversity, reduced competition, less reliability, higher emissions and an inability to decarbonise faster as industries would be required to grow beyond sustainable growth rates.

The major challenges to decarbonising Australia's energy sector are threefold.

Decarbonisation is time bound – In Cancun in 2010 world governments agreed to limit global warming to two degrees above pre-industrial levels, which scientists recommend stabilising greenhouse gas emissions at 450ppm this century and cutting global emissions by at least 80 per cent by 2050 (from 1990 levels).

We may need to decarbonise faster – Governments also agreed to review the 2 degree goal in 2015 to consider whether we needed to limit warming to 1.5 degrees.

Increase in electricity demand to meet transport needs – Transport currently contributes to approximately 15 per cent of emissions. The logical solution is to electrify land-based transport (and at the same time allocate limited bio-hydrocarbons to aviation and shipping), which will require planning now for increasing demand in the electricity sector and ensuring we have the growth in renewable energy to meet the increased electricity demand.

To meet these challenges, Australia will need to add a wide number of renewable energy technologies and resources into the energy market as early as possible to create a diverse, competitive, and reliable energy market that can decarbonise faster, as governments deem necessary. This will require sustained concurrent growth in renewable energy resources from now until 2050.

Is transitioning to 100 per cent renewables by 2050 achievable?  

The report found that it is technically possible to achieve a diverse and competitive 100% renewable energy electricity sector (including land based transport), by 2050, with the right policy support (see figure 1).

Figure 1: Energy wedge diagram for the 100% Renewable Scenario showing the deployment of renewable energy in the electricity generation sector, with the additional baseline demand from the electrification of automotive transport (COA 2011a).

The report considered three carbon price scenarios and the results indicate that only the highest Treasury carbon price forecast is sufficient to avoid the need for ongoing renewable energy investment post-2020 (this is assuming the carbon price remained high). Other carbon price estimates (medium and low price scenarios) found that at least a further $13 billion would need to be spent in the period 2020-2030 period for close to all renewable technologies to be competitive with fossil fuels.

The report also examined the effect of no increase in the RET post 2020, as is current policy, and found most renewable energy technologies will stall for a period of time post 2020.

This stall would occur because the current RET will effectively finish before all but two industries (solar hot water and large hydro) have achieved cost convergence with projected energy prices. The number of industries that stall and the duration of their stall will depend on the carbon price and gas prices. For example, a very high carbon price could see wind and building-integrated solar PV escape a stall, however, it is more likely that wind, building-integrated solar PV, geothermal, small hydro and ocean energy will stall for between four and 20 years (see for example figure 2).

Figure 2: New renewable energy installed annually for the Core Carbon Price No 2030 RET Scenario (based on the Treasury Core Carbon Price projection; COA 2011a, COA 2011b).

Since the stall in renewables growth is most significant in the decade from 2020 to 2030, the report recommends a more sophisticated incarnation of the current RET after 2020 – a banded safety RET –until each renewable resource achieves cost convergence with fossil fuels.

In the case of a sufficiently high carbon price and adequate renewable energy finance mechanisms, the RET would act as a safety net only and would naturally be superseded by the carbon price market at no additional cost to the economy or consumers.

In the case of a low carbon price, under which investment in renewable industries would otherwise stall, a post-2020 RET would ensure price stability for these industries, and stable continued growth and development of the domestic low-carbon economy.

The analysis shows that regardless of the 100 per cent renewables goal, a safety RET will be important to prevent economic disruption to renewable industries. But given that a 100 per cent renewable goal is desirable (and WWF would argue necessary), figure 1 makes it clear that we need to grow each of the renewable resources concurrently, not only to drive competition and reliability, but to avoid some industries having to grow at unsustainable rates post 2030.

Pre-2020 the Clean Energy Finance Corporation will play some role in supporting renewable resources and technologies that the current RET and carbon price won't support, but greater support will be needed post 2020.

The report recommends a banded or weighted safety RET with specific regulated targets/weights for each renewable resource and with a mechanism to phase-out each industry as it achieves cost convergence with the energy and carbon market. The analysis finds that the safety RET would only be needed between the period 2020 and 2030, after which time almost all renewables will have reached cost convergence.

Does this policy provide lowest cost abatement? In the short-term probably not, but that's not the only objective here. What the policy does do is provide business and investor certainty, stable industry growth, maximises industry learning, build economies of scales, bring down the domestic cost curve, and create a diverse, competitive, reliable and secure electricity and transport sector that can decarbonise faster to meet the climate change challenge. And as the IEA has argued, investing earlier will avoid higher cost in the future of both cleaning up the energy sector and avoiding the worst consequences of climate change.

You wouldn't win a footy grand final with only defenders. Nor would you if you invested in developing a world class team during pre-season, only to sit most of them on the sideline for the whole season and then expect them to excel and win the game on grand final day. Go the renewables!

Kellie Caught is National Manager, Climate Change at WWF-Australia.