Origin's opportunistic RET resistance

Origin Energy signed the biggest renewable energy PPA in Australia and then undid its good work by suggesting a change to the RET – one that would have a devastating impact on renewables.

Origin made big news in the Australian renewables sector yesterday by signing onto the biggest renewable energy power purchase agreement ever contracted in this country – the 270MW Snowtown II wind farm in SA. It represented an almost perfect rebuttal to criticisms by others in the renewable energy sector that the company was playing games to undermine the Renewable Energy Target by holding off on entering into PPAs to create the impression the target could not be met.

But on the same day, Origin CEO Grant King undid this favourable publicity by delivering a presentation where he suggested the level of the RET be reduced by more than a fifth – from 45,000 gigawatt-hours to 35,000 gigawatt-hours in 2020.  In the chart reproduced below, King argued that because electricity demand growth has dropped dramatically, we need far less renewable energy than initially projected to achieve the 20 per cent by 2020 renewables target.

The implications for the large-scale renewables sector from following King’s line of argument would be devastating.

The current target for large scale renewables (LRET) such as wind and biomass is 41,000GWh by 2020, which he suggests should be lowered to 27,000GWh. Based on current legislation, Green Energy Markets estimates that we need to connect 1000MW of large scale renewables to the grid in 2014 (equivalent to about 4 Snowtown II’s) and then 1500MW for each subsequent year to 2020. This adds up to a total of 10,000 megawatts.

As Lane Crockett from Pacific Hydro explained in an interview with me, this is something his company, plus AGL, Infigen Energy, Windlab Systems, Acciona, EPURON, and numerous others have been gearing up to meet for the last five years. They’ve been putting in the hard yards and investment over this period to ensure there’s plenty of projects in development to meet this target. For example, there are already over 5000MW of development projects with planning and development approval in place.

If the government was to adopt King’s suggestion however, I’ve estimated that we’d need just 4400MW of renewable projects or less than half what was required under the original target.

The reason for this very large reduction is because if we were to adopt King’s proposal, it would mean reductions in the target not just in 2020, but every year prior to 2020 . This makes a huge impact because we already have a large surplus of RECs, and it doesn’t take much in the way of new projects (or a lowering in the target) to exacerbate this.

I’ve illustrated this alternative supply-demand balance in the chart below, which illustrates how the huge surplus of certificates burdens the scheme all the way out to 2020. This surplus would then take until 2030 to be fully worked out of the market.

Note: The level of REC demand is higher than 27,000GWh because it also takes into account voluntary demand driven by Green Power. It also incorporates some adjustments associated with government legislation to address an excess of RECs created by small-scale renewables.

Grant King’s attempt to change the goal posts well after the legislation for the scheme was bedded down looks incredibly opportunistic. One wonders whether this is part of lobbying positioning in preparation for a new Abbott government. Time will tell.