Q&A: The future for the clean energy sector

Ric Brazzale, CEO of Green Energy Markets and Trading and a leading analyst on the market in renewable energy certificates, outlines his views on the future for clean energy and Coalition policy.

In an interview with CEO of Green Energy Markets and Trading, Ric Brazzale, we discuss:

-- A historical look at the clean energy industry

-- The future prospects for the clean energy sector

-- The Coalition’s Direct Action policy

HISTORICAL LOOK AT CLEAN ENERGY INDUSTRY

TE: Ric, you’ve played a very prominent role in advocating for the interests of the clean energy sector stretching back to the mid 1990s, particularly during you time as the head of the Business Council for Sustainable Energy (merged to become the Clean Energy Council).  When you look back at the state of various parts of this industry, cogeneration, renewable energy, energy efficiency, today versus past experience, does it impress you or does it disappoint you?

RB: I think there’s a… probably a bit of both depending on which sector we look at. 

Certainly the impressive bit is how far the renewable energy industry has come. Both in large scale and small scale, although I might caution that the last couple of years have been really disappointing for large scale power generation for a number of reasons that maybe we can get to later. But certainly the small scale, solar PV in particular has grown dramatically.  It’s amazing when we think now there are about one and a half million homes/ installations of either solar hot water system or solar PV system across Australia.  That’s just phenomenal and we never would have thought that would have happened. 

Perhaps the disappointing thing is that energy efficiency has probably not delivered as much as what a lot of people were expecting.  It’s now starting to come into its own, being supported by things like the New South Wales and the Victorian Energy Savings Schemes. 

But co-generation has been disappointing.  It has always been touted as a technology capable of delivering significant, low cost greenhouse abatement and we just have not seen the take up of that in any large way.  But it could change with something like a carbon price or a greenhouse abatement scheme or if it’s covered by an energy certificate scheme. 

So, probably I’d say energy efficiency, particularly in the commercial and industrial sector has been disappointing and I think that there’s a lot more to do in that regard.

But certainly we’ve seen fabulous success in solar and Australia is now back into one of the ten largest solar markets in the world. We’re back to a position we had fifteen years ago when we were one of the world leaders in this technology.

It’s amazing when we consider the growth in the number of people employed in the solar PV industry.  I think at the moment estimates are that more than fifteen thousand people are employed in solar PV now. If we think back, just five years ago there were only about two thousand or even less than two thousand people employed. So we’ve built significant industry capacity.

This industry capacity has led to significant improvements. So even while international panel prices have probably stabilised a bit, we’re seeing install costs continue to drop because we’re getting better at installation.  We’re also installing bigger systems. So, installation costs per kilowatt installed fall as well. We’ve seen people in the solar industry come up with much more innovative distribution and sales models.

And certainly the Australian community has embraced it in a big way, so it’s now making a material contribution to reduced emissions. We’re seeing that in the reduction in electricity consumption particularly across the NEM states.

TE: So, you think that part of that reduction can be attributed to solar?

RB: Well, if you’ve got one and a half million installations around the country with a solar PV or solar hot water, it’s got to be making one hell of a contribution, absolutely. And well, we can calculate how much… you’d be looking at two or three megawatt hours per installation equivalent, maybe more, so you do the numbers.

TE: Times a million and a half, that’s three to four million megawatt hours which is up there with a moderate sized coal fired power station.

RB: Yes. So that’s material.

FUTURE PROSPECTS

TE: Looking forward now, if you’re sitting in the clean energy sector, there seem to be threats coming from a range of camps.  We’ve got state governments removing even a one for one tariff for solar PV, let alone some kind of premium to encourage it.  We’ve got major industry associations, and even state governments calling for the abolition of the Renewable Energy Target.  And the carbon price which you were one of the sole business voices in favour of in the early 2000s looks like it’s facing a stillbirth. 

Are you optimistic, or are you afraid of what awaits the clean energy sector over the next five to ten years?

RB: Well, I think the next year or two will be a challenging period of time for the clean energy sector. We can’t just assume that support we’ve enjoyed, over the last few years, is going to continue. 

A major concern is the targeting of the complementary measures like the Renewable Energy Target by some of these industry groups. I  think the bigger concern would be if we had a carbon price removed and these schemes were undermined in some way at the same time, that would be a lose-lose for the industry. 

Having said that though, it is important to remember that both major parties have got the same emission reduction target, a five per cent reduction in emissions by 2020. And the Opposition is on the record as supporting the Renewable Energy Target and have got their own abatement scheme.  So, I think provided we can maintain bipartisan support, at least for the renewable schemes and some things like the energy efficiency schemes, then it may not be as bad.

 I think certainly our industry would generally support the certainty around a carbon price rather than the uncertainty around an abatement tendering scheme. But I’d imagine once we get closer to the next election there will be much more clarity and so I’m still optimistic that we still have the requirement to reduce greenhouse gas emissions. 

The technologies in our sector (renewable energy and energy efficiency) offer the best chance to actually deliver that in a reasonable timeframe in a cost effective way.  It’ll be  a bit ugly in the next little while. But I think longer term, the need to reduce greenhouse emissions is not going away.  So, nothing has changed, from the scientific community.  In fact, if anything, the need for action is getting more dire, is getting more urgent. 

OPPOSITION DIRECT ACTION POLICY

TE: Greg Hunt has talked favorably about the New South Wales Greenhouse Gas Abatement Scheme.  If that was perhaps the model for the Direct Action scheme, do you see that playing quite a useful role in developing the clean energy sector and delivering greenhouse gas abatement?

RB: I think the literature and the analysis are quite clear; the most effective scheme would be an emissions cap and trade scheme. But as we don’t have bipartisan support that makes it really difficult for any businesses in our sector to invest with confidence.  So therefore looking at a more general abatement scheme, like a New South Wales Greenhouse Gas Abatement  Scheme (NSW GGAS) where you can internalise a value for greenhouse gas emissions, you know, will work substantially in the same way as an emissions trading scheme will.  Provided there are robust rules and regulations around it, something like NSW GGAS could deliver most of what an emissions trading scheme will.  But don’t get me wrong, it’s never going to be as good as a cap and trade, but it can deliver maybe eighty or ninety per cent.

TE: Now, you were around when the Howard Government had a tendering initiative for purchasing gas abatement called the Greenhouse Gas Abatement Program (not to be confused with the NSW Greenhouse Gas Abatement Scheme).  What was your experience of that program for things that you were involved in and that of members of the Business Council for Sustainable Energy?

RB: In hindsight, we were unfortunate to have been successful in tendering for that program and it just proved really difficult to actually deliver anything out of that.  We were looking at support for small scale gas fired power generation, and really after a couple of years we weren’t able to get any projects up.  It just proved too difficult. 

And I think the evidence since and certainly some of the work that you’ve done at the Grattan Institute will show that government grant schemes just don’t work in delivering large scale transformation and outcomes and project outcomes. In fact we’ve seen is the polar opposite to what happened with market-based trading measures – whether it’s the renewable energy scheme or energy efficiency schemes or even the NSW GGAS scheme.  Where we’ve got a market based scheme where the benefit can be internalised by a number of market players.  We deliver much lower costs abatement and we deliver much greater abatement.

TE: Is that because of… you’ve got clear, upfront transparent rules about who and what qualifies? 

RB: That’s part of it, but also you’ve actually got a pricing mechanism.  You’ve got reasonably transparent pricing [around the value of abatement] and people can respond to those prices.  You can enter into commercial arrangements, contract around that and internalise the benefit.  You can’t do that with a grant-style scheme because you don’t know whether you’ve got the grant and you may never know until after you’ve spent lots and lots of money. Even then you might get the grant and then just have difficulty in closing the projects. 

So, show me how many grant based schemes have delivered actual projects on the ground  - it’s a really sorry tale of affairs.

TE: So, I suppose the lesson from that is if Abbott is elected, he should go for something that looks more like GGAS, the New South Wales scheme rather than the tendering scheme of GGAP.

RB: Oh, absolutely

You don’t have to look any further than what’s been delivered in the solar industry.  You know, 1.5 million solar installations, you know, across Australia have actually sort of been registered for renewable energy certificates.  In fact, some people would argue it’s been way too successful.  So, if you’re trying to deliver abatement, market transformation and  position the Australian economy and Australian businesses to deliver deep cuts in greenhouse gas emissions which will be required, it’s these sorts of schemes that will deliver that. 

The other really important point is that our sector has delivered on these schemes.  So, in other words, governmentset up a target-based mechanism and business steps up. New businesses have come in, new business models, things that we didn’t even envisage, have proven to be very successful.

TE: Yeah.  So, I suppose if government provides clear rules around the pot of gold at the end of the rainbow, you will be surprised by what ways people will come up with to exploit it.

RB: Yes.  Look, that’s true, but the other way to look at it is with a number of these schemes you need to create an incentive mechanism that’s able to be captured or the value internalised by a number of aggregators or intermediaries who can bundle up products and services in ways you never thought and the energy efficiency schemes are a really good example where we’ve seen free lighting products or free standby power controllers that people have innovated to come up with models that actually sort of remove a whole lot of costs within the supply chain and delivered this massive abatement and delivered sort of significant industry transformation where  we now have a large number of energy service companies who will be out there knocking on the doors of consumers and offering, you know, different products and services.

TE: And essentially squeezing out the costs that were there previously.

RB: Yes. In fact, that’s exactly what’s done. They’ve innovated, not so much through the product innovation, but they’ve innovated in the delivery and through the supply chain.

TE: And that’s resulted in major benefits for consumers.

RB: Absolutely.

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