Questions cloud Coalition's renewables policy

As polling is strongly pointing to a Coalition victory in the federal election expected in 2013, both business and environmentalists are taking a closer look at the Coalition's commitments to renewable energy in their 2010 Direct Action climate policy.

This policy remains the official Coalition position on its website – but many elements of the plan have been seriously questioned by experts and others have been overtaken by events. In all likelihood, the Coalition will bring out a refined version before the election dealing with some of these criticisms.

The renewables centrepiece of Direct Action was the commitment of $100 million each year for an additional one million solar energy homes by 2020. This was to be achieved by a capped program of 100,000 rebates a year of $1000 each for either solar photovoltaic or solar hot water rooftop units.

As there would only be seven years left between 2013 and 2020, if the funding remains capped, there would only be funding for an additional 700,000 solar homes. Assuming the Coalition updates its policy, it would need to put $143 million a year on the table to deliver an additional million solar homes over seven years. This also assumes that $1000, apparently unindexed, will remain the right level of subsidy to achieve the goal.

The most recent Clean Energy Australia report indicates the number of solar photovoltaic homes had already reached 513,585 by August 2011, half of which had been installed in the previous eight months. The market has since cooled but the promise of a new rebate could see a situation where the available 100,000 rebates were exhausted part way through each year leading to a "stop-start nightmare" for industry and confusion for home owners.

The easy policy path would be for the Coalition to amend its Direct Action Plan to exclude solar photovoltaic on the grounds it does not require an additional government subsidy and that the market will easily deliver the one million additional homes over seven years. Admittedly, it is unclear what will happen to future demand for solar photovoltaic units if the new government talks down their effectiveness and repeals or changes the Renewable Energy Target (RET).

Despite hardening Coalition rhetoric from the backbench, it seems likely the Coalition will retain the RET in some form. In 2010, the Direct Action Plan included creating a band of up to 6000 gigawatt hours within the RET to be reserved for solar projects over 50 megawatt or geothermal or tidal projects over 10 megawatts. The impact of implementing this part of the policy on the market for RET certificates in 2014 remains very unclear.

The number of solar hot water systems has also more than doubled in three years – with nearly 450,000 installed between 2009 and 2011. Although the federal rebate has now been terminated, installations of solar hot water alone are likely to achieve the Coalition target of 100,000 houses a year.

The Opposition has taken an aggressive stance opposing the government's termination of the previous $1,000 solar rebate for solar hot water – to the extent of supporting a private members bill for its extension.

The Coalition will therefore be tempted to simply redirect the Direct Action Plan funding to solar hot water – setting up a contrast to the government by just continuing an existing subsidy.

This is flagged in the Direct Action plan, which says that subsidies would be "on top of existing incentives" for photovoltaic rooftop systems, but would "replace the current solar hot water incentive when it ends."

This is complicated by the fact that electric storage heaters are meant to have been withdrawn from the market by 2013, which may drive solar hot water sales much higher. Electric hot water is particularly concentrated in northern states which are also the most attractive for solar hot water heating. The need for a further subsidy may therefore be questioned on economic grounds – although it is likely to remain intuitively popular with the electorate.

The Coalition claims this rebate will reduce annual CO2 emissions by 2.4 to 3 million tonnes by 2020 – although this is less than 2 per cent of their overall target of 140 million tonnes reduction.

Moreover, at a cost of $1 billion over 10 years, this abatement will cost $300-400 per tonne of CO2 in 2020 – an inordinately high cost for abatement and far greater than the impact of the $23 carbon price across the economy.

The second leg of the Coalition's "practical action" is a series of politically sellable, small scale pilots. These include four years of funding for:

-- At least 100 "flagship" solar projects in schools, in addition to the current program, to deliver larger scale rooftop systems for up to $0.5 million

-- At least 25 "solar towns" will be given up to $2 million on the basis of the greatest CO2 savings for medium scale solar projects

-- Another 25 towns will get similar grants for micro geothermal and tidal projects.

The total commitment of $200 million over four years is small compared to commercial loan funding being provided through the Clean Energy Finance Corporation – but it gives Coalition MPs 150 opportunities to hand out grants for local projects.

Realistically the size of the grants would only support small scale projects, collectively unlikely to generate more than 100-150MW – which is insignificant in the overall national energy market. The Coalition offer no estimate for the abatement attributable to these pilot projects, but using the same "rule of thumb" applied to household photovoltaic, the emission reduction would be less than 0.4 million tonnes – pushing the cost past $500 per tonne.

Another big uncertainty is what the Coalition will do with any contracts to phase out the 2000 megawatts of brown coal power stations by 2020, that the Gillard government is committed to finalising by June this year. Closure of the most inefficient power stations should be a natural part of the concept of "direct action" and should come at a pretty competitive cost given the age of power stations like Hazelwood, Morwell and Playford.

However, consistency has never been Tony Abbott's strong suit. His recent strong public statements opposing early closure of Hazelwood include saying that it would be unacceptable if "one job is lost". This suggests the Coalition will also line up against the payments for early closure.

Whether they pursue this line beyond their initial reaction will be interesting – there will always be an "out" that the contract was entered into by Labor and can't be changed. Yet given their broad position about "direct action", why they would oppose it at all remains a mystery.

As the next election comes nearer by the day, one can only look to the Coalition for answers and a new version of their Direct Action plan that addresses the numerous issues it raises.

Andrew Herington is a former Labor Ministerial Adviser now a Melbourne freelance writer.