Renewable Energy Target is safe…for now

Climate change minister Greg Combet has announced that the government will accept the vast bulk of the recommendations from the Climate Change Authority including keeping the large-scale target fixed at 41,000 gigawatt-hours.

The key elements of the government’s response probably of most concern to the renewable energy sector are:

No change to large-scale target

The government will not alter the large-scale renewable energy target, keeping it at the current 41,000GWh by 2020.

No change to 100kW size threshold for SRES

Contrary to the recommendation of the CCA, the government will not change the 100kW threshold below which solar PV systems qualify for the Small-scale Renewable Energy Scheme (SRES).  This will come as welcome news to those engaged in selling solar PV for commercial business rooftops, which commonly exceed 10 kW (the threshold recommended by the CCA), meaning they will continue to be able to create certificates (STCs) upfront for generation over the system’s life.

This allows renewable energy certificate revenue to be realised immediately, which is very important in selling systems to clients who commonly require very short payback times as electricity generation is not core-business.

Deeming period for solar to reduce over time

Consistent with the CCA recommendation, the length of time over which certificates can be deemed upfront for small-scale systems will be changed such that generation beyond 2030 will not be rewarded with certificates.  This phase-out will take place commencing in 2017.

Reviews of RET to be pushed out to every four years instead of two

Consistent with the CCA recommendation, the time period between reviews of the Renewable Energy Target will be extended to four years instead of every two years. If this manages to pass the parliament it would reduce the degree of uncertainty about whether the settings could be changed for the RET.

Minister to retain power to change SRES price cap

The government has said it will not remove the ability for the responsible minister to be able to lower the price cap for Small-scale Renewable Energy Certificates (or STCs). This enables the minister to be able to quickly act to contain any blow-out in the costs associated with support for small-scale renewables such as solar PV and solar hot water. However it also means that the solar industry continues to operate under the shadow of sudden, and difficult to predict, regulatory change.

BUT WHAT WILL THE COALITION DO?

While there are some aspects of the government’s response that the solar PV sector would prefer to do without (phase-out of deeming and ministerial power to reduce SRES price cap), on the whole the renewable energy sector is likely to be breathing a sigh of relief at the government’s response.

However, their concerns are now shifting to the Coalition. Both the climate change shadow minister Greg Hunt, and energy shadow Ian MacFarlane, have made it clear they intend to review the RET in 2014.

What is perhaps most concerning is that their public statements surrounding their support for the Renewable Energy Target have recently added a qualification. 

At the Australian Alliance to Save Energy Conference a few weeks ago, Hunt restated that the Coalition supports the 20 per cent Renewable Energy Target, but it would be subject to review in 2014, “in light of changes to electricity demand”.

Electricity projections now show that electricity demand (excluding transmission losses and generator self-consumption) will be substantially lower in 2020 than what was expected when the target was originally translated from a percentage into a quantity of electricity. Plus solar PV has grown far more than expected.  This means renewable energy’s share of electricity demand (post system losses) will be noticeably higher than 20 per cent. This outlook is not going to change between now and 2014 when the Coalition wants to hold its review. So the Coalition really has no reason why it has to wait until a review in a few months time to explain how it might adjust the target given reductions in electricity demand. 

Reassuringly they put out a press release today stating,

“Minister Combet’s suggestion that the Coalition has flagged that it will cut the legislated target is completely wrong.”

And,

“The Coalition is very much aware of the importance of providing certainty for the renewable energy sector and that any significant change would create sovereign risk”

Yet so far Hunt’s office refuse to confirm or deny with Climate Spectator whether the drop off in demand means they will reduce the target to fit closer to 20%.  Their defence is that they wish to consult with industry more broadly on a range of issues including the reduction in demand.

Yet they have a detailed report sitting in front of them from the CCA as well as several hundred pages of energy market modelling from several assorted consultants as well as AEMO, and more than a hundred submissions from across industry and other stakeholders.

What on earth do they think they might learn in 2014 that wasn’t already canvassed 6 months ago?