Scrapping carbon tax would cripple renewables

Scrapping the carbon tax would effectively halt investment in the country's renewable energy sector overnight without other changes to support the industry, modelling by research group RepuTex shows.

Wind farms are viable at current wholesale power prices including the $23 a tonne carbon price when the renewable energy certificate - valued at about $32 a megawatt hour - is added. Strip out the carbon tax, however, and investment in renewable energy would dry up, said Bret Harper, RepuTex's associate director of research.

"The carbon price is linked to the renewable energy target [RET]," he said. "For those who support the RET but not the carbon price, there's a gap in the logic there."

The Coalition has vowed to dump the carbon price if it wins office in September but supports the RET.

Last week, the federal government left the RET settings basically unchanged at 41,000 gigawatt hours of electricity a year from 2020. That level will require seven gigawatts of new renewable capacity to be built between next year and 2020, or almost triple the 2.5 gigawatts added over the past decade, Mr Harper said.

Those growth plans would evaporate if the Coalition succeeded in its pledge to repeal the carbon price without altering other market conditions. Assuming the tax is repealed by July 1, 2015, RepuTex predicts the large-scale renewable energy certificate would rocket in value to about $85 per megawatt hour, or much higher than the current penalty price cap of $65.

Retailers would simply pay the penalty, limiting investment in any onshore wind farms not yet financially committed.

"The existing scheme has a penalty price, which is effectively a price cap," Mr Harper said. "If you remove the support of the carbon price but you don't adjust the cap, then you will not see the renewable projects being built."

Paul Simshauser, chief economist at AGL, agreed the viability of wind farms is linked to the RET and the carbon price.

"If you do move that carbon price out, it does mean you need to something to fill the gap for wind farms to retain their profitability," Dr Simshauser said.

Even with the RET review leaving conditions largely unchanged, many projects are on hold as investors ponder policy changes.

"Where business and industry really do struggle is when the rules of the game are uncertain," Dr Simshauser said.