There's good reason the RET was never a percentage-based target

The Conversation

Labor has walked away from negotiations with the government over changes to the Renewable Energy Target, saying the proposed cuts of almost 40% are too deep.

Industry minister Ian Macfarlane says he is only trying to bring the scheme back into line with its “original bipartisan intent” of 20% renewable energy by 2020.

Yet this wasn't the original intent. The Renewable Energy Target has gone through a variety of iterations over its lifetime, but never has it been officially defined in terms in terms of a percentage target.

In 2000, Parliament agreed on a fixed target of 9500 gigawatt hours of new renewable generation by 2010, under the original Mandatory Renewable Energy Target (MRET). This was implemented by the Howard Government in 2001 and was intended to increase Australia's renewable energy supply by 2%.

In 2003 this target was reviewed for the first time, by a panel chaired by the Country Liberal Senator Grant Tambling. This Tambling Review made 30 recommendations, including this one:

"MRET targets to continue to be expressed in gigawatt hours and not as a percentage of overall electricity demand."

The key rationale for this recommendation was that percentage-based targets would have an adverse effect on market certainty. The inherently uncertain nature of electricity projection would result in regular revision of the MRET, increasing financial risk and reducing the prospect of attracting the required financial backing for projects. The review reported that:

… a fixed target is more compatible with market certainty, with MRET's industry development objective, which defines a level of renewable electricity generation rather than a percentage of a fluctuating electricity market over which the industry has no control.

In response, the Howard government reconfirmed its commitment to the MRET at the level of 9500 GWh.

Expansion plans

The MRET was expanded in 2009, with the parliament legislating a 2020 target of 45,000 GWh. This expanded scheme and the 45,000 GWh target was meant to deliver the Rudd Government's policy commitment of at least 20% renewable generation by 2020.

The 2020 target was later split into two parts: the Small-scale Renewable Energy Scheme and the Large-scale Renewable Energy Target, the latter with a revised target of 41,000 GWh. When the Climate Change Authority reviewed this target in 2012, it also recommended that:

… the form of the target should remain fixed in terms of gigawatt hours … a one-off change to the level of the target risks damage to investor confidence and possibly more so if the target was expressed as a percentage, or in gigawatt hours but adjusted over time.

Interestingly, at the time of the Tambling review, many different groups supported an increase to the 950GWh target, as this would be met well ahead of the 2010 target date. Based on projections at the time, a “real 2%” target would equate to around 12,800 GWh in 2010 – an extra 3300 GWh of renewable energy.

Funnily enough, energy company AGL argued at the time against revising the target. According to the Tambling Review, AGL “expressed a preference for the retention of the current target”, whereas others “accepted that it should be retained on the basis of sovereign risk”.

A percentage-based target has previously been identified as having adverse impacts and damaging investor confidence – even when hitting the percentage target would mean revising the gigawatt-hour target upwards.

Now we have the opposite situation, with calls to revise it downwards to hit an arbitrary percentage. This could potentially be even more damaging to investor confidence – yet those previous recommendations seem to have been entirely lost in the current discussions about the “real 20%” target.

Dylan McConnell is a research fellow at the Melbourne Energy Institute at the University of Melbourne.

Dylan McConnell received funding from the Consumer Advocacy Panel

This article was originally published on The Conversation. Read the original article here.