Waging war on sensible energy policy

It's difficult to understand the Business Council's basis for scrapping the Renewable Energy Target when it addresses their key policy principles. Defending yesterday's fossil technology doesn't help build a prosperous future.

In an address to the National Press Club on Thursday, Business Council of Australia president Tony Shepherd AO asserted without any basis in fact that Australia needed "to wind up the Renewable Energy Target”.

Mr Shepherd said that the BCA was “consulting widely and broadly” and welcomed the “contest of ideas”, and yet clearly the BCA did not refer to the findings of the recent independent Climate Change Authority review of the Renewable Energy Target.

Following broad and wide consultation and a very strong contest of ideas, modelling undertaken on behalf of the CCA found that:

-- The cost of the RET is an immaterial component of retail electricity bills before taking into account the benefits it brings in reducing wholesale electricity prices.

-- Reducing the large-scale RET would result in higher wholesale and retail electricity prices.

Notwithstanding these findings, by using the BCA’s own criteria, the RET is sensible energy policy.

The BCA calls for an energy policy that reduces greenhouse gas emissions. The RET reduces greenhouse gas emissions by displacing existing fossil fuel generation, and crowding out new fossil fuel investment.

The BCA wants the energy market to be efficient. The RET enables energy market efficiency by delivering an investable long-term price signal for 20 year renewable energy projects at least cost. Inefficient investments (or no investments) result when no long-term price signal exists. This is the point of the RET policy and why it’s a complementary measure.

The BCA seeks a reliable supply of competitively priced energy for Australia. The RET delivers a reliable supply of competitively priced energy – its cost is known up-front and is independent of commodity prices, it’s distributed across Australia and doesn’t depend on gas pipelines or rail networks.

Finally, the BCA is excited about Australia’s potential to be a significant exporter of energy. The RET frees up further energy for export by reducing Australia’s domestic demand for exportable energy commodities.

Infigen strongly agrees with Shepherd’s view that “Australia’s current preparation for the future is somewhere between half-hearted and non-existent.” in particular in preparing Australia for a carbon constrained future.

Australia has a significant challenge to reduce its emissions – amongst the highest in the world on a per capita basis. Switching fossil fuels from coal to gas does not solve the absolute emissions challenge in the medium to longer term. Gas prices are expected to double over the next few years and so it’s doubtful that new gas-fired electricity generation will even be viable. Electricity prices are also already significantly exposed to world gas prices via existing gas-fired generation capacity.

By winding down the RET we would be encouraging the build of yesterday’s fossil technology today, locking further polluting generators into our future and making the job harder for us all to reduce carbon emissions beyond the 2020 target we’ve set ourselves.

The RET has been a very effective piece of legislation enjoying bipartisan support for good reason.  South Australia now sources over 25 per cent of its electricity from renewable energy sources resulting in lower emissions, substantial regional investments and jobs, and perhaps most importantly, lower wholesale electricity prices in that state.

We need policy settings to remain predictable and thereby provide investor confidence. Investment in large-scale renewable energy generation in Australia will deliver economic prosperity to regional Australia and more broadly improve Australia’s competitiveness.

Miles George is Managing Director at Infigen Energy.

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