Waiting for sense to return to the RET debate

While political emotion and ideology is clouding the RET game, the renewables business needs to get on with setting a workable target to carry them through the next 15 years.

The real problem with the renewable energy target game at this point is that emotion and ideology have taken over and sensible assessment has gone for a walk in the woods.

How the Abbott government will react to the Warburton panel report is still anyone’s guess, as is how the Senate will react to whatever legislative amendments are put to it, but, in some senses, this is not the main game.

Far too many in the media seem to have taken sides in this wrangle, so some of the hard questions don’t get asked of the protagonists.

As an example, suppose the green brigade has its way and the renewable energy target remains as it is; will the capacity to meet the target actually get built? And what happens if it doesn’t?

Hardheads in electricity supply will tell you that sufficient capacity being built between now and 2020 to deliver 41,000 gigawatt hours of RET power production is pretty unlikely. Some put it more crudely than this.

They note that achievement of the 2020 target from here needs better than a five-fold increase in “new build” capacity provision -- roughly 8,000 megawatts of new wind farms -- and argue that just the approvals process requirements militate against this happening.

Said hardheads point out that, given the state of the east coast market (which is what matters as it represents 90 per cent of supply), new renewable investments also can’t be justified commercially.

“There is little point in having a 41,000 GWh target if the underlying factors don’t support development," they argue.

Consumers will pay a hefty price if the target isn't met.

Failure will see the RET’s penalty provisions kick in, perhaps as early as 2018 or 2019, and the large-scale renewable energy target certificates will shift to the legislated, tax-adjusted shortfall charge -- probably about $93 per megawatt hour (instead of the current average of about $40).

Some say this will represent an extra $600 a year burden for retailers -- that will get passed straight through to customers.

“Wait for the punters to find out they will be paying a big tax for no actual new energy or extra carbon abatement,” say the hardheads.

The other factor in all this is the ongoing political landscape.

Greens may go to bed dreaming of the electorate ditching the Abbott government late next year or early in 2016 but this is la-la land. The size of Abbott’s 2013 majority in the House of Representatives is such that a shift in voting sentiment, say back to 2010 levels, will only dent it.

The hard news for the green brigade, well-recognised in clear-thinking Labor circles, is that the Coalition is in office for at least six years and probably around for nine.

Whatever you may think of financiers, they are generally pretty politically savvy, too, and they are not going to pony up funds for new renewable projects in the market we seem likely to have until late this decade and in an uncertain policy environment.

So what will be the Senate numbers after the next poll?

If you are smart enough to work this out, you are wasted in your day job.

All of the above brings us round, for the umpteenth time this year, to whether the Coalition and Labor can actually negotiate policy in the national (i.e. consumers’) interest rather than for their crass political benefits?

Or whether the Coalition can again cobble together a deal with the mercurial Clive Palmer and others on the Senate crossbench?

And if another Senate deal is the Abbott government’s intent, then whatever it announces later this month (supposedly) about how the RET après Warburton will be only an opening gambit.

All and sundry outside the Big House in Canberra can play the outcome of this game. Pick a number.

Here again, the electricity hardheads have a view.

Their argument is that variations on the “true 20 per cent” RET theme are a waste of breath.

The outcome should be another fixed target related to the best 2020 demand forecast (inevitably the latest guess by the Australian Energy Market Operator, which, it is said, is trying hard to be less wrong in the second half of the decade compared with its track record in the first half).

While the purists reckon that green generators should wear market demand risk like all other producers, in the real world a fixed target is needed because a flexible one just reinforces the uncertainty factor.

And when might this deal happen?

My guess, based on nothing other than far too long spent observing pollies at play, suggests late this year in order for the Coalition to have the issue done and dusted before the 2015 State elections.

The challenge for the sensible people in the renewables business, I suggest, is whether they want to go on riding in the cart of the green ranters and wear whatever spills out of the process or whether they want to get to work to ensure that they have a workable target to carry them through the next 10-15 years?

Decades ago, my granny used to tell me half a loaf was better than no bread.

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