Warburton: RET could go and existing renewables investments receive nothing

The Australian Financial Review carries a story today citing Dick Warburton, chair of the panel reviewing the ongoing shape of the Renewable Energy Target (RET), stating that it’s not guaranteed power plants already built as a result of the Renewable Energy Target would be compensated, or have support arrangements grandfathered if the scheme were to be abolished altogether.

The story states, “Warburton makes it clear in an interview with Chanticleer that there will not necessarily be a grandfathering of existing arrangements.”

The report also states that Warburton is, “crystal clear that every aspect of the RET scheme is up for grabs.”

This is likely to cause a huge shock throughout the power sector, including not just renewable energy developers but also major power companies, superannuation funds, and banks who have a financial stake in such projects.  These projects typically involve upfront investments of tens if not hundreds of millions of dollars which are unlikely to break even until after ten years of operation. They were built under the assumption that they would receive renewable energy certificates out to at least 2020 if not 2030 and would not have been financially viable without them.

This statement by Warburton is supported by other statements from the Government’s RET Review team made to stakeholders at a meeting last week. During this meeting attendees were told that economic modelling of different alternative options for the RET would include a scenario where the scheme was abolished altogether without any costing included for compensation to existing power plants.

Such an option seems extraordinary given that brown coal fired power stations, often bought in full knowledge of the likely prospect of a carbon price being introduced, were provided with several billion dollars in compensation when the carbon price was ultimately implemented.

It is also likely to come as quite a shock given that the Coalition repeatedly assured the public and investors in renewable energy that they fully supported the “20% Renewable Energy Target”. At the time this statement still caused unease because it was felt this signalled the Coalition might scale back the target from its current legislated 41,000 gigawatt-hours of energy, to something lower to reflect a drop in electricity demand growth that had occurred in recent times.  But such a statement couldn’t be reconciled with scrapping the scheme altogether and leaving existing investments stranded.