Original article originally posted at EcoGeneration. View the original post here.
The Renewable Energy Target (RET), initially introduced by the Howard Government in 2001, has enjoyed bi-partisan support. In the lead up to the last election the Abbott Opposition committed to a continuation of the RET but announced that it would be reviewing the scheme, particularly in light of falling demand and that renewables would exceed the initial policy commitment of 20 per cent market share by 2020.
When the RET was separated into the large-scale and small-scale components back in 2010 it was expected that renewables would account for 22 per cent of electricity supply. Back in 2010, the legislation was supported by all major parties.
The review of the RET by a panel chaired by Dick Warburton, a self-proclaimed climate sceptic, has created uncertainty and unpredictability for the renewables industry. The review has all the hallmarks of being a ‘set-up’, particularly when the Chairman advised a forum on modelling assumptions in April this year that they would not be considering the greenhouse reduction benefits of renewables.
A question of timing
I have been asked many times by clients what I thought the outcome of the review would be and when we were likely to know. It is difficult to answer either question. On the question of timing, I understand that the Panel is aiming to provide the report to Government by the end of July or early August this year. It is not clear how long the government will take to consider the report and develop a position. Major changes will require changes to the legislation which will need to be negotiated through the Senate. There is no certainty of the government getting dramatic changes to the RET through the Senate. This means that we may not know how the RET will look for some time.
Regarding the outcome of the review process and the government’s objectives, the government’s narrative leading up to the review was all about “reducing electricity price pressures” and that with falling demand the target was going to result in far more than 20 per cent renewables by 2020. It is worth exploring each of these points.
Increasing renewables share
It has been well documented that increasing the level of energy generated from renewables means that higher cost fossil fuel generators do not need to operate, and as a result, the wholesale price of electricity falls and benefits all customers.
There have been a number of consultancy reports that have shown this, including reports from ROAM Consulting, Bloomberg New Energy Finance and Schneider Electric, supporting the position that customers will be better off. Modelling undertaken for the RET review by ACIL Allen was presented to a forum of interested stakeholders on 23 June 2014. This modelling showed that there would be a material reduction in the wholesale price of electricity by approximately $15 per megawatt hour (MWh) from 2020 and that this would offset the cost that was passed through to customers.
ACIL Allen RET modelling
What was made unambiguously clear at the forum was that the RET leads to lower residential prices and that undermining the RET would put upward pressure on power prices.
If the Government wanted to deal with rising power prices, their best focus would be on electricity transmission and distribution charges and gas prices. It is the charges that are being recovered to fund an unprecedented level of network investment that has driven the massive increase in retail electricity prices over the last five years. Wholesale gas prices are also starting to increase materially, driven by liquefied natural gas (LNG) exports, and these are starting to flow through to higher electricity prices.
Electricity consumption in the National Electricity Market (NEM) has been falling for five years now and the latest forecast from the Australian Energy Market Operator (AEMO) shows that electricity demand is expected to be flat out to 2023.
Modelling undertaken by ACIL Allen for the RET Review Panel estimated that renewables market share would reach approximately 26 per cent by 2020. The Large-scale Generation Certificate (LGC) target required to reach 20 per cent market share by 2020 was estimated by ACIL Allen to be 25,500 gigawatt hours (GWh), compared to the existing target of 41,000 GWh.
The Small-scale Renewable Energy Scheme
With regard to the future of the Small-scale Renewable Energy Scheme (SRES), which supports small-scale solar, there are a number of ways that the scheme could be wound back. It is interesting to consider the approach that the Panel has taken in the development of the 20 per cent scenario that was modelled by ACIL Allen. Under this scenario the SRES was assumed to come to an end by 2020, well before the current end date of 2030. In addition for solar photovoltaic (PV), the 15 years deeming currently available would be wound back from 1 January 2015 to 10 years.
Whilst we will need to wait for the Panel’s final report, it is instructive how they are currently thinking about the issues for solar. It would appear that the rationale for their approach is the view expressed by some quarters that solar PV does not need any support as costs are expected to continue to decline. ACIL Allen seemed to be of this view as they estimate that solar PV installations would only fall by 30 per cent in the event the RET was scrapped.
The RET continues to be critically important in making solar affordable for customers and in its absence, customers would need to pay more than 40 per cent more to install solar PV. Solar industry analysis suggests that the level of solar PV installations would fall by 40 to 50 per cent if the RET was scrapped. This would have a material impact on the solar industry and would destroy industry capacity. This is at a time when we should be building capacity with the need for action on climate change becoming more important.
Ric Brazzale is the Managing Director of Green Energy Trading and has more than 30 years’ experience in the energy sector. Prior to establishing Green Energy Trading, Ric was the Executive Director of the Business Council for Sustainable Energy (BCSE), now the Clean Energy Council, and a leading advocate for the renewable energy and energy efficiency industry in Australia.
During this time Ric was actively involved in the development and implementation of a broad range of solar energy and energy efficiency policies and programs, including participating on the government’s initial REC Advisory Committee. Before joining the BCSE, Ric worked in a number of business development and finance roles with large publicly listed companies, including Fletcher Challenge Energy, John Holland and Woodside Petroleum. Mr Brazzale is a member of the EcoGeneration Editorial Board.