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Renewable energy target in the spotlight


Peter Martin

Investors in the electricity industry, encouraged by renewable energy targets, face a tough time if the rules are changed.

Opening of the Mildura Solar Power Demonstration Facility in Carwarp, Victoria.

Opening of the Mildura Solar Power Demonstration Facility in Carwarp, Victoria. Photo: Clancy Shipsides/Sunraysia

So concerned was Greg Hunt about the future of the solar industry that he went skydiving at Tooradin in his electorate of Flinders to back an industry he said was in freefall.

That was in 2008 when he was shadow environment minister. Labor had means tested its solar panel rebate. More recently, after the 2013 election, he promised $500 million for a One Million Solar Roofs program and a further $50 million each for a Solar Towns and Solar Schools program. He was going to plant 20 million trees and keep the Renewable Energy Target.

The budget killed his One Million Solar Roofs program, shrank his Solar Towns program to just over $2 million and made no mention of his Solar Schools program.

The Renewable Energy Target stands, just. Introduced by the Howard government in 2001, it forces electricity retailers to buy an increasing number of gigawatt hours of electricity from renewable sources peaking at 41,000 a year in 2020 and staying there for a decade.

It's given foreign and Australian investors the confidence to build $10 billion of new wind and solar farms knowing there'll be a market for what they produce.

Even better, it's had bipartisan support. The targets are locked in by law.

Cutting or axing them mid stream would leave the investors stranded with little hope of making good on the money they've outlaid. 

Hunt's aware of what would  happen. Here's what he said on June 19, 2013 in the lead-up to the election: "One of the things we don't want to do is to become a party where there is this wild sovereign risk where you are, where businesses take steps to their detriment on the basis of a pledge and a policy of government. And we're very clear that that's not what we want to be."

The Coalition said it would review the scheme on attaining office,  but would not axe it. The review would ensure it was "operating efficiently and effectively".

Dick Warburton's review has commissioned modelling which finds the target both increases and reduces the price of electricity. ACIL Allen finds household bills will be an average of $54 a year higher for the next five years and then an average of $56 a year lower for the following 10 years. By 2030, bills will be $91 per year lower with the scheme than without.

What's important is that these are small numbers. The broader finding is that the scheme changes electricity prices little, in either direction.  The introduction and then removal of the carbon tax and a steady stream of price increases from suppliers themselves swamp the impact of the target.

 Competing modelling by Roam Consulting for the Clean Energy Council finds the target will cut bills by $50 a year by 2020, also a low number.

A third set of modelling conducted by Deloitte Access for the Chamber of Commerce and Industry, the Business Council and the Minerals Council finds it will  add $49 to household bills - another low number.

The three business bodies try to beef it up by warning the "flow-on effects to the rest of the economy of this mandated wealth transfer from consumers to producers is large, costing the economy up to $28 billion".

But the sum of $28 billion isn't large in the context of the Australian economy, or in the context of electricity bills, and it might just as easily be a decrease as an increase.

Perhaps recognising that the harm doesn't sound enormous, they put it a different way: "Even more concerning is the human cost, estimated at over 5000 jobs."

That's right, 5000 jobs by 2030. By way of background even the current weak labour market produces around 5000 new jobs per month.

Of course, if the Renewable Energy Target did result in big unemployment the Reserve Bank would simply cut interest rates to compensate. The suggestion is a furphy.

Having found little economic damage and considerable benefits, including cutting pollution and setting Australia up for a cheap energy future,  the Warburton review was reportedly set to recommend that the scheme stay.

Until last week, when the Australian Financial Review reported that the prime minister had asked the Warburton panel "do more work on the option of terminating the target altogether".

Abbott and some in his Cabinet are close to the coal-fired electricity  generators whose business model the target is helping to destroy. When introduced, the target was set at a level that would draw  20 per cent of Australia's electricity from renewable sources by 2020. But the carbon price and an increased awareness of electricity costs has pushed down our usage of electricity so much that 41,000 gigawatt hours is likely to amount to 28 per cent by 2020.

Unused to competition, even competition that coal-fired generators  knew was coming, they feel wronged.

But their beef is nothing to that of the less well-connected solar and wind generators who would be hung out to dry by a changed or axed target.

They've invested $11 billion to date on the understanding that both sides of politics meant what they said when they set the requirement at 41,000 gigawatt hours. Some will go bankrupt if the Renewable Energy Target is abandoned.  Others will never invest in Australia again.

Abbott says we're "open for business". It would be awful if in order to appease one side of business he left the other without support.

Peter Martin is economics editor of The Age. Twitter: @1petermartin

23 comments so far

  • He'd have done no less for the environment if he hadn't opened the chute

    Date and time
    August 26, 2014, 1:13AM
    • With the Abbott "no surprises" government it is safe to say that the RET is dead.

      Date and time
      August 26, 2014, 10:12AM
    • If Greg Hunt had a scrap of credibility he would resign and say why. I suspect he is just a show environmentalist - who could forget him whining about one of the Swan budgets, "Labor is just about sharing the pie, they should be growing the pie". Just another advocate for the widely discredited "trickle down" economics.

      Uncle Quentin
      Date and time
      August 26, 2014, 11:44AM
    • We just cannot have an LNP review that shows that market manipulation is a good thing, so back to work to find something else to justify trashing the RET. Let's not leave any sign of acknowledgement that Labour might have done anything good. Scorched Earth Made On Monday One Term Tony at work.

      Date and time
      August 26, 2014, 12:08PM
    • That's typical of the LNP. They promised the earth before the election just to win. Now they are in government and they forget what they had said and do totally the opposite things. They think voters are stupid.

      we say what we mean, we do what we say, and it is mean
      Date and time
      August 26, 2014, 4:08PM
  • How lamentable that in our so called developed nation, government energy policy is essentially ideologically driven. As has been pointed out in the SMH and elsewhere, renewable energy could be a national export strength, providing much needed revenue and jobs and begin to address climate change in a serious way. But let's not mince words; the flat earth, Liberal Coalition simply is not interested and wants the future, discussion of energy options, climate science reporting and climate change-related problems to just go away. When it comes to intelligent energy policy, we are definitely NOT "open for business."

    Heavy Leaner
    Date and time
    August 26, 2014, 3:22AM
    • It's not viable . We could create jobs by pulling subsidised sola panels off roofs .
      But those of you who want to save the World should make the choice , keep them , or go for wind . But pay the full cost . If you decide that you need back up from the grid , pay a penalty . I'm sure the warmth generated from your smug fuzzie feelings will be suffice , when the sun doesn't shine and the wind doesn't blow .
      I'll be like the Chinese and stick with coal .

      Up in Palmerland ?
      Date and time
      August 26, 2014, 3:46AM
      • Good idea to pay the full cost for things. Let's start by taking away all the subsidies for fossil fuels ... including those for exploration, export and pollution.

        Common Wealth
        Date and time
        August 26, 2014, 7:14AM
      • Mankad, China is well & truly making the transition to renewables (hydro, wind & solar). Construction of new coal power stations in China peaked in 2006, and has been in decline ever since. Last year, construction of renewables overtook construction of coal. The first half of 2014, coal consumption in China was down compared to the first half of 2013.

        China is moving to renewables
        Date and time
        August 26, 2014, 7:22AM
      • Didn't you read the article. Renewables will be viable in the not too distant future. Just about every new industry over history has received some form of government assistance. Even mining companies got discounts on their royalties while getting established.

        Tony McIntyre
        Lower Mitcham SA
        Date and time
        August 26, 2014, 7:45AM

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