Australia’s largest energy utility Origin Energy has renewed its assault on the Renewable Energy Target, claiming that the cost of meeting the RET will outstrip that of the carbon price in 2020.
In interviews with the two national daily newspapers, The Australian and The Australian Financial Review, Origin Energy CEO Grant King said falling demand meant the fixed target of 20 per cent would morph into an effective target of around 26 per cent.
Environmental groups, the Greens, and renewable energy developers say this is a good thing – given that the move to decarbonise the electricity grid will inevitably mean more renewables need to be deployed in the future.
But Origin Energy and others in the industry are facing much reduced demand for their coal and gas generators, and lower returns, as well as little justification for new gas projects, unless the policy can be changed. They are ramping up their campaign as the newly created Climate Change Authority, chaired by Bernie Fraser, prepares to undertake its first task – a scheduled review of the renewable energy target.
“The community signed on for 20 per cent by 2020. If it is 25 or 30 per cent then it will mean more costs,” King told the AFR. He told The Australian that the RET “is going to create crowding out effects that were different at the time it was implemented.”
Origin Energy first challenged the renewable energy target last September, when King suggested in an interview with this reporter that it should be morphed into a 25/25 target.
In February, he noted how falling demand meant that the case for baseload generation in Australia was already redundant, and in May, at a Macquarie Bank conference, he first suggested cutting the target back so that it reflected the percentage of “actual demand” – effectively reducing the amount of utility-scale wind and solar that would need to be deployed by nearly half.
Origin Energy’s latest campaign against the RET was foreshadowed by RenewEconomy more than a week ago, after the Australian Electricity Market Operator unveiled its much-reduced demand forecasts for 2012/13 and for the next 10 years – even lower than those assumed by Origin Energy.
As we wrote on Monday in How utilities propose to kill solar PV, Australian utilities are now fighting against the two main green energy initiatives that threaten their long-established business models – the deployment of large-scale renewables such as wind farms and utility-based solar, and the rapid uptake of solar PV and other forms of distributed generation.
Each utility is attacking a different part of the green energy market that reflects its own natural advantage – Origin seems better placed to deal with solar PV and distributed generation and changes in the retail space, while AGL Energy’s strengths appear to lie in large-scale renewable generation.
Origin Energy has a bunch of reasons why it wants the RET to be wound back. The first is that it is heavily invested in gas-fired power generation, which is being squeezed by lower demand, the increasing deployment of renewables, record low electricity prices, and the fact that brown coal generators, in particular, have been compensated for the carbon price and are unlikely to close down without being bought out by the government in its contracts-for-closure scheme.
Even demand for expensive open-cycle gas turbines (peaking plant) is being reduced. AEMO has cut its peak demand forecasts, and the amount required to support renewables is also under question. In South Australia, where renewables now account for more than 30 per cent of production, no new peaking load has been required to account for the variability of wind energy.
Origin Energy also has its own pet project – the 2,100MW Purari run-of-river hydro scheme in Papua New Guinea – which it would like to have included in a renewable energy target, but that is unlikely to happen. And Origin Energy does not have an extensive pipeline of its own wind energy or solar energy projects in Australia, which means it would need to satisfy its share of the target by signing power purchase agreements with third-party developers.
AGL Energy, which does have a significant pipeline of projects, has staunchly defended the RET, describing any move to dilute it as “disastrous,” a sentiment echoed by wind and solar energy developers, and the Clean Energy Council, which argues that it has only been in place for two years and demand forecasts could change just as quickly. TRUenergy, which has neither a large pipeline of renewable energy projects, nor a significant presence in the small-scale solar market – has yet to publicly update its position on the RET.
The Australian Conservation Foundation said that if Origin Energy’s advice was followed it could mean missing out on the equivalent of eight large-scale solar plants. “We should be increasing the target, not lowering it. Because of this target, we’re achieving the transition to clean energy faster. We can go further. This is a great thing,” the ACF said. “Fossil fuel companies should not undermine popular, effective policies just because the company has invested in 20th century technologies which are becoming less and less competitive as Australia moves to a clean energy economy.”
The Greens said much the same, arguing for a higher renewable target and saying that Australia should seek to get to 100 per cent “as quickly as possible” and was uniquely positioned to do so. “The RET is frequently misrepresented by those with a vested interest in continuing with fossil fuel generation,” Greens leader Christine Milne said. “The cost of renewable energy is too frequently overstated. There is clear evidence that it is driving wholesale electricity prices down.”
But here’s a further irony. It is not clear that a review of the 20 per cent target is within the remit of the Climate Change Authority. At the urging of Origin Energy and other generators when the legislation was put into place, the target is fixed – although it has been adjusted to 41,000 gigawatt hours to account for the unexpected surge in rooftop solar. There is actually no mention of 20 per cent.
The review is effectively an operational one, and must be consistent with the act, which means that it must encourage the additional generation of electricity from renewable sources. How that relates to a review of the target may become clearer after the first board meeting of the CCA next week.