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Origin Energy calls for higher, but later renewables target

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Grant King, the head of the country’s biggest utility, Origin Energy, has suggested that the large scale renewable energy target (LRET) should be expanded, with higher targets at a later date, because the current target is not delivering on its objective.

In an interview with RenewEconomy, King – who is likely to be a highly influential voice under a Coalition government – says that the current LRET, which calls for 41,000GWh of renewable energy to be delivered by 2020, is not creating any technology innovation and is delivering a high cost of abatement.

“I’d be very happy to have a higher RET target that extends out further, because that way you’ll get closer to the scheme achieving its original objectives,” King said.  “(The RET) is not economically capable of achieving its objectives because it peaks in 2020 and ends in 2030. There will be no economic benefit of doing anything other than building wind with no technology change.”

King has previously canvassed the idea of pushing the 20-20 LRET target out to something like a 25-25 (25 per cent by 2025) target, but that idea got short shrift from the renewables sector because it was seen as yet another delaying tactic by the fossil fuel industry.

However, because of repeated delays, reviews, and an overwhelming surplus of certificates created by the boom in rooftop solar, the large scale renewables industry remains at a virtual stand-still, and faces yet another review under a Coalition government.

A spokesperson for Origin Energy said later the company would likely suggest a  longer dated target than the 25/25 that had been suggested, possibly a 30-30 target (30 per cent by 2030, with a longer tail to 2040).

The renewables industry has shown signs that it could be flexible on the 20% date, given that any negotiation of the LRET is likely to be tied in with the fall in demand and  the huge amount of surplus baseload capacity that now exists.

However, many in the industry, while supporting more ambitious longer dated targets (the Greens, for instance, want a 90 per cent target by 2030), say the LRET should not push out the 20% timetable, and any amendments should only be framed to avoid any further delay in investment.

In a separate interview, Miles George, the CEO of renewable energy developer and operator Infigen Energy, said adjusting the “stepping stone” targets – with increases in 2014, 2015, and 2016, and possibly reductions in 2018 and 2019, would ensure that the industry was able to meet the 41,000GWh target by 2020. He likened the move to the “backloading” proposal to get rid of surplus credits in the European emissions trading scheme.

“We have the situation where there is no reason for retailers to contract,” he said. He also said there was a strong case to extending and lifting the ambition of the target over the medium term, given the need for Australia to do better than its 5 per cent emission reduction targets.

King says he is frustrated that the LRET will not create diversity of renewables supply. He also suggested suggested that if Australian emitters were allowed to source carbon credits in international markets, then why shouldn’t Australian generators do the same with international renewable energy projects.

Origin has a large portfolio of potential geothermal and hydro projects scattered across Indonesia, New Zealand, South America and Papua New Guinea. But its particular interest here is in the development of a 2,500MW run-of-river hydro projet in PNG, which Origin Energy would like to connect to Australia.

Origin’s conservative position on renewables is largely informed by its own experience in emerging renewable technologies, having lost several hundred mijllion in hot rocks geothermal development in central Australia, and more than $100 million with the Sliver solar PV technology.

In the extensive interview with RenewEconomy, King touches on a range of subjects. His views are worth reading. Not many in the renewable energy will agree with him, particularly around the pace of technology change and the influence of solar. In fact, it is in start contrast to some of the discourse coming from senior energy figures in the US.

But given King’s influence in Coalition ranks – some suggest his influence is so great he will effectively become a de-facto energy minister – his views should be understood.

King says Origin Energy’s position on renewables has been misunderstood. It is clear, though, that King has a very traditional view of the energy industry, as could probably be expected. There are no predictions of radical change, of game-changing technologies or evolving business models. Or, if they are, it will happen over time.

Indeed, King argues that without a very high carbon price – $40-$60 a tonne, very little will change and coal will remain the dominant energy source into the future.

Some highights:

Solar – he questions whether module prices will remain low given the problems faced by companies such as Suntech and a likely rebound in poly-silicon prices. And he questions whether there is enough lithium to supply all the batteries, and the energy required to manufacture those batteries, why Australia is subsidizing imports of panels manufactured from brown coal generation in China.

Distributed energy: He says the rooftop solar is free-riding on existing networks, and it is inevitable that tariffs will move to some form of capacity payment. He says centralized generation will remain the primary architecture of the grid. He says DE has been promised for decades, and still seems far away.

Carbon price: He says that no fuel swap will happen without a carbon price of $40-$60 a tonne, but to impose that price in Australia would be inequitable given the lack of a robust carbon price internationally.

Gas pricing: He says calls for a reduced gas price for local use in Australia amount to an effective subsidy, because there is no such thing as cheap gas. The coal seam gas would not be extracted without the price incentive provided by the international market.

Click here for the full interview:

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