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AGL Energy calls for end of support for rooftop solar

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Leading utility AGL Energy has called for the scrapping of federal government support for rooftop solar PV, and has indicated the large scale renewable energy target (RET) should also be diluted or deferred because it would be impossible to meet the current 41,000GWh target in the current timeframe.

The calls by AGL – a leading member of the renewable energy industry’s peak body, the Clean Energy Council – earned an immediate rebuke from the Australian retail subsidiary of New Zealand giant Meridian Energy, which accused it of joining other utilities Origin Energy and EnergyAustralia “on the dark side”.

AGL Energy says the small scale component of the renewable energy target, currently under review by the Abbott government, should be  scrapped altogether.

“Household solar PV now no longer requires subsidies to be an attractive proposition for households,” it says in its submission to the RET review panel, chaired by climate science skeptic and pro-nuclear advocate Dick Warburton.

The position adopted by AGL Energy – once considered the “greenest” of the major utilities with a portfolio heavily skewed towards wind energy and gas – means that there is a near unanimous push by  incumbent generators, retailers and network operators for support for rooftop solar to be ceased.

rooftop-solar7-150x150Household solar is emerging as the biggest threat to the incumbent business models, reducing demand from the grid and at a time during the day that the industry has traditionally extracted most of its revenues.

The target for small scale energy is current uncapped, but AGL argues that production from rooftop solar – which now amounts to 3.2GW across 1.3 million households – has already exceeded its “original policy intent” of 4,000GWh. It also alleges that rooftop solar received subsidies equivalent to “75 years of generation” – a reference to the “solar multiplier” that was used when the cost of rooftop solar was higher.

In a surprisingly brief submission to the RET review panel, AGL does not specifically call for a reduction in the 41,000GWh target for large scale renewables – as all other utilities are doing – but says that it will be impossible to meet.

Ironically, it blames a combination of policy uncertainty – which most in the industry recognise has been caused by the current RET review – as one of the major reasons why the large scale target cannot be met.

Indeed, the local offshoot of AGL Energy’s partner in Australia’s largest wind farm, the Macarthur project in Victoria, accused AGL of crossing to the “dark side” with the other retailers Origin Energy and Energy Australia.

“It looks like AGL has abandoned its support for rational policy, and crossed to the Dark Side with Origin and Energy Australia, putting their interests ahead of consumers and the economy,” Ben Burge, the head of PowerShop, the Australian retail offshoot of Meridian Energy, told RenewEconomy in an emailed statement.

“I’m not sure why they bothered writing two pages when their views can be captured in one line: Please let AGL grab more money from consumers by increasing wholesale prices (by diluting the RET), giving more money to AGL’s thermal plant as capacity payments, and paying AGL and their mates to close their coal fired stations.”

PowerShop also rejected the claims by AGL that the LRET would be impossible to meet – a claim repeated by other retailers with large interests in the coal industry. PowerShop pointed to the low price of renewable energy certificates – now around $28 – compared to the penalty price if the target was not met – which is $93.

“If these opponents to the RET genuinely believed their own arguments, they would be purchasing LGCs now, until such time as they start to approach the tax adjusted equivalent of the penalty price,” PowerShop wrote in its submission to the RET.

“The truth behind this disconnect is that some of the RET opponents (who control the majority of purchasing obligations) have an expectation that they can succeed in influencing a change to the LRET to reduce their obligations and diminish the downward pressures on wholesale prices that threaten their ability to prop up returns on their core assets (thermal generation).”

AGL Energy also repeated its calls for payments to be made to help coal fired generation to be permanently removed from the market, rather than just mothballed. It has previously cited the need to help with costs of “remediation” in closing coal fired generators.

It also wants new market mechanisms such as “capacity” markets – which allow for extra payments to be made for baseload or “dispatchable generation. This is a subject of fierce debate in European markets.

Germany has so far resisted such calls, despite its major generators losing money due to the influx of renewable energy. The International Energy Agency is also doubtful that they can be effective, and the capacity market in Western Australia has also been criticized for encouraging new capacity – such as diesel-fired peaking plant – to be built on public subsidy but which are never used.

The debate over market design will be intense in Australia. Supporters argue that the falls in wholesale electricity prices caused by the influx of renewables is good, and offsets the direct cost of the renewable certificates. AGL and others argue that it undermines the economic case for investment in any new plant. (Actually they don’t want any new investment because of the existing over-supply).

“Investment has become intractable,” the AFL Energy submission says. “There is little point continuing with higher targets for the LRET in the future if the underlying economic fundamentals prevent investment in new renewable capacity.”

However, it also appears to be arguing that the RET should not be removed altogether, as some generators and industry groups have called for.

“It is critical that existing investments be appropriately recognised as having been made due to legal obligations to invest in new renewable energy projects or enter into Power Purchase Agreements (PPAs),” it writes.

AGL Energy is the largest single investor in renewable energy in Australia, and its outgoing managing director Michael Fraser used to the chairman of the Clean Energy Council.

However, series of major fossil fuel investments, including the purchase of the Loy Yang A brown coal generator in Victoria, and the proposed purchase of 4.6GW of black coal through the purchase (so far rejected) of Macquarie Generation in NSW, would mean that its revenues would be leveraged towards fossil fuels over renewables by a factor of around 12:1.

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  • patb2009

    They probably aren’t wrong, Household PV no longer needs subsidies, but they leave out that AGL et al need new business models, they have to evolve into a brokering and smart grid or die.

    • wideEyedPupil

      It’s not so much whether solarPV needs subsidies as what or priorities are. This is about getting to 100% renewable energy by 2020 which is what the target for historically large emitters was set as by Potsdam Institute if we are to have a hope of staying under 2ºC — whatever 2ºC gets us it’s regarded by many as a significant barrier to runaway climate change (though somewhat debated).

      I’d be happy for the residential SolarPV subsidies to be transitioned over next 3 years to storage for instance but the utilities would scream blue murder. More subsidies for 20K and above systems would be good to start that avalanche of solar power on light industrial and retail/commercial rooftops. Especially combined heat and power systems like those Cogenra developed.

  • Matthew Wright

    “AGL Energy – once considered the “greenest” of the major utilities”

    AGL were never the greenest of the utilities, they just had you hoodwinked. They’ve consistently lobbied against renewable energy for years lead by their main lobbyists Tim Nelson and Paul Simshauser and the disgraceful positioning of Michael Fraser as head of the Clean Energy Council AKA Coal Energy Council.

  • Robert Johnston

    No surprises there. Should take note though of what they are seeking – AGL’s previous Head of Government Affairs (aka Chief Lobbyist) Sarah McNamara now works on the RET review in Abbott’s office – thus fairly influential on the outcome – I gather.

  • RobS

    Rooftop solar now has an IRR of over 20% in Australia unmatched by any other guaranteed investment, pays for itself in under 5 years and over its lifetime returns its cost usually 5 times over. Ongoing subsidy for rooftop solar doesn’t render it affordable it renders it more profitable and that is obscene. Even more obscene, the entirely unnecessary ongoing subsidy of an already highly profitable investment puts the subsidy scheme at risk for a whole host of technologies that still need the support to overcome technological and economic hurdles to reach parity just as the subsidy has assisted solar to do. I beleive the solar multiplier phase out system for solar subsidies should simply being continued with numbers under 1, for example reducing it to a multiier of 0.75 then 0.5 then 0.25 then 0 every 6 months such that the remaining subsidy is phased out over 2 years for rooftop solar. Given that the subsidy for rooftop based on the REC market price is ~$0.80/watt this would mean a drop in unsubsidised of $0.20/watt 6 monthly, importantly looking at the trend in system prices the drops in cost over the last few years have exceeded 20cents per watt in most 6 month periods meaning even if the subsidy were phased out over 2 years out of pocket costs would still fall.

    • Richard Johnston

      Rob, clearly your statement shows that you have no understanding of the effect of current state FIT policies on the NEM. For most customers 5 year paybacks are possible – only if all electricity is self consumption, something that is not possible from most people.

      • RobS

        I understand that impact perfectly, yes falling FiTs extend payback periods, that is being done for exactly the same reason as the RET subsidy should be phased out because paying a large premium on the wholesale power rate was justified on public policy grounds when solar was expensive, now even with cuts to FiT even the worst reimbursed areas are seeing payback periods around 7-8 years and whether you are getting a return of 3 or 5 times the cost of your system over its lifespan my point remains the same. High levels of self consumption are quite achievable through time shifting demand by running eek weft hungry appliances during the day on scheduled programs.

        Even with the FiT cuts I apparently have no understanding of, the IRR of solar is unmatched amongst potential investments and the ongoing subsidy still represents profit padding for solar owners which I believe to be obscene

        • Richard Johnston

          Rob
          Wrong.

          A) the ret is designed as a market mechanism to select the most efficient allocation of resources to meet 20/20. The sret is part of this. Are you suggesting that $ should be invested in less effective mechanisms to achieve 20/20. That seems dumb.
          B) some people may get 20% IRR most don’t
          C)

          • RobS

            Richard Johnston, I am neither “wrong” nor “dumb” I simply have a different opinion to yours. I would suggest you seriously work on your interpersonal skills because your comment is blatant bullying and I won’t engage further with you whilst you continue to be so unpleasant.

  • Brad Sherman

    I’d like to see FITs (+ any other subsidies) set to guarantee a rate of return comparable to other PPPs in Australia (e.g. desalination, toll roads, etc). I gather many infrastructure providers aim for 10-15% return on investment. I’d be happy with that. I don’t want special treatment or advantage, just the same treatment.