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Abbott’s COALition war on wind and solar will never stop

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Three years ago, even before Prime Minister Tony Abbott was elected, Bernie Fraser, the former RBA governor and chair of the Climate Change Authority, warned that an Abbott government would be beholden to fossil fuel interests, particularly regarding the renewable energy industry.

abbott environment

“I think that that lobbying that is being made to us, and the views being expressed by the fossil fuel generators and some other groups will be pretty powerfully directed towards the Coalition,” Fraser told RenewEconomy in an interview in December 2012.

The Abbott government did not disappoint, and now his team are at it again. Not content with  putting the renewable energy industry on hold through an interminable review, and then cutting the large scale component by more than one third, and then declaring wind energy to be offensiveugly and unwelcome, the Coalition government has now decided to try and nobble the Clean Energy Finance Corporation.

Not for the first time. But the attempts by Treasurer Joe Hockey and finance minister Matthias Cormann to impose bizarre, contradictory and mystifying restrictions on the $10 billion institution are designed to achieve one outcome – to prolong the drought in large scale renewable energy and now to extend that drought to small scale renewables as well. And, of course, to stop a clean energy gorilla that the government has tried unsuccessfully to close down from doing its job.

Much of the uproar over the last 24 hours has focused on the apparent targeting of wind technology and household solar – the two most successful renewable energy sectors in Australia to date.

But the intent of the Hockey/Cormann letter is more insidious.  It attempts to forbid the CEFC to invest in any “mature” technology, which it identifies as “extant wind” and rooftop solar, but which could arguably include energy efficiency initiatives (such as LED lights and insulation), large scale solar PV, small hydro, land fill gas and waste to energy and numerous others technologies.

By potentially restricting the CEFC’s mandate to “big solar” – and particularly parabolic troughs and molten salt storage – and as yet undeveloped technologies such as wave and tidal energy, as suggested by environment minister Greg Hunt, the government is not just confusing the CEFC’s role with that of the Australian Renewable Energy Agency, but also making its task of achieving double the government bond rate return impossible. It is asking it to take on the riskiest technologies and put all its eggs in just a few baskets. The experienced finance team on the CEFC board, including chairperson Jillian Broadbent, will tell them that that is just nonsense.

But it’s not really the details that count. It is the big picture and the optics that matter in global financial flows. The Abbott government has long declared its interest in technologies that are “on the horizon” – hence the interest in wave and tidal – and its horror of technologies that are being deployed in scale now, and threaten the primacy of fossil fuels. And having tried everything else to stop renewable energy, it has now turned its focus on big financial institutions. The message it wants to make to domestic and international banks is clear: Don’t finance that stuff down here.

The contradictions are endless. The Abbott government argues that it does not want the CEFC involved because it only wants to see projects that would make economic sense in the “normal course of events”. But it doesn’t apply this criteria to its proposed $5 billion fund – dubbed the “dirty energy finance corporation” – to support infrastructure for coal mines and coal generators in northern Australia.

The Coalition government argues that it wants the CEFC to return to its original mandate. But that is not what it is asking it to do at all. It is simply trying to reduce its options, and compromising its ability to make a commercial return.

And, as many have pointed out, the biggest losers are customers. Renewable energy is made more expensive than it needs to be, and the exclusion of rooftop solar restricts the ability of being accessed by those that need it most – pensioners, renters and those on low incomes.

“They are creating a jolly mess,” said one person close to the CEFC.  “But that’s what they like to do to this sector.” As Abbott and Hunt made clear, the government would close the CEFC if it had the numbers. And if it had the numbers, there would be no protection for the current renewable energy target either.

The irony is that the wind industry shouldn’t need the CEFC in any case – if there was policy certainty that could provide comfort to bankers. The ACT wind energy auction, and any number of programs oversea, is testimony to that.

But as one executive for a leading international renewable energy developer said last week, the market for those outside the ACT does not exist. The large energy retailers do not yet feel any pressure to buy the output of wind farms, and without that, it is difficult to get banks to provide finance.

Indeed, the only three big wind farms that have moved forward since the revised RET legislation was passed ar those owned – and largely self- financed – by three of the world’s biggest wind turbine manufacturers (GE, Goldwind, Senvion), which all have massive balance sheets.

One of them, GE’s Ararat wind farm, is relying on its contract with the ACT. The Hornsdale wind project in South Australia and the Coonooer Bridge wind project in Victoria also rely on their ACT contracts.

All other projects, however, will rely on signing a contract with an energy user – be it a retailer or an industrial group – and to get bank finance. Given the lingering uncertainty about the RET, and the Abbott government’s rock-throwing at the CEFC, those key components will be almost impossible to obtain.  And if banks do provide money, they will be asking for higher lending rates to offset the uncertainty and the risk. That means those projects will cost more.

The restrictions on rooftop solar from the CEFC portfolio appear to be another deliberate attempt to stop the creation of a new asset class that could act as a funnel for cheap finance, and to make the technology available to new demographics. Australia has the highest rate of uptake of rooftop solar in the world, but it needs innovative financing to make sure it is accessible to renters, apartment dwellers, and those on lower incomes. That is what the CEFC program was designed to do.

In the US for instance, large-scale solar projects are costing less than 5c/kWh (after netting out tax advantages), nearly one third of the cost of similar plants in Australia.

That is because new financial instruments – solar power purchase agreements, the securitisation of those assets into “green bonds”, and the creation of other products such as “financial yield-cos” is lowering the cost of finance. The Abbott government seems determined not to allow that to happen in Australia.

   

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  • ben

    What a depressing state of affairs. I hope the ALP & Greens can reverse this.

    • Alastair Leith

      ALP didn’t even support removing Section 7c in the Senate, which would have allow states to set their own additional RETs. Daniel Andrews Government and Energy Minister explicitly asked federal colleagues to support the repeal of Section 7c given that VRET set to zero on the establishment of a national RET.

  • RobS

    Let’s just keep in perspective here that the VAST majority of small scale solar installations do not use a loan from the CEFC to finance them, they are either bought outright or financed privately. I agree the Abbott government is once again trying to sow fear, uncertainty and doubt however when we wail and gnash our teeth over something that is largely irrelevant to the vast majority of installations of they type under discussion I think we legitimise the claims of Abbott and his sheep who would like to believe that solar only makes sense with “huge subsidies”

    • Alastair Leith

      disappointing for renters and pensioners with no spare capital though. imagine how much that could spur the market if renters and pensioner grandparents are installing it, there’s really no excuse not to at that point. also it’s alleged that energy efficiency schemes like LED 4 halogen replacement programs will be effected.

      • RobS

        Pensioners and other low income persons can already get systems using private finance where the payments are lower than the savings the systems generates, they don’t need CEFC loans to achieve that. I suspect nothing will be affected in the end because the act governing the CEFC clearly says their investment decisions are not subject to political influence. I think the CEFC will get legal advice to that effect and then continue making investments according to their existing guidelines as the law allows, the Liberal government could then take legal action but i think even they know how that would play politically.

        • Alastair Leith

          let’s hope so. Hockey’s letter from Opposition and his instructions to increase returns beyond market trends while staying low risk were both politely snubbed. now they want to go for projects that are higher risk and because they are pioneering deployments of solarCST will not deliver high returns. so it’s incredibly inconsistent if nothing else. of course we all know it’s about trying to force CEFC to fail, which they are too smart to fall for.

  • Daniel Ball

    This is all about protecting the dirty power companies. CEFC facilitate low cost, long-term financing and is essential to support the evolving market of solar leasing… (which is looking good, with kWh rates 20-30% lower than the grid and at zero upfront cost).

  • lin

    Abbott is determined to keep electricity costs high to maximise the financial return to the Lib funding coal and power generation companies. Watching these “adults” run our government is like watching a bunch of monkeys trying to fly a plane.

    • Miles Harding

      It’d be OK if we weren’t the passengers!

  • Noel

    I am so ashamed to be labeled Australian with Tony Abbott tarnishing the very term

  • Ken Dyer

    It really does not matter what Tony Abbott says, renewable energy will replace fossil fuels eventually. It will perhaps be unfortunate for Abbott because in 2016, in the runup to the US election and after Paris, there will be major new campaigns aimed at reducing fossil fuels and combating climate change.

    Tony Abbott’s denialism and the weak policy of the LNP will stick out like a sore thumb as Australia is labelled an energy and climate denier pariah. Australians know bullshit when they hear it, and Tony Abbott’s brand is browner and smellier than most. Perhaps an early election this year is preferable to 2016, when the world will have moved on.

    Either way, climate and energy is a major game changer, and Abbott is looking like a loser already.

  • Chris Fraser

    It’s all contrived to slow down the death of fossil fuels. Rather in vain as it turns out. It appears that Hunt’s ERF machinations over additionality are also a part of the resistance. That may be tinkering at the edges because one of the biggest things to impact on the timing of the energy transformation would be a price on carbon. We need to find those who would support it and vote them in !

  • Ron Horgan

    No surprises here. Abbotts gang will use every dirty trick in the book to prevent real progress with renewable energy. The Lomborg gambit of sending research away from present developments into vague future schemes is well known.
    Don’t forget the promises made before the last election where the issue was the absolute trust we could have in Abbotts good name and integrity. Every promise broken except stopping the boats and repealing the carbon tax.
    Remember that removal of the carbon tax would give ordinary Australians cheaper electricity. How’s that working out for you?

  • Blair Donaldson

    Typical of Tony Abbott to do everything he can to hold up the adoption of renewables. His fossil fuel funded position is a disgrace. He has no vision for Australia, is only interested in power and sticking resolutely to his ideology. He is essentially an hypocrite.

    • MaxG

      No he i snot a hypocrite; he does exactly what he promised to do. But if you would call the guy demented criminal harming the nation, I’d agree with you.

  • john

    The CEFC is set to fail here is why.
    1 Set a return on investment that is high.
    2 Restrict the area’s it is allowed to invest in.
    Result it will have the effect of not being able to invest because the rates are too high and the second part is that the areas are very restrictive.
    The end result if it gains any investment at high rates it will be high risk with a possibility of default.
    The second part is that with no new investment the logical conclusion is that the agency is not needed so close it down 1 because it made bad investments or 2 because it can not find any thing to finance.
    Good strategy home clean win for good governance.
    Did I hear cynical one may say that.

  • JustThink4Once

    So I suppose that once it’s completely hobbled to the point of losing money it will be Labors fault?

    • john

      Yes they set it up and as I said below that is 1 possible outcome

      • JustThink4Once

        I wonder if there will come a time when the MSM starts calling this government out on it’s actions and denial of culpability. Perhaps when the public no longer toes the Murdoch line and starts thinking for itself. I’m not holding my breath on that one….

  • Reality Bites

    One question, if solar and wind generators are now commercial, why do you need a government backed financier to overcome market barriers and mobilise investment? The government should get out of the way and stop using public money. It should only have a role where there are market barriers or investment needs assistance. Private Equity does this all the time in the real world, where a PE Firm will take a punt on a deal and expects to get a high return. The CEFC should be no different and that is what Abbott has directed it to do. There are nothing but howls in protest from the contributors here who appear to want the gravy train to continue.

    • Neil_Copeland

      The CEFC makes a profit on its investments, it has to, that is one of its directives. Maybe it doesn’t need to be government backed, private investment will work too. If this is the case, why do the government subsidize the fossil fuel industry and ore miners to the tune of $10 Billion a year? Do they qualify as an emerging technology that needs help? If they don’t help renewables then they shouldn’t help the fossil fuel industry and ore miners. They should pay the same taxes as everyone else. The government and opposition are both as bad as each other if this continues. They are all a bunch of hypocrites. If renewables don’t get help, then make it a level playing field. Read this http://reneweconomy.com.au/2015/the-clean-energy-finance-corporation-is-meant-to-back-winners-not-minnows-14691 and this http://reneweconomy.com.au/2015/graph-of-the-day-fossil-fuel-subsidies-to-coal-miners-costing-billions-67876

      • Reality Bites

        The subsidies to the mining sector is just one of those fallacies that people are falling for. The Fuel Tax Credit you refer to was introduced to fund road projects, so if you don’t use the fuel to drive on roads, then why should you pay the fuel tax?! The mining sector according to Deloittes paid $17.6 billion in taxes and royalties in 2012/13, plus it generates billions of our export revenue and GDP. Mining companies already do pay more than their fair share. Applying your logic, lets make it a level playing field, if the miners must pay a royalty for the natural elements, solar should pay a royalty for sunshine and wind generators for the air.

        • Neil_Copeland

          I refer you again to the second link in my previous comment. While you are correct regarding it was for when not using roads. I believe this tax credit is the same as a subsidy and should be stopped. It is my opinion and I am entitled to it.

          • Reality Bites

            Yes I looked at the linked article and firstly the column missing is the one that has the tax and royalties paid by the mining companies. In QLD they could have paid 7% royalty pmt, which on 219million tonne would equal about $1.5billion. In addition they would pay company tax, but you cannot work that out because Giles has used EBIT rather than NPBT. Let’s guess it was $500million, then those companies paid around $2billion in tax and royalties on an EBIT of $2.529m. Then Giles uses a slight of hand to headline the Fuel Tax Credit as a Fossil Fuel Subsidy. It does say Fuel Tax Credit but in small print. That FTC is also claimed by farmers, diesel power generators etc, all because it was established to fund road projects, which they are obviously not using the roads for the diesel use. That graph is interesting because the 5 companies listed exported around 50% of the coal from Australia and only $366m in FTC is attributed to them. So obviously the $10billion per annum that Giles and others claim, is mostly attributable to all the other miners, such as iron ore, copper, plus farmers, cattle station owners etc. Giles would have you believe it is a fossil fuel subsidy for the coal miners that supports fossil fuel extraction, but that is simply not true. A royalty for air and sunshine has a certain ring to it don’t you think?

          • Alex

            Once the coal is dug up, it is essentially gone. Using sun and wind doesn’t lead to any less of these resources available in the future. Using sunlight doesn’t come with a health risk. If you decide to remove a solar farm, the land can still be used for other things, it won’t cost millions to rehabilitate.