Renewables industry prepares to cut a deal on targets

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The Australian renewable energy industry has given its strongest indication yet that it is prepared to cut a deal with major utilities on the national renewable energy target, in the hope of removing the uncertainty that has brought the industry to a virtual standstill.

The renewables industry –as we revealed in August – has been holding meetings to find a way to break a deadlock over the building of large scale wind farms and solar farms, and try to avoid a lengthy and damaging review being held next year.

The major utilities have refused to write contracts – citing an excess of certificates – while at the same time lobbying government to dilute the target.  The uncertainty has caused developers and financiers to sit on the sidelines, particularly after the new government agreed for the target to be reviewed.

“Nobody, including us, will make an investment in this uncertain environment,” said Infigen Energy CEO Miles George, noting that ongoing uncertainty had resulted in only a few projects being built in recent years, and a massive backlog.

George told delegates at the All-Energy conference in Melbourne on Wednesday  that to meet the 2020 target would require between 1500 and 2000MW of wind or solar power to be built per annum from 2015 to 2020 – more than twice the rate that has been achieved to date.

He said he was prepared to cut a deal that would result in a “small reduction” to the 41,000GWh fixed target by 2020, in exchange for other changes that would ensure projects get built in coming years, and to provide a longer term horizon for investors.

“We would trade a slight reduction for an extension (to the target) and more certainty,” George said. “From a commercial perspective that would be better outcome.”

Steve Davy, the new CEO from Hydro Tasmania, said he was less concerned about the number for January 1, 2020, than he was about the long term future of renewables. ” I think it needs to grow to something much larger,” he said. “I don’t think I’d call it (a compromise deal) trading off, but it’s about certainty.”

Right now, the LRET requires 41,000GWh to be built by 2020, with the aid of renewable energy certificates, but then the target flatlines until 2030, when those certificates expire.

Origin Energy CEO Grant King in August flagged that he would be prepared to look at a “30/30” target – 30 per cent by 2030, in a position that was initially dismissed by many in the renewables industry.

However, George’s comments indicate that a big shift is happening, although it will be the details of such legislation that will be important. These include interim targets, the extension of certificates until 2040, and even the definition of what constitutes an eligible project. Origin, for instance, would like its PNG-based hydro project to be eligible.

The likes of Origin Energy and Energy Australia have suggested reducing the 41,000GWh target to just 27,000GWh. It seems that the renewables industry is now prepared to meet them in the middle, in exchange for longer term clarity and policy signals.

The renewables industry is keen to downplay the idea of a compromise being forced on them. And many green NGOs, the no doubt the Greens themselves, would see it as a massive backdown, particularly given the fact that most other countries are increasing the rate of deployment of renewables rather than diluting.

But the renewables industry says it is a matter of realpolitik – conservatives are in power in Canberra and in most state capitals, and sympathetic to the overtures of the incumbent generators. Some state governments want the LRET removed altogether, and the air of compromise reflects the power of the incumbents.

Mostly, though, it speaks of a failure of policy: Australia has been unable to impose an effective policy to get renewables deployed, and the process has been open to abuse and compromise by the incumbents.

Environment Minister Greg Hunt – following a separate speech in Melbourne – confirmed that a review will be held in the first half of 2014, but it will not be conducted by the Climate Change Authority, which the new government wants to dismantle. The CCA last December rejected the arguments of the incumbent generators and recommended the 41,000GWh target remain in place.

The renewables industry hopes to be able to reach a deal with at two of the major electricity retails – AGL Energy and at least one of Origin Energy and Energy Australia – to try and ensure that the review is conducted quickly and certainty can return to the market.

However, it is likely to be complicated by other issues, including that of over-capacity – a problem that is affecting incumbent coal and gas fired generators, but one that will ultimately impact on wind and solar farms too.

Oliver Yates, the CEO of the Clean Energy Finance Corporation, another target for closure from the new government, said achieving high renewables was “not just about building, but also closing down.” He said mechanisms were needed to help large coal fired generators to exit the market.

The CEFC is seeking to convince the new government that it can play a critical role helping facilitate the closure of ageing coal plant, and investment in energy efficiency. Yates said decisions about coal closures and investment in energy efficiency had effectively been suspended while owners and project developers waited to see if they could qualify for funding under the emissions reduction fund in the Abbott government’s “Direct Action” policy.

Yates argues that the CEFC could provide finance that could bridge the policy gyrations and policy gaps that were hindering investment, and help lower emissions. Even though many coal plants had been mothballed, and others such as Wallerawang may follow, as we exclusively revealed last week – but none has actually been closed. That’s because remediation costs are high, and no owner will likely invest in replacement technology without extra support.

Hunt, meanwhile, told RenewEconomy that the planned review of the RET would be conducted “internally”, although he said he could not identify which individuals or bodies.

Meanwhile, Hunt said terms of reference for the government’s emissions reduction fund, which forms the centrepiece of the Direct Action policy that will replace the carbon price, will be released in the next few weeks.

Hunt envisages a series of round table with business in coming months, a white paper on how the fund would operate, more negotiations, and full implementation at the start of the new financial years.

He said legislation to repeal the carbon price would be introduced in the first week of the new parliament, and he vowed that Direct Action – and the “perfectly market based emissions reduction fund” – would be in place by July1, 2014, with the carbon price gone.

“We will not stop until it is done,” he said.

He repeated his belief that Direct Action will reach the 5% target, although there was no comment on whether it could be scale up to reach a more ambitious target, which could become reality if the world reaches a broad climate agreement in 2015.

Hunt said he was not sure if he would be travelling to the next UN talks on climate change in Poland. Australia would send a “modest delegation” and Hunt said he hoped that Poland could produce a “roadmap” to Paris, where the 2015 talks will take place.

Hunt also said Australian planned to take a role – as chair of the G20 in the coming year – to “gently and quietly” work with China and the US to assist them to get to a “grand global agreement.” The UN also plans to hold talks with country leaders next September.

Comments

2 responses to “Renewables industry prepares to cut a deal on targets”

  1. Robert Johnston Avatar
    Robert Johnston

    Grant King wants his PNG project to qualify under the RET, but favoured the Coalition Direct Action plan over Labor’s ETS which allowed overseas permits because all the abatement was in Australia. When will people stop giving King air time for self interest promotion?

  2. Warwick Johnston Avatar
    Warwick Johnston

    Actually, the solar industry rolled out 1000 MW in a single year, and has repeatedly rolled out 800 MW per year. Meeting the target would be easily achievable.

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