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.
“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 offensive, ugly 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.