Australia’s renewable energy policy is short sighted and creating problems

Leading global analysts Bloomberg New Energy Finance have delivered a withering critique of Australia’ renewable energy policies, describing them as short sighted and problematic.

Kobad Bhavnagri, the chief analyst for BNEF in Australia, says investment in large-scale renewable energy has floundered since the election of the Coalition in 2013.

And while 2016 is looking a bit better, it was still not good enough to meet the reduced renewable energy target of 33,000GWh by 2020, a warning echoed by the Clean Energy Regulator.

“The level of investment is still not good enough,” Bhavnagri said at the Clean Energy Summit in Sydney. “There is not enough capacity getting built.”

Bhavnagri predicted a shortfall of 3.2 million certificates and warned the industry that if they thought that the coverage of the recent price spikes in South Australia was damaging, it was likely to pale in comparison to the reaction if the RET is not met and penalty prices are imposed on to consumers.

“When people pay $93 for no additional capacity, things are likely to get much worse (for the industry),” Bhavnagri said.

He said the structure of the RET – which increases targets until 2020 and then flatlines – is “just too short sighted and has fundamental holes in it.”

“This is a massive problem, both for liable entities (retailers) and for project proponents,” he said. “For an investor to make a commitment, you would have to make a big punt on future policy.”

Despite a push by the fossil fuel lobby – possibly supported by the federal government – to reign in state-based targets, Bhavnagri said they were crucial to getting renewable energy capacity built.

He said that Victoria, which has proposed a 2025 target of 40 per cent, with a new mechanism based on the successful reverse auctions pioneered by the ACT, had effectively come to the rescue of the renewable energy market.

“Federal policy has to be supplemented by state policy,” he said.

He also said the situation in South Australia, which has been the centre of controversy over spikes in the wholesale electricity price, is being made worse by the lack of competition and high gas prices, as well as illiquid hedging markets, which he blamed on the dominance of the big “gentailers”, a charge also made by South Australian energy minister Tom Koutsantonis.

“That problem is going to get worse,” Bhavnagri said. “And in the next two decades, increased renewables will disrupt the industry. Baseload, which has been seen as a virtue, becomes a liability.”

He was also critical of the government’s climate policy, saying it was not credible and would not deliver the current 26-28 per cent commitment, which will have to be increased.

“The majority of abatement is from business-as-usual, and what would have happened anyway with government doing nothing. The government is claiming credit for stuff it is not doing … and the policy is ill-equipped to achieve deeper reductions.”

Chloe Munroe, the head of the Clean Energy Regulator, says that the market is headed towards a shortfall in 2018.

Her team’s analysis shows that only around 1,140MW of large-scale wind and solar project may be committed this year, barely more than one-third of the 3,000MW of new project commitments needed to avoid a shortfall.

“The pace of investment still hasn’t picked up sufficiently to avoid a shortfall in 2018. That is a concern,” Munroe said.

She said that smaller retailers may be the most exposed to shortfall penalties, given that the big three retailers had sophisticated systems to cover their exposure.

“There is no excuse for them to go into shortfall. I would be astonished if that happens.”