Climate authority gives green light for boom in big renewables

The large-scale renewable energy industry can now get down to business and begin the rollout of around 8,000MW of wind farms and solar farms over the next eight years after the Climate Change Authority delivered its final decision on the much contested Renewable Energy Target.

As expected, the CCA resisted the overtures of the majority incumbent energy utilities and generators and retained the fixed target of 41,000GWh of renewable energy by 2020 – even if this might deliver more than the generic “20 per cent” target. But while the utility-scale market will be pleased with the conclusions, those in the commercial-scale solar sector, in particular, could see growth in their market delayed once again.

Many generators and utilities, and conservative state governments had argued that the fixed target of 41,000GWh, in the face of falling overall demand, represented an unnecessary burden on consumers. They also complained that their own balance sheets could be shot by the increased competition from green energy.

But CCA chairman Bernie Fraser said in a statement that adjusting the LRET either way – by ensuring it did not exceed 20 per cent of actual demand, removing it, or increasing it – would cause considerable risks, to the extent it could reduce the likelihood of meeting any given renewable energy target.

“There are a lot of wind projects in the pipeline – that have got approval on the basis of the original target – and the prospect of governments changing the targets could have an unfavourable effect on investors and finance,” Fraser, a former Reserve Bank governor, told a press briefing in Canberra.

“We all know that confidence is threatened – it can lead to winding back and deferral of investment plans.” He suggested that was being witnessed now in the mining sector.

As for the other major consideration – the cost to consumers – Fraser said modeling carried out for the CCA suggested the LRET would add between $12 and $64 to the average household’s annual bill. The upper range assumed there was no impact on wholesale prices from the merit order effect. But even the major generators concede that more wind in a market with lower than expected demand would reduce wholesale prices.

Fraser described this as a “moderate” cost. Furthermore, changing the LRET to represent a “real” 20 per cent target (or a target of around 26,400GWh) would only save around $17 a year, but would cause damage to the renewables industry, and would result in considerably lower emissions reduction (47 million tonnes) between now and 2020/21 – which was one of the principal reasons for the RET in the absence of a robust carbon price.

“The overall judgment of the authority is that the current arrangements in renewables energy are delivering worthwhile benefits,” he told the briefing. And he drew attention to recent scientific updates which had affirmed the need for urgent action on climate change and reducing emissions.

“Not all stakeholders will acclaim recommendations in the report,” Fraser said. “But no one will be able to say they haven’t had reasonable opportunities to present and debate their views.” He said the judgment on the balance of investment certainty and consumer cost was best made by government.

However, the solar industry faces continued uncertainty, after the CCA said it would recommend certain changes to cap the cost of the small-scale part of the scheme, which mostly relates to rooftop solar PV and hot water systems.

The costs of the small-scale scheme ballooned in the rush to install solar in the last two years, but Fraser recognised that many of these factors – such as the federal multiplier, and state-based feed-in tariffs – had been wound back or ended.

This meant that the cost of the SRES scheme was now likely to fall from around $36 a year to households, to just $10 a year in 2020/21.

However, to ensure against any future unexpected increase in costs, the CCA recommends cutting the threshold for system sizes in the small-scale scheme from 100kW to 10kW. This is likely to be a controversial issue for both solar developers and wind farm developers, because it means that “commercial-scale” solar will now compete with large-scale wind farms. GE, in particular, had warned against such a measure.

The solar industry also said it meant that commercial solar could be constrained because the upfront rebates for such installations between 10kW and 100kW will be lower. (see separate story)

The CCA has also recommended changes to the “deeming” rule, imposing a cut-off date of 2030, which means that any system introduced from 2017 would no longer receive 15-years of deemed certificates. This would reduce the up-front rebate on rooftop systems. There has also been controversy over this measure, but the CCA does not recommend a cap.

The CCA has also recommended the minister retain the power to lower the SRES price cap (currently $40) as an ‘emergency brake,’ should costs to electricity users rise rapidly, as they did in recent years. This will be welcomed by the industry, because there has been much criticism of the ability of the retailers to pass on the $40 a certificate cost to consumers, even though they were able to buy those certificates on market at a considerable discount – often 33 per cent or more.

The developers of large-scale wind farms will be relieved that months of uncertainty have been resolved, and hope that a near two-year hiatus in power purchase agreements with utilities can come to an end.

Utilities have declined to sign, or offer interesting PPAs, because they have been able to satisfy their obligations by an excess of certificates from rooftop solar. But those dynamics are now changing, and the PPAs should begin to roll out. Most developers say PPAs are essential to obtain finance – bank or equity – for the projects.

It will be fascinating to see how this plays out. Most of the wind farms will come from those already approved. There are more than 12,000MW of them. This table below shows where the wind farms are likely to be built.

However, the NSW expansion, which could be worth upwards of $10 billion, will depend on the state’s revised planning laws, which have not yet been finalised. South Australia already has more than 1.2GW of wind, but it’s capacity will not be able to double unless the interconnecters with neighbouring states are expanded. Tasmania has announced plans for a massive wind farm on King Island, although this requires a new sub-sea transmission link to Victoria.

The CCA has also reaffirmed its suggestion that the RET review be held every four years, instead of two, in the interests of certainty.

Fraser acknowledged that this process, which requires changes to legislation, worried some stakeholders because it could open up the RET scheme to other changes as the legislation went through parliament.  “That made a number of stakeholders nervous,” he said. “There is some element of that kind of risk, but we have pressed ahead with that.”

Indeed, the recommendations of the CCA need to be approved by Minister Greg Combet before the industry has absolute certainty. He said today that decision will come early in 2013. But it seems improbable that the government would go against the recommendations from the first review of the authority it created. It might save that honour for their recommendations on Australia’s emissions reduction target, due in 2014.

“The review is done. Now is the time to get on with the business of transitioning to clean energy,” said Lane Crockett, the general manager of Pacific Hydro, one of the country’s largest renewable energy developers.

“There is no reason to delay; we just have to get on with the job.”

GE’s head of renewables in the Asia-Pacific, Peter Cowling, said the recommendations provide project proponents with regulatory certainty to proceed with the development of their projects, secure power purchase agreements, engage equipment suppliers and contractors, and benefit host landholders and regional economies.