Coalition may stop wind, solar farms if energy demand stays weak

The Federal Opposition has given its clearest hint yet that it is prepared to dilute the 20 per cent renewable energy target – and bring new new developments of large scale wind and solar farms to an effective  halt – if electricity demand continues to be weak.

The Coalition continues to sell its position for large scale renewables as one of “bipartisan support” for the 20 per cent target. But there is great suspicion that it is prepared to soften the fixed target of 41,000GWh – which would require some 8,000MW of new renewable capacity – and adjust it to a “floating” 20 per cent that reflects revised demand forecasts. This would effectively cut installations by more than half  – as demanded by most major generators and electricity utilities and the conservative state governments.

Climate Change spokesman Greg Hunt told the Australian Summer Study on Energy Efficiency and Decentralised Energy in Sydney on Wednesday that there were no current plans to change the RET. However, he said “we will want to see where energy consumption is heading in 2014,” when the next RET review is expected to be held.

For the last four years, and against most previous forecasts, electricity demand has fallen – the result of lower consumption due to rising prices, the introduction of energy efficiency measures, and the growing impact of rooftop solar. In 2012, the average consumption from households in Victoria fell 10 per cent, according to EnergyAustralia, as consumers became more cost conscious or decided to produce their own energy with rooftop solar.

Utilities such as EnergyAustralia and Origin Energy have used this data to argue that the rollout of large scale renewables should be slowed or even halted, because of its impact on wholesale energy prices and therefore profits from their generation fleet.  They have been supported by government owned coal fired generators and network operators, who face similar challenges.

Hunt’s remarks confirm the worst fears of the renewable energy industry, which once again finds itself in a hiatus because of regulatory uncertainty, despite the need to build more than 1,000MW of wind farm capacity – and eventually including solar farms – to meet that target. They rely on utilities to write contracts to buy energy from wind and solar farms to met their RET obligations, but there is little incentive to do so with the election later this year, and the likelihood of another review in 2014. The result is a virtual capital strike on new investments.

The clean energy industry wants the major parties to use the opportunities presented by renewables – both large scale and smaller decentralised installations – to rethink their energy systems and usher in a new era of smarter, cleaner and more efficient power networks that would encourage individuals and communities to generate their own power. They see this as the best way to keep a lid on costs, and to decarbonise the grid.

The Climate Change Authority has rejected the calls to dilute the RET, saying that claims of increased costs on consumers were unfounded. But there is a massive pushback from key players in the conventional industry, and from conservative state government who own such assets, who fear their business models will be trashed. Hunt’s comments suggest that those fears are now gaining traction in the federal sphere.

The CCA had recommended, for the sake of certainty, that the next regulatory review of the RET be held in 2016, rather than 2014.  However, such a change requires a change to legislation, considered by some to be a risky business in the current parliament. This means that the the next review would be concluded within 12-14 months of the election, and if the Coalition wins, it won’t be conducted by the CCA, because the Coalition will have abolished it. Another fear is that if the capital strike continues for another 18 months, the target would be nearly impossible to meet.

Some expect that the Coalition could decide after the 2014 review to dilute the current target to protect the earnings of the incumbents, but sell the change by promising a “higher and further” renewable energy target such as 25/25 (25 per cent by 2025), or 30/30. The former had been proposed several years ago by Origin Energy, one of the principal opponents to the current RET arrangements. It may sound nice, and give the impression of greater ambition, but by diluting the short term target,  wind and solar farm developers said it will simply bring the industry to a halt, and defer new investments.

The comments by Hunt continue the apparent confusion over the Coalition’s policy position on climate and clean energy – firstly over the mechanics of its “Direct Action”, and its proposed buyback of emissions, and its real position on renewables. Several of its new “star recruits” have strong anti-wind and anti-solar positions.

Even the ability to repeal the carbon price is being questioned. Industry analysts Bloomberg New Energy Finance on Wednesday there was less than a one-in-three chance that would occur, and would rely mostly on the results in the upcoming election. The clean energy industry fears that if a Coalition government cannot repeal the carbon price, then a dilution of the RET is a near certainty.

Hunt confirmed on Wednesday that the CCA will be scrapped and so will the $10 billion Clean Energy Finance Corporation. He also indicated that contracts written by the CEFC, which begins investing some of its funds from July 1, would not be honoured as it would fall in a “caretaker period” of government.

And he insisted that the Direct Action policy – which includes a “buyback” of emissions from generators, carbon farming and energy efficiency measures, was scaleable even if Australia decided on a more ambitious target than its current level of 5 per cent reduction in emissions from 1990 levels by 2020. He did, however, consider this was unlikely unless the “G4” – the US, China, India and the EU – agreed on ambitious targets.

“We have underestimated abatement potential and overestimated the cost. We will have capacity to go further,’ he said.

He said the Coalition would continue with its 1 million solar roofs program, but with the focus on lower income and disadvantaged households, and repeated previous remarks that he is a big fan of algal fuel, which he said was being worked on by the “smartest minds and best business brains” –it would capture emissions from fossil fuel plants and factories, and would create clean fuels, displacing conventional oil.

Given that Opposition spokesman Ian Macfarlane is a big fan of ocean energy, and not so much of wind and solar, Australia could have a very different looking energy market than some imagine if they had their way.

Update: This just in from Senator Ron Boswell, in comments made to the SMH. “If we want to have a manufacturing sector in Australia, we have to dump the carbon tax and abolish the RET. The whole of the National Party agrees with me, although we haven’t got a formal policy on it yet, and I suspect many Liberals do also.”