Renewable energy has its neck on the guillotine with Messrs Hunt and Hockey holding the blade up with rope, awaiting a nod from the Australian Electoral Commission that they can let go. At least, that’s the impression the electorate might be receiving: carbon price (tax) – gone, CEFC – gone, Clean Technology Program – gone, Climate Change Authority – gone, with as yet unspecified cuts to ARENA as well. In all, $9.1 billion (less according to Labor) in climate change and renewable energy expenditure-related savings.
However, even assuming that the Coalition are able to get these changes through the Senate and pierce former PM Gillard’s “Abbott Proof Fence”, all is not doom and gloom. The Renewable Energy Target (RET) is King and domestic and international developers are not abandoning Australia like some may think.
Our clients describe the Australian market as “steady” and “buoyant” and a number of domestic projects have continued to proceed this year despite the regulatory environment being in a an undesirable short-term state of flux.Executive Director of ClimateWorks Australia, Anna Skarbek recently noted that Australia has seen a two-thirds growth in renewable energy electricity generation over the past decade ($4.2 billion investment in 2012 alone according to the Clean Energy Council), so it should not be hugely surprising that Australia, along with Japan, Thailand, the Philippines and (to a lesser extent) Indonesia, is among the group of countries consistently touted by developers in this part of the world.
While PPAs in domestic wind projects have slowed dramatically in recent times, solar PV has been the big mover in Australia and in the region, with Australian and international developers actively seeking opportunities across diverse markets. The notable absentee from the above group – China – accounts for about one-quarter of global renewables expenditure, however its market is largely closed to foreign developers. Consequently foreign investors are looking at, for instance, Japanese solar and offshore wind and solar bioethanol and geothermal in the Philippines, which were stagnant markets five years ago.
It is evident that the leading destinations for renewable energy investment are also the countries offering the most generous feed-in tariff rates for renewable energy generated electricity. In solar for instance, Japan offers 0.32 to 0.38 USD/kWh; the Philippines offers 0.22 USD/kWh and Thailand offers 0.21 USD/kWh. While these countries also have RETs, feed-in tariffs across hydro, biomass, wind and solar are their chief incentives for developers. By contrast and in a similar vein to South Korea, Australia relies on a RET-model to encourage renewable energy. Therefore, if we want to stay in the leader’s group, our RET needs to be strong.
At a clean energy conference in July, spokesman Simon Birmingham (rather reluctantly) indicated the Coalition’s support for 41,000GWh of renewable energy by 2020 (the current 20% RET), albeit with a more extensive review of the target in 2014 than we would have expected under Labor, who seem rock-solid on the existing RET.
Last year, Australia produced a record 13.14% of its electricity from renewable sources. So even if the Coalition slightly reduce or delay the 20% by 2020 RET, there is still much development to occur within the short term (even more so given Labor hard-wired the 20% target at 41,000GWh which, given demand has fallen, now represents around 27% of demand). However, it is well known that several large power companies have been lobbying hard for a drop of the RET to 27,000GWh, which would effectively mean half the investment and half the installed capacity of renewables up till 2020. RenewEconomy recently published an article noting a Coalition candidate-backed report, agreeably based on false assumptions, advocating to scrap the RET in order to save around $1 billion. Either of these outcomes would certainly be worst-case scenarios for renewables in this country (and for long-term electricity prices too).
The general consensus amongst many of our clients is that, while CEFC and ARENA cuts are surprising, the uncertainty about the extent of the RET review is the big ticket item for them. Furthermore, scrapping the carbon price only has an indirect effect on renewables as it allows conventional power to be provided more cheaply (and therefore renewables become less competitive), thus carbon pricing is a step removed from directly affecting their projects.
The RET adjustment, or lack thereof, will therefore be pivotal to the future direction of Australia’s energy future. With global and domestic electricity demand falling (largely due to a decrease in manufacturing), Australia can either keep its current RET (in so doing, increase the proportion of renewable energy), or alternatively, maintain the current distribution mix and keep the dirtiest generators in business.
The Coalition must uphold the primary driver of renewable energy investment in Australia and indications up till now are that there will not be drastic cuts to the RET as desired by fossil fuel developers or more militant elements within the Coalition. If there is any significant decrease to the 41,000GWh target, or a deferral of this target till 2025 or later, international and domestic companies who have remained optimistic for Australia’s clean energy future in spite of the conjecture surrounding government policy may simply focus on the booming markets of Asia where RETs and feed-in tariffs abound. Like our clients though, I am optimistic the Coalition will not turn their back on renewables in this country by significantly changing the current RET.
Stephen Webb is a Partner and Asia Pacific Head of Renewable Energy and Climate Change at DLA Piper. He is also the author of Renewable Energy in the Asia Pacific: A Legal Overview