Tony Abbott moves to send renewables to the never never

So, here we go again. The conservative government that brought renewable energy in Australia to a complete standstill nearly a decade ago (bringing the then renewable energy target to a halt because it was “too successful”) and forced developers to pack their bags and head overseas, is back to its old tricks. Same batty cast, same batty channel.

The Abbott government’s confirmation on Wednesday that the budget for the Australian Renewable Energy Agency would be slashed is worse news than it seems – even in the context of the carbon price repeal, and the dismantling of the Climate Commission, the Climate Change Authority and the Clean Energy Finance Corporation.

The total amount of funding for ARENA has been slashed from its original budget of $3.2 billion to $2.5 billion, which much of this backloaded into the latter years of the next decade.

But the real impact is what happens in the next few years. The funding for this year is maintained, but the funding for the next two years (2014/15 and 2015/16) is barely one-fifth of what it was assumed to be by ARENA, even just a few weeks ago.

And it is not safe to make any assumptions about funding further out – because it will be just as easy for this or any other government to make further cuts to meet whatever budget crises they have managed to create.

It is not yet clear which programs will be affected and how. But the immediate impact, say renewable energy insiders, is that the development of key technologies, such as large-scale solar, could be severely curtailed. That’s because funding from the likes of ARENA and the CEFC is crucial to unlocking finance for first-of-their-kind projects.

The irony of this deliberate slowing-down of the progress in utility-scale solar PV – which is destined to catch wind energy on costs within a few years – is that more wind farms will likely be developed if the renewable energy target stays as it is.

But, and it is a very big but … that won’t please the backbenchers, and some of the front benchers for that matter, in the Abbott government. Nor it will please influential shock jock Alan Jones, at whose altar Abbott craves to sit. So the next task is to neuter the RET.

That has effectively happened already, because the new government insists on holding another review – a decision that has put virtually all new investment on hold. The scope of the government’s ambitions to curtail renewables will be revealed in an issues paper that the government is due to release in early December.

But it seems clear that, as most other international governments are scaling up their renewable targets, Australia will move the other way, determined to follow the mantra of the fossil-fuel industry’s pin-up boy Bjorn Lomborg and try and stuff the renewable energy genie back into the bottle by limiting supporting funds to R&D. Barmy as they are, such ideas have only one purpose, to extend the shelf life of incumbent coal and gas assets.

Large-scale solar PV is not the only technology that will feel the impact of the ARENA funding cut. The Clean Energy Council says the deprivation of funds will also hurt emerging technologies such as solar thermal, marine energy, geothermal and energy storage.

The policy environment in Australia is now so bad that renewable energy companies are considering packing up and leaving. “I’m looking for a new industry; shame after 20 years in this one,” emailed one insider.

The CEC agreed. “The proposed changes to ARENA’s funding would mean that many renewable energy companies will consider moving offshore, where support for renewable energy innovation is both stronger and more stable,” deputy CEO Kane Thornton said in a statement.

The two tables below reveal the situation.

On the left are the original budget estimates, and updates provided in ARENA’s annual report that was released just a few weeks ago.

The second table is what is revealed in the Abbott government’s carbon price repeal legislation. Funds from ARENA are being appropriated to help repay some of the $7 billion deficit created by Abbott’s vow to “axe the tax.”

The cuts mean that, for the next four years out to 2016-2017, ARENA has only $200 million in uncommitted funding – that is a reduction of more than two thirds from $635 million.

The one positive impact is that ARENA still has substantial funds uncommitted in this financial year, and because this is not expected be rolled over if the funds are not committed, then ARENA will likely move swiftly to finalise these funding commitments in the next 6 months.

The calls for the Abbott government to scrap the RET altogether have been intensifying this week, particularly in The Australian. Several commentators have had a go, but none distinguish themselves by their ignorance as the column penned by Alan Moran, from Abbott’s favourite think-tank, the Institute of Public Affairs.

Moran’s comments are entirely predictable, and consistent with his past contributions: he told the Clean Energy Council annual conference last year that he expected the energy market of 2050 to look exactly like it did 50 years ago. But some of his more absurd claims are worth pointing out. So here are a couple of them:

Moran: Overall, renewable requirements add about 40 per cent to the wholesale electricity cost.

RE: No, actually renewables subtract from the wholesale price, because the well-documented merit order effect forces prices down. Were it not for the carbon price, wholesale prices in Australia, and in high renewables countries such as Germany, are at a record lows, and these are at least partly reflected in consumer bills.

Moran: Wind generation costs are at least $100 a megawatt hour, compared with less than $40 a megawatt hour for coal, the predominant source of electricity. There are also higher network and back-up costs.

RE: No, wind generation costs at the best wind farms are around $80/MWh. The wholesale cost of electricity, even after the dampening effect of renewables, from the coal-dominated grid that is passed on to consumers is around $90/MWh. That’s because some coal can be produced at $40/MWh, but coal-fired power stations rely on more expensive gas and other peaking to meet demand. This lifts the wholesale price higher. Coal fired power stations rely on this premium from peak demand because they have hocked themselves to the eyeballs in debt and rely on this premium to meet interest payments. There are no higher network and back-up costs required for wind energy, even in South Australia which has 27 per cent capacity.

Moran: Rooftop solar facilities are cheaper and receive less favourable regulatory treatment. Nonetheless, their electricity-generating costs and grid connections, subsidised by commercial electricity generators, makes rooftop solar at least five times more expensive than coal.

RE: No, rooftop solar facilities are not cheaper than wind, but they compete with the retail cost of electricity, not the wholesale cost. The additional costs created by solar are minimal, and households can generate solar electricity for between 12c/kWh and 18c/kWh, compared to their coal-fired connection of 28c/kWh to 32/kWh. If generators, utilities, their advisors and commentators like Moran don’t understand that metric, then they don’t know what’s going to hit them.

Moran: Beneficiaries would argue that terminating the renewable subsidies would constitute sovereign risk and adversely affect investment generally. But we are already seeing previously guaranteed income streams from overseas renewable schemes facing early termination. No investor can reasonably expect a subsidy to prevail for 15 years and there would be few precedents for a government committing its successors to 20 years of worthless expenditure.

RE: Except, of course, coal-fired generators that get subsidised supply for decades from coal mines; nuclear plants that rely on government subsidies for 35 years; and diesel suppliers that get long-term subsidies for remote generation.

Moran: No longer is it seriously maintained that renewables, with modest initial support, will become competitive with conventional supplies in a few years. It also has become clear that the world will not undertake carbon dioxide abatement measures comparable to those of Australia, hence any domestic measures have a trivial effect.

RE: You ought to wake up and read wider. Wind is competitive with new-build fossil fuels in many countries, is competitive with existing plant in some, and peaking gas plants in the US are being dumped in favour of solar.