Vested interests cutting down clean energy, resisting change

In a classic example of vested interests resisting change, politicians are considering winding back clean energy policies, such as the renewable energy target (RET), just as they are proving successful.

There is a real concern this will result in less clean energy investment, fewer jobs for Australia and a continued reliance on an ageing fleet of polluting coal-fired power stations.

In 2008, the Australian Conservation Foundation facilitated a roundtable discussion for investors.  The roundtable looked at the role of investment in transitioning to a low carbon future for the Australian economy.  Senior investment and industry professionals concluded that “regulation needs to be bedded down, incentive structures need to be aligned effectively, risks need to be better evaluated, and opportunities can then be capitalised”.

In the years that followed, a suite of policies was introduced to support this transition.  Investment in clean energy in Australia boomed, reaching just over AU$5 billion in 2013 alone.  The Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC) have made significant contributions to funding early stage clean energy technology development in Australia, while the RET has encouraged more mature technologies to contribute to the energy generation mix in Australia.

In the same week the overtly biased Warburton review released its review of the RET, ARENA announced $21.5 million in funding for 12 cutting edge solar research projects.  This funding will contribute to improvements in solar thermal, lowering the cost of solar panels, lithium battery technology and more.

Meanwhile, the CEFC made investments totalling $536 million in 2013 and through co-financing arrangements attracted nearly three times that amount from the private sector.

Recently the CEFC in partnership with Colonial First State Global Asset Management, recently announced Australia’s first unlisted clean energy direct infrastructure investment platform, the Australian Clean Energy Infrastructure Fund.  The CEFC will invest up to $80 million and Colonial First State will seek to raise between $300-500 million in additional funds.

So rather than crowding out other sources of investment, as is so often claimed, this funding is made in partnership with companies and research institutions.

For more mature renewable energy technologies, the RET has been extremely successful at encouraging more than $10 billion of investment.

Australia should encourage this investment, not only for environmental reasons, but because 75 per cent of all thermal power stations in Australia have passed their useful life and by 2020 around 45 per cent of coal-fired power stations in Australia will be more than 40 years old.

So while clean energy policies have been extraordinarily successful, there has been a failure to account for the unexpected drop in grid electricity demand and the barriers to fossil fuel generators exiting the industry.

Since 2009, demand for grid connected electricity has fallen.  Household renewables, energy efficiency, rising prices, the carbon price and some large industrial closures all contributed to this unexpected drop in demand.

With demand going the opposite way to what energy markets expected, the rising contribution of large renewables mandated under the RET was partly responsible for a 17 per cent decrease in coal use and a 15 per cent decrease in CO₂ emissions since 2008-09.

This is why analysis by Jacobs for the Climate Institute, ACF and WWF showed that fossil fuel generators stand to benefit by as much as $10 billion if the RET is weakened, as the Warburton review has proposed.  This would effectively transfer $10 billion from renewable energy generators back to fossil fuel generators.

The problem is coal generators are understandably reluctant to close while they can still make a profit, even if they’re only just covering their operating costs.

But a number of additional barriers to exit discourage generators from closing.  Environmental remediation liabilities is one of these barriers.  The complexity of the issue is compounded by state governments’ recent and planned privatisations of energy assets.

The good news is parts of the energy sector have started to talk about this issue.

In the last week of August, AGL released a paper that despite its vanilla flavoured title, Energy-only markets and renewable energy targets: complimentary policy or policy collision?, comes to a radical conclusion: if we want more renewables in Australia, we need to start closing old coal-fired generators.

Australia’s energy sector is at a critical crossroads.

Australians support renewables, a cleaner and more modern technology to provide electricity to our economy.  Appropriate policies for clean energy are part of the way forward.  But we also need to consider how to close down ageing coal-fired generators and develop an investment vision for a low carbon energy sector in Australia.

Now is the time to continue to support policies that encouraging investment in a cleaner energy mix for Australia.  Doing anything else would be turning our backs on clean energy success, just when it is within our grasp.

Tristan Knowles is an Energy Analyst with the Australian Conservation Foundation