What’s at stake: How the RET could change

Here’s an outline of the worst possible scenarios from the Abbott government’s review of the renewable energy target. There is a lot at stake – potentially 7GW of wind farms, up to 3GW of large scale solar, and anywhere between 2GW and 5GW of small scale solar. Not to mention jobs. How much of each will get built will depend on technology costs, development approvals, investor interest and policy settings.

Scrapping the target altogether:

This seems highly improbable in a sensible policy environment, but this country does not currently enjoy a sensible policy environment. Various lobby groups, including the Mining Council, the chamber of commerce, and some generators, want the RET scrapped completely.

Some in the clean energy industry believe the government has already sought legal advice on compensation, and the Terms of Reference state clearly “the Review should provide advice on…implementation arrangements for any proposed reforms to the RET, including how to manage transition issues, risks and any adjustment costs that may arise from policy changes to the RET”.

Halving the RET:

Other scenarios have the RET being reduced from the 41,000GWh target by 2020, to 31,000GWh, 27,000GWh, or even as low as 20,000GWh. This would mean a lot less wind – and solar capacity – being built in next 7 years. It would largely depend on what “interim” or “stepping stone” targets were introduced. Without them, investment would dry up for several years.

Delayed decision

Investment has largely dried up because of the uncertainty over the RET, even though the last review was completed little more than 12 months ago. Because of this uncertainty, utilities will not write power purchase agreements, and bankers will not provide loans.

Without contracts and finance, renewable energy projects cannot get built, unless they are “behind the meter”. The government is not obliged to give its decision before the end of the year. It says the Warburton panel’s recommendations will “feed in” to its energy white paper, which could take a while to be finalized.

Banding

Does the new government hate renewables, or does it just hate wind farms? The review could leave the target alone, or scale it back, and introduce “banding” that would limit the amount of capacity allocated to a particular technology, such as wind energy. That, however, would lead to increased costs of the targets because other technologies are more expensive.

Removing rooftop solar incentives

The biggest threat to incumbent utility earnings is rooftop solar, because it eats into demand at what used to be the most profitable part of the day. Some utilities have called for the small scale component to be wound back or removed altogether, arguing that solar panels are already cheap enough.

Such a move would likely push out the ROI (return on investment) of rooftop solar to more than 7 years, and up to 10. That would restrict it to the more affluent households. It also goes against the conservative warmth for solar – the ability to generate their own power should fit in with conservative theories of self reliance – but there is great confusion about future of million roofs program, and conservative state governments hate rooftop solar because it trashes the earnings of state owned assets.

Remove large rooftop systems from SRES

The CCA in 2012 opened the possibility of removing larger rooftop systems (say above 10kW or above 30kW – it is 100kW limit now) from small scale scheme. This would transfer them to large scale section. That could impact economics of commercial rooftop solar, which might prefer the upfront payment of certificates, or it could throw distributed solar into direct competition with wind farms. Distributed solar will be the medium and long term winner of that battle.

Cut clearing house price of SRECS

Other options include reducing the clearing house price of the small scale scheme (currently $40/MWh), or bring an earlier end to deemed phasing out. This would reduce cost of small scale component of scheme, and the incentives for rooftop solar.