Wind, solar to battle for finance after RET deal finally sealed

The near two-year investment drought in large-scale renewable energy is about to be broken after the Coalition backflipped on its backflip about the need for ongoing reviews, and finally struck a bipartisan agreement with Labor to slash the target from 41,000GWh to 33,000GWh.

The agreement was reached on Monday morning after a reported intervention from the Prime Minister Tony Abbott’s office, in response to the squabbling not just between the Coalition and Labor, but also between its own ministers.

The deal, struck in Melbourne between Industry minister Ian Macfarlane, environment minister Greg Hunt, and Labor’s Mark Butler and Gary Gray, will reduce the amount of large scale renewable energy to be built between now and 2020 by more than one third – from around 8,500MW to 5,500MW. That represents lost investment of between $5 and $6 billion.

It means that Australia becomes the first developed country to formally reduce its renewable energy target, adding to its decision to become the first to kill a carbon price. Why, the Coalition government has never made clear.

It says the original 41,000GWh target would mean that renewables would account for more than 27 per cent of total demand, but it has never explained why this bad (apart for coal generators). Its own Warburton review, and others, found that consumers would benefit.

The only beneficiaries of a reduced target are incumbent coal and gas fired generators mostly, but the deal – and the locking in of the target until at last 2018 – will finally give the certainty the industry needs to sign contracts and obtain financing to bring projects to market.

It seems that the deal was done after the Clean Energy Regulator managed to make it clear to those within the Prime Minister’s office that the idea that the “penalty price” would inflict untold pain on consumers – a constant refrain of Macfarlane and Hunt – was absolute bollocks, even in the unlikely event that the industry could not meet this much reduced target. (Another claim by Macfarlane and Hunt that has been dismissed as nonsense).

Clean Energy Council chief executive Kane Thornton said the agreement to remove the review provision was the final major stumbling block for the renewable energy industry.

“It has been a tough 15 months, but this development will be a huge weight off the shoulders of the 20,000 people working in the industry. It will also help to unlock Australia’s massive renewable energy potential.”

Thornton said the industry was “obviously disappointed” with a reduction of the target.

“We remain concerned about the impact of this lower target on the opportunity for emerging technologies like large-scale solar, and will continue to work with both major parties on appropriate policy measures to address this.”

This is recognition of the major complaint of the solar industry, particularly those not within the CEC, that large scale solar would be the principal victim of this reduced target, a strange outcome for a Coalition government nominally in support of solar technologies but not a big fan of wind energy.

Still, many think that large scale solar is not dead in the water. As we reported last week, Bloomberg New Energy Finance thinks that one third of the new build over the next five years could come from large scale solar, mostly in Queensland where the market for energy will increase because of the energy hungry LNG sector.

Some say this is an optimistic and highly conditional outcome. But some developers are confident they will get their projects up, while others point to the W.A. market and others still to the emerging corporate market, and demand for smaller solar systems, particularly from councils such as Sunshine Coast, Fremantle, and now Wanneroo.

As for wind energy, there are dozens of projects in South Australia, Victoria, New South Wales and even Queensland totalling more than 6,000MW that will now dust off their plans and seek contracts with obligated parties (mostly energy retailers) and then finance.

Some may go straight to market, getting finance for “merchant plants” and then try to land a power purchase agreement later. Renewable energy certificates are now at more than $50, the highest since 2008 and nearing record levels – making it a possibility for some of the lowest cost wind farms (usually the ones with the best wind resource and close to grid connections).

Still, work on wind or solar farms will not begin tomorrow. The legislation based around the agreement today will not go before the House of Reps until early June, and to the Senate until a few weeks after that. There could be road-bumps in the Senate, where the mostly anti-wind cross-benchers are holding yet another inquiry, and given the Coalition’s track record, no investor will stump up money until the legislation is in place.

One potential issue remains the potential inclusion of native forest wood waste, which some fear could take capacity away from wind and solar. There is a raging debate about the credentials of native wood waste as a renewable energy source.

The CEC said it did not support it unless there was an agreed process to verify it as coming from sustainably managed forests.

“We remain hopeful that the major parties will continue to work through this issue for the good of the tens of thousands of people employed by the renewable energy industry,” Thornton said.

The Australian Conservation Foundation described the agreement as a “sad day for the climate’. It said both parties went to the last election  a promise to keep the RET as it was.

“Today’s backdown represents a surrender to the electricity sector’s big polluters, because it will allow more electricity to be generated at old, inefficient coal-fired power stations,” the ACF said.

The Australian Solar Council said the RET deal was bad for big solar, but was a victory for the small scale market, which was to have been wound back but which will now remain untouched.

We call on all political parties to commit to at least 50% renewables by 2030,” CEO John Grimes said. “And we call on all Australians to buy solar today.”

She said it was disingenuous for the Liberal government to claim the diminished Target would ‘protect’ electricity consumers when its own Warburton report showed having more solar and renewables in the network would have reduced power costs for all households – whether they have rooftop solar installed or not.

The Australian Wind Alliance said the Coalition have succeeded in slashing investment and jobs in the renewable industry.

“This government’s behaviour on the RET has been terribly disappointing,” said Andrew Bray, National Coordinator of the Australian Wind Alliance.

“The government has smashed Australia’s reputation as a destination for clean energy investment by shutting down the pipeline for renewable energy investment. This deal will increase power prices in the medium term for consumers by cutting the amount of cheap renewable energy in the system, as found by the Warburton Review.”