RET Review Fuels Debate

South Australia has been leading the country in establishing wind and solar energy installations, but the Federal Government looks set to pull the plug.

South Australia has been leading the country in establishing wind and solar energy installations, but the Federal Government looks set to pull the plug.

South Australia, small on coal but big on wind, has been a major beneficiary of the Federal Government’s Renewable Energy Target (RET). The RET has been operating in various forms since 2001, established to encourage electricity generation from renewables and reduce greenhouse gas emissions from the energy sector. In SA, more than 72 percent of greenhouse gas emissions are from the energy sector, so by taking full advantage of the RET, SA has transformed more than 31 percent of its electricity production to renewables in a major shift towards a low carbon economy.

Bruce Carter, Chair of the Premier’s Climate Change Council, attributes this swift and continuous investment to the fact that SA has both the best natural resource and regulatory framework in Australia, and that renewables provide economic and environmental benefits simultaneously. The statistics concur with the latest SA greenhouse gas emissions data released in April 2014 (for 2011/12), showing emissions were 10 percent lower than 1990, while over the same period Gross State Product rose by more than 65 percent. Premier Jay Weatherill speaks of the RET as “sitting behind millions of dollars of investments in South Australia; something like $5.5 billion in capital has been invested in our state since we made our push into wind energy”.

In addition, energy and greenhouse gas consultant Ros DeGaris points to a significant amount of infrastructure and research and development investment by our universities and private enterprise in areas such as electricity storage and efficiency. This has been built around SA’s growth in renewables, multiplying the value of the RET in this state.

The current RET requires at least 20 percent of Australian electricity to be produced from renewable sources by 2020. To achieve this, the Federal Government issues renewable energy certificates to electricity generators when they provide renewable power to the grid. The generator on-sells the certificates to the retail supplier (e.g. AGL, Origin) and the cost of the certificates is passed to the consumer through their power bills, at an estimated four percent increase.

But the RET is currently under a cloud; the Abbott Government abolished the Climate Change Authority, whose duty it was to perform a statutory RET review. Instead, a panel led by businessman Richard Warburton was appointed for the review. The Warburton Review has had immediate consequences for the state, quantifi ed by Premier Weatherill as projects worth “hundreds of millions of dollars being put on hold” due to the uncertainty of the review outcomes.

In August, the panel laid down its recommendations: close the RET to large system entrants (power stations) or limit these to a 50 percent share of projected growth in national electricity demand, only when electricity demand is increasing. To abolish the RET for small systems (domestic rooftop PVs and solar hot water, pumps) or bring forward the small systems phase-out from 2030 to 2020, and reduce eligibility.

Its reasoning is based, in part, on reduced electricity demand nationwide and increased electricity supply due the entry of renewables, which are lowering the wholesale electricity price.

The former head of the Reserve Bank, Bernie Fraser, now Chair of the Climate Change Authority, states that the Warburton Review had “only focussed on ‘short term’ issues about over capacity and its adverse impacts on coalfi red generators – despite recognising that the RET was functioning as designed”, that it had not taken long-term implications of climate change into account. Both Fraser and Business SA agree that a less severe option could be to retain the 41,000GWh renewables target but allow more time to meet it and, in doing so, retain the confidence of renewables developers and financiers. An extended time period to move the national power generation profi le to a higher contribution from renewables technology would require 10 to 20 years of development to displace the fossil fuel base load. In the meantime, the oversupply of energy should be addressed by assisting the phase-out of fossil fuel-generated electricity, e.g. by directing funds from the Federal Government Direct Action program to help the dirtiest and least effi cient coal fi red generators to exit the market permanently rather than slowing entry of renewables.

The review panel recommendation of limiting market share in the favour of fossil fuels directly slows Australia’s transition to a low carbon economy at a time when the rest of the world is accelerating their transitions. Bloomberg reports that renewables will attract two thirds of the $US7.7 trillion invested in energy globally to 2030. SA should have a slice of this development. It is a transition the International Energy Agency sees as necessary as renewable technologies will be the cheapest form of energy by 2050. A perfectly competitive market assumes that all relevant information is available, however the Warburton Review did not consider commercial risk to new entry coal fired power stations due to future carbon related policies and/or markets; post tax energy subsidies to oil, coal and gas; and the costs of climate change adaptation, such as the costs to Australians of increased frequency of extreme weather events. Based on evidence from climate change related medical research, the RET subsidies are more than justified on public health grounds alone.

The Warburton Review estimates from 2001 to 2013, the RET has subsidised the renewable energy industry to an estimated $9.4 billion, approximately $1.3billion a year. If costs of climate change were explicitly priced and factored into decision-making, this government intervention to correct the electricity market may not be necessary. However, on the other side, even without factoring in a direct or indirect carbon price, the Climate Institute estimates that that Australia’s fossil fuelled power stations are subsidised to a tune of $7 billion to $20 billion a year. As the costs of pollution increase every year, this subsidy is set to grow.

Kathryn Bellette is a member of the Premier’s Climate Change Council

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