Billions axed in clean energy: renewable target is next

Many long-promised renewable and low-emission energy programs have been scrapped or cut back in the Coalition’s first budget. Lukas Coch/AAP

There are billions of dollars of broken promises in the Abbott government’s first budget for low-emission and renewable energy programs – and wiggle room to break even more in the next few years.

The budget forecasts spending on the A$2.55 billion Emissions Reduction Fund over the next four years to be more like A$1.15 billion.

Among last night’s surprises was that government has budgeted to spend just A$1.15 billion, or less than half of its centrepiece A$2.55 billion Emissions Reduction Fund over the next four years (see the budget excerpt on the right).

Environment Minister Greg Hunt says the full amount could still be spent, with funds to “be allocated flexibly over time”.

But anyone with a long memory will be watching this very closely: under the Howard government, more than $360 million was budgeted but not spent on climate programs.

Going, going, gone

Gone are the Coalition’s promises for one million more solar roofs across Australia and at least 25 solar towns, for which the Environment Minister was promising A$100 million each as recently as six months ago. Those programs have been respectively abandoned and slashed.

In the case of the Solar Towns scheme, it will offer a total of A$2.2 million over the next three years to community groups, in barely more than a handful of electorates, several of them marginal seats like Corangamite in Victoria and Moreton in Queensland.

The Australian Renewable Energy Agency (ARENA), set up to support new and emerging renewable technologies into production and deployment, including funding world-leading solar research, is set to be scrapped, a cut of A$1.3 billion. That’s despite the Coalition’s repeated pre-election promises to keep it.

ARENA’s axing is on hold for now, because that the government needs support from other parties in the Senate to shut it down.

Respected former Reserve Bank board member and Clean Energy Finance Corporation chair Jillian Broadbent says the CEFC has a public responsibility to keep investing in clean energy projects. CEFC, CC BY

The same applies to the Clean Energy Finance Corporation, an independent investment body that’s already mobilised A$2.5 billion of mostly private funding for low-emission energy and agriculture projects, which is set to make a profit for the government if allowed to continue.

A bill to close down the CEFC has already been knocked back once in the Senate. But until they are officially axed, the heads of ARENA and the CEFC have pledged to keep working.

Other axed industry and community clean energy programs include the Low Emissions Technology Demonstration Fund, the National Low Emission Coal Initiative, Energy Efficiency Programmes, the National Solar Schools Plan, Energy Efficiency Information Grants and Low Carbon Communities.

How the world’s electricity supplies would need to change by 2050 to try to limit the rise in global temperatures to no more than 2 degrees. International Energy Agency, CC BY

While the axing of so many renewable and low-emission programs was predicted, it is significant. The Australian government cuts to programs driving greater renewable and low-emission energy use come just as we’re being advised to do precisely the opposite by global experts.

As Renew Economy has reported, this week a new report from the traditionally conservative International Energy Agency (of which Australia is a member) shows that the world’s electricity mix needs to switch from 68% fossil fuels now to at least 65% renewables by 2050, if we’re hoping to limit the rise in global temperatures to no more than 2 degrees this century.

All eyes on the target

After this budget, all eyes will be on the Renewable Energy Target (RET) review now underway.

At risk are up to 18,400 additional renewable energy jobs and A$14.5 billion of investment, on top of the A$20 billion already invested under the RET scheme. Public submissions on the renewable review close this Friday at 5pm AEST.

There is room to improve the Renewable Energy Target, as I’ll explain. But after this budget, it’s now the last major remaining piece of federal government policy that supports ongoing investment.

As for big power generators' calls for it to be cut back to a “true” 20% target by 2020 – that’s a stunning reversal from their past position. And I know, because I was there.

Will lobbyists get what they want again?

The Renewable Energy Target has traditionally had bipartisan political support, as a policy started by the Coalition and expanded under Labor. It’s led to A$20 billion of investment, while reducing the greenhouse intensity of the Australian economy and positioning us for future economic success.

The so-called 20% renewable energy target for 2020 is actually 41,000 gigawatt-hours of Large Scale Renewable Electricity (known as the LRET) and a complementary Small Scale Renewable Energy Scheme (SRES) that uses a similar certificate trading mechanism, but actually has no fixed 2020 target.

Big power generators and other industry are now calling for the LRET not to aim for 41,000 gigawatt-hours of electricity, but instead be set at 20% of whatever actual electricity consumption is in 2020 – which is expected to be far lower. They have justified this position by claiming they need “certainty”, and that excess renewable energy generation is cutting into their revenue.

Yet that’s not what they said more than a decade ago.

The original Mandatory Renewable Energy Target was developed from John Howard’s 1997 Safeguarding the Future speech just before the Kyoto Climate Conference. The original proposal was for 2% additional renewable energy (relative to 1997 generation) by 2010.

In intense negotiations, the electricity industry argued strongly for a shift from a percentage target to a fixed amount of generation – 9,500 GWh, in 2010. This rested on their need for “certainty” so they could plan to meet their compliance obligations.

I was involved in these negotiations, and even co-facilitated a four-day workshop in late 1998, in which many issues were addressed. The industry’s underlying reason for the change was that it thought the official electricity forecast on which the 9,500 GWh “effective 2% extra” target was based underestimated likely 2010 consumption. So the shift was likely to reduce their RET obligation.They also recognised that predicting electricity consumption even a year or two in advance is difficult, and would create real uncertainty.

The 2020 41,000 GWh LRET target was based on electricity forecasts of 2007, which were themselves based on data provided by the electricity industry.

But now the industry is seeing unexpected ongoing decline in electricity consumption, so it wants to switch back to a target as a percentage of actual consumption. It argues it needs this for planning “certainty”.

Of course, certainty is a relative concept. For the renewable energy industry, a fixed 2020 generation target does provide certainty, while a percentage target creates uncertainty for everyone, as it is very difficult to predict consumption, even a year or two ahead.

A better plan for the renewable target

The objectives of the Renewable Energy Target are to grow Australia’s renewable energy industry and reduce greenhouse gas emissions. A 2012 review by the independent Climate Change Authority found that it was, in fact, doing that fairly effectively.

So if we don’t want to see major new renewable energy projects cancelled across Australia, and lose renewable expertise overseas, the best thing we could do is leave the Large Scale Renewable Electricity Target (LRET) as it is at 41,000 gigawatt-hours of power by 2020.

In contrast, we could improve the complementary Small Scale Renewable Energy Scheme (SRES).

The SRES has been affected by years of chaotic state and federal government policy on rooftop PV, as well as a complicated revolution related to declining PV panel costs, emergence of new technologies such as storage, and smart demand management.

Solar photovoltaic uptake across Australia. ACIL Allen Consulting for the Australian Renewable Energy Agency
Going solar in the suburbs: solar PV uptake in Brisbane. ACIL Allen Consulting

But its cost is declining, and it has been widely embraced by Australians, with research for the federal government late last year showing that outer suburbs and regional areas have led the way in going solar, as the maps of Australia and Brisbane on the right show. (You can see detailed city and state maps at the end of this report.)

With all that in mind, the government should maintain SRES as it is while implementing a more comprehensive, inclusive policy discussion to deliver a predictable, long-term policy for small-scale distributed energy.

As a side note, the Abbott government and the Productivity Commission both support a trend towards privatisation of the energy sector.

And the Renewable Energy Target has actually been a key driver of privatisation already: around 1.4 million Australian households are now private electricity generators, while the renewable energy industry is privately-owned and operated. So the RET should be seen as entirely consistent with the Coalition’s approach to energy.

Why should Australians reward bad business practice?

Australia’s electricity industry is beginning to confront the kind of change that Telstra’s landline business has had to deal with. Electricity consumption is declining. For a capital-intensive industry that has long-lived assets, this is very uncomfortable.

Major coal and gas generators now seem to see the RET as a focus for blame for many of their problems, particularly their loss of revenue.

But as explained on The Conversation before, the biggest factor driving uncertainty in the need for generation capacity is the trend of falling demand, which is not related to the LRET. The electricity industry has failed to invest sufficient effort to plan for and now understand that trend.

I know of no other large industry that knows so little about how its customers think and behave. Power generators got what they asked for more a decade ago with the design of the Renewable Energy Target – and now they want it changed again, at the expense of renewable investors.

As Treasurer Joe Hockey might put it, it’s time to end the age of entitlement.

Editor’s note: Alan will be on hand for an Author Q&A session from 11:30am to 12:30pm AEST tomorrow (May 15). Have any questions about the state of renewable energy in Australia? Post them below.