Australia's renewable roadblocks
The clean energy industry in Australia enjoyed one of its most successful years in 2010, but it’s not entirely clear that it has that much to celebrate. Not quite yet.
The annual review published by the Clean Energy Council today points to two clearly buoyant numbers – in the 2009/10 fiscal year, private investment in renewable projects (not including small-scale) nearly tripled, to just short of $1.8 billion. And it was, of course, a boom year for rooftop solar photovoltaics, with 310MW of capacity installed across Australia – the equivalent of a gas-fired peaking power station.
But it was not the breakthrough year that many had expected. The private investment data reflects a five-fold increase in the wind industry alone, and funds flowing to emerging technologies – particularly those where Australia should have a natural advantage, such as large-scale solar, geothermal and wave – declined sharply.
According to the CEC report, only $38 million in new investment was put into the geothermal, wave and large scale solar industries in fiscal 2009/10. These are not the sort of sums that will drive investment in technologies crucial for a low emissions future. Geothermal spending slumped by 75 per cent, large-scale solar fell by more than 50 per cent, and wave was down by 40 per cent.
Banks have continue to display a deep aversion to technology risk and the developers of such technologies have greener pastures to play in – be it Europe or Asia – and it is not clear how Australian projects will ever get the tens of millions of dollars they need to get going.
And there are other roadblocks ahead. The price of renewable energy certificates is still floundering below $30 – nowhere near enough to bridge the cost gap with cheap, but emissions-intensive coal, which means developers find it nearly impossible to get power purchase agreements (PPAs), and therefore finance. The price may not be resolved until several months into the New Year when the amount of surplus RECs from the boom in rooftop solar is finalised.
Even then, the sale of the NSW energy retailers means that there are effectively only three companies to deal with, and renewable energy developers will have to beg the indulgence of the CEOs of TruEnergy, Origin and AGL. Their only hope for near term PPAs is that the NSW retailers are so short on renewable energy certificates that the surpluses built up by Origin and TruEnergy are quickly made redundant.
Another, even greater, challenge for the industry is the sudden attack of short-termism that has afflicted the public debate surrounding the introduction of clean energy sources. It is as though, having accepted BHP Billiton’s call for a carbon price as inevitable, industry and heavy emitters have set about with the singular goal of reducing a carbon price to the lowest possible level and do away with any complimentary measures.
The call by the Australian Industry Group’s Heather Ridout for the review of the renewable energy target – which she claims is economically inefficient – might represent the nadir of such debate, but she does face stiff competition.
And when the nation’s only financial daily publishes a lengthy news feature by a senior journalist lambasting the cost of renewable energy, comparing its abatement cost with the that of the EU emissions trading scheme, ignoring the fact that most EU countries have either feed-in tariffs (FiTs), renewable energy targets, loan guarantees and government grants, or all of the above, then you know the standard of debate is not high.
Yes, a carbon price might, in theory, make complementary measures redundant. But, as Professor Ross Garnaut points out, it would need to be $50-$100 a tonne to make it so. A low carbon price will encourage a transition from coal to gas – the very minimum that Australia needs to achieve to meet its 2020 targets – but the idea of properly constructed RETs, FiTs, and loan guarantees, is to give the extra impetus to new technologies that need economies of scale to drive costs down, so that they can compete with current technologies and properly costed emissions, and then enable the country to meet its more ambitious long-term targets, whatever they may turn out to be.
And to further stress the importance of renewables, the International Energy Agency says that in order to meet the 450 parts per million scenario, the use of renewables would need to account for around 45 per cent of the world's electricity sources by 2035, even after taking into account the potential of carbon capture and storage and nuclear.
“Renewable energy sources will have to play a central role in moving the world onto a more secure, reliable and sustainable energy path,” the IEA said in its annual energy outlook. “The potential is unquestionably large, but how quickly their contribution to meeting the world’s energy needs grows hinges critically on the strength of government support to make renewables cost-competitive with other energy sources and technologies, and to stimulate technological advances.”
The CEC report suggests that the clean energy sector could generate some 55,000 jobs over the next decade, much of it in regional areas. “It’s not a boutique industry,” says CEC chief Matthew Warren, noting the increasing engagement of mainstream companies worldwide and in Australia.
And he has an interesting take on the take-up of solar PV, noting that it was broader than just NSW (which had an overly generous scheme) and was not, contrary to some reports, installed by only the wealthy – the NSW data points to a much higher take-up in the mortgage belt and country areas.
“It reflects a deeper change in the market,” he says. “It’s deeper than just early adopters, it’s now in a less green and more pragmatic section of the market, people who are interested in a hedge against future energy price increases.” That, he says, fits with the broader narrative, and the apparent decline in “green power” schemes: it’s not just about climate change action, but about protection against rising prices.
Comments on this article
Right Analysis - What's the Answer
Thanks Giles, you're spot on with your critique of the issues holding up renewable energy investment. While wind is attracting the safe investment dollars because banks are now comfortable with the technology, wind power alone isn't going to help mitigate carbon emissions on a large scale. If the RET was supposed to encourage a broad portfolio of renewable technologies (including solar power in particular) in order to facilitate a transition to a lower carbon emitting power system, it isn't working. And it won't work without other complementary measures, such as large scale FiTs, loan guarantees and specific targets, such the Victorian 5% solar policy (which I see the Coalition also supported in its election campaign). These measures can and should be properly structured like for example the reverse auction in California - which gets the best competitive result without a regulated FiT.
Richard Harris, Perth, WA
Expectations dashed => punters averse.
There can be no doubt that the greed of punters drove the huge uptake of domestic rooftop solar. Not economics. Not green feel-good vibes.
NSW's now defunct FiT of 66 cents was stupidly, monstrously wrong. Now expectations of a profit from a ripoff have been reduced by a 20 cent FiT, businesses have collapsed and momentum has dropped, quite probably to lower levels than had the politically inept boom and bust cycle not occurred in the first place.
Who pays? We all do, via higher domestic power tariffs. Who misses out? Pensioners, renters, those living in units & flats, on-site transportable homes - and those with no or low disposable income.
Who benefits? The rich and middle class rentseekers and profiteers who live in houses of their own.
Of course, nobody now trusts domestic solar PV in the long term. Its very popularity, indeed, the whole industry, was built on politicians' promises, commercial rentseeking, mistaken spin and straight out fables. So,the FiT has gone from 12 times to 4 times the real value it should be at.
So what? That solar PV has finally been seen as being unreliable commercially and politically as well as in engineering terms is not a surprise.
A compliment is nice, but...
I am not a native speaker, but is it not complementary measures rather than complimentary measures?
Pot, kettle, black
Giles, I'm not sure you're in a position to talk about the standard of media debate - let's face it you blatantly editorialise in almost every piece, so how can you complain if others do the same albeit in a different direction?
To other contributors so far:
Bruce, not sure why your bright idea wouldn't fly with Allan Jones and the City of Sydney - sounds right up their street. I assume you tried them?
Simon, I note the points you make about framing the policy, but the RET isn't quite a carbon price, because you can't earn credits via less-emissive fossil fuel generation, whether a fuel switch to gas or incremental improvements to coal plant.
Rod - the $6k subsidy won't disappear in June 2011, it just gets progressively smaller over the next few years. But that's Ok, because this site regularly proclaims the rapidly dropping cost of PV...
Is the RET a taster for a carbon price?
Thanks Giles for the typically great read.
I'm not sure many see it this way, but the RET can be thought of as limited carbon trading scheme constrained to the electricity sector. Assuming 1 REC = 1 T CO2 (valid assumption for Victoria), the RET creates a market for a specific form of emissions reduction.
What's interesting about this is that it gives us a preview of how an ETS might function, and perhaps provides some lessons.
For the RET to deliver its stated goals (which enjoy bipartisan support), the sum of the present value of energy ("the black") and RECs ("the green") must provide at least the levelised cost of energy (LCOE) of the least cost renewable energy projects.
By this definition, the REC market has been in market failure for most of its history and consequently we are seeing relatively little in the way of project delivery.
REC prices have been volatile as a result of repeated, ineffective policy meddling. Faced with a failing market with significant volatility and sovereign risk, many developers are sitting on the sidelines.
Let's hope we can create an ETS in 2011 taking note of our mistakes with the RET.
The Idea Of Hedging
While subsidies for installation of PV play an important role (RECS) and feed in tariffs a lesser role in a decision to install a 5kw PV system on a domestic roof, the lack of anything that will place a ceiling on electricity price increases plays a major role.
With NBN setting a model where everyone pays because its good for all of us, it is likely that carbon taxes and renewable energy targets will be positioned in exactly the same way. We will all be paying via our electricity. Just like we are via our water bills!
With no good reasons why electricity prices won't jump another 60/70/80% over the next 5 to 10 years, a 5kw PV system on the roof becomes a rational economic decision rather than a hedge.
The $6K subsidy that will disappear in June 2011 is simply a reason to act now. Especially when based on past Labour Party behaviour it might disappear in March!
Australia's renewable roadblocks
We are a small company offering Load Shifting via Thermal Energy Storage using well proven refrigeration concepts and a bit of patented magic out of South Africa.
Interest in Australia NIL.
Interest from Asia, a contract to build a "proof of concept" plant and when proven there is a very large potential market.
The two factors that I perceive working against us in Australia are "consultants" who wont take off their slippers and get out of their comfort zone and tyranny of distance (population density). Reticulation of any form of group (area) cooling / heating is difficult. However, there are many opportunities in office blocks, hotels, shopping centres where the technology will work.
Bottom line? Went to Asia where open minds and an active interest in something a bit novel attracts attention rather than derision.
Australia's renewable roadblocks
Mathew Warren is the closest yet to understanding why everyone who can afford it wants their own solar panel system.
It's also because it is becoming clearer and clearer that neither our state nor federal politicians control our energy policies. These remain under control of the recalcitrant fossil fuel industry who refuse to do the right thing.
This simply means that when Australia is forced to take action through international sanctions, as Nicholas Stern recently predicted, the change over to renewables will necessarily be more urgent, painful and disruptive, with frequent brownouts, power disruptions and possibly rationing of elctricity and petrol.
People want to protect their businesses and families by securing their energy supply now. Expect to see a strong market for EV's and the new battery back-up technologies as the prices decline over the next few years.
....../Chris