After announcing a 5 per cent “big solar” energy target by 2020, along with the country’s first large-scale feed-in tariff for renewable energy, Victorian Premier John Brumby granted an exclusive interview with Climate Spectator editor, Giles Parkinson, telling him why solar is perfect for Victoria; why Australia needs a carbon price; and why we need to act now to turn the national climate change challenge into an 'economic winner.'

Giles Parkinson: Premier, I guess that Victorians don’t like admitting it, but your state probably gets less sun than most other mainland states, yet you’re underwriting a massive investment in large-scale solar. Is it the right place to do it? Should you maybe be focusing on other resources?

John Brumby: Well, Victoria is actually the right state to do it. We do get a lot of sun in the north of the state and, if you look at the solar maps that measure these things across Australia, we actually compare very well indeed. So there may be a few other places that get a bit more intense sun, but they also get quite a bit more cloud in summer.

So we actually compare very well. And that’s why Solar Systems, for example, which is now owned by Silex, is set up here; they’ll produce out of Mildura. But even places as far south as Bendigo stack up pretty well. And there are really two things that are important here: one is obviously the sun, the solar intensity; the second is the proximity and access to the grid and to markets. And again on that, Victoria, with the lattice of 220kv lines across the state, is well equipped. We can perform and we’ll perform well in this area.

GP: The target that you have set is really quite ambitious – you’re suggesting that the industry should go from basically zero, to about 285MW in the interim target to 2014, and then much more beyond. Is that achievable?

JB: Victoria had a renewable energy target and that’s been subsumed by the national renewable energy target. The reality is, most of what gets brought forward under the national target will be wind. And the reason for that is that wind is closest in terms of cost; the technology is already relatively mature, so all of the predictions are that the vast majority of energy to be generated under that target would be wind.That then pushes out solar and, because the cost gap at this point in time is still significant, solar is unlikely to get the look-in that it needs and deserves.

If you accept that there will continue to be improvements in technology, improvements in efficiency conversion rates, and reductions in cost of production – and all of those things, by the way, are occurring – the long-term cost of producing solar will continue to decline and, I believe, decline significantly. But we can’t leave this till 2020 or beyond; we need to get in now, we need to build up the base of renewable energy and we need to build a broader base than simply wind energy.

So the support we’re providing is designed to do that. And solar, by the way, as you know, fits extraordinarily well with our energy demand, as well – particularly in those peak times where Victoria, South Australia and New South Wales in January, February and March, need masses of power during the hot afternoons; and solar is a perfect fit for the market. We think it’s the right thing to do to balance out the peaks and to make sure we get these long-term investments in place and do it now.

GP: The timing of the announcement is pretty interesting. It’s in the middle of the federal election; why did you act at this particular point? Are you concerned that there’s policy paralysis at the federal level?

JB: Well, we’ve been working on this for some time and I looked at solar over in the US when I was there 18 months- two years ago, and I’ve always been passionate about solar and its potential. Again, I think we’ve seen, with household solar, just a confirmation of the things I mentioned before; the technology continues to improve, the cost continues to come down.

So we’ve been working on our White Paper. We’re coming to the conclusion of that. I will be releasing that in just the next few weeks and this was one initiative from that. We could have sat on it and waited and waited, or we could have put it out, and I announced the new energy efficiency targets last week; 5.4 million tonnes of carbon dioxide. I’ve announced this this week and I think it’s fair to say you’ll see some further announcements in the weeks to come.

GP: There is criticism in Australia about the patchwork of different regimes and different initiatives from state and federal. Are these things best done on a sate level, or are they best done under a uniform national scheme?

JB: Well, if I could have two bob each way, sometimes I think a bit of each. But the reality is that the big changes have been mainly driven by the states. So if you look at the original renewable energy target – that came out of Victoria. We were 15 per cent by 2015, that got picked up by the national government and became a national target. And it’s good that there is a national target and we’re delighted that the federal government picked that up. Five star rating for new housing – again, that was a Victorian government initiative. It’s now become a national agreement through COAG. That’s a good thing for Australia as a whole.

So I think it’s a good thing to have some competition, if I can put it that way, between the states, and also some opportunities for policy innovation. But for our state, I’ve always seen our state as the innovation capital of Australia, and climate change is about a better environment, but it’s also about being a leader in innovation and making sure that our state picks up and wins the new opportunities that are going to come in renewable energy and energy efficiency technologies and environmental technologies generally.

So, sometimes these things will be better done by the states, sometimes there will be some programs that are better done nationally. But without the states, I don’t believe you would have seen the leadership that’s occurred in the climate change area.

GP: Yes. Are you disappointed with the policy agenda on the federal level? There’s not even much talk about a carbon price any more, but a carbon price seems essential for these sorts of projects to have a long-term investment reason.

JB: Well, again, Victoria led this debate nationally, and it was always our view that there should be a national emissions trading scheme with a carbon price. That remains our position. So we’re not through the election campaign yet; we’ll wait and see whether there are any further developments in this area. I don’t know whether there will be or not, but the reality is, I think as you’ve pointed out on your website and in your articles very well, the rest of the world is moving rapidly, far more rapidly than Australia, towards investment in alternative and renewable technologies. And if we don’t move in the same direction, we will be left behind, we’ll be in the backwash. 

If you look in the United States, the Obama Administration; he spent the first 12-18 months of his administration pushing through his health reforms, but I think it would be a short, odds-on bet to say that in the second and third year of his presidency, the President was going to push hard in this area of renewable energy, alternative technologies and tackling climate change – particularly after the BP fiasco.

Whether you look at Japan, whether you look at China, whether you look at India, whether you look at parts of Europe – particularly Germany – or whether you look at the United States, the rest of the world is now moving quite rapidly in this space, and we need to be at the front of the wave, not the back. So we do need to move, we’ll wait and see what the political parties do, but clearly a carbon price would provide more certainty, a clear pathway forward, and would ensure that we get the investment we need in both renewable energies and gas generation, to make our total energy mix better.

GP: The feed-in tariffs; would you consider extending that in your state to other renewable sources, such as geothermal, wave energy or biomass?

JB: Well obviously geothermal, wave and biomass can get picked up under the 20 per cent MRET, and we’ve provided some other support for a geothermal project west of Geelong, where we’ve committed, some $23 million towards that project. So they are eligible, obviously, for certificates under the MRET.

We think there’s a special case in relation to solar and that is because, at the moment, they’re outside the cost curve and they do have a high start-up cost. So you have to change the paradigm and that’s what we did yesterday with our announcement. I think the others can be picked up on a case-by-case basis, and through the broader MRET target.

GP: What about solar – do you think that maybe they’ll need other incentives to actually get the financing for it? Would you entertain anything like a loan guarantee, or tax credits, to make sure that they get the lowest possible cost of capital?

JB: We don’t tend to guarantee loans because they then show up on the government’s books, they become government debt. So that’s not what we’ve done in the past. We think the way this is structured – we haven’t, obviously, finalised the quantum of the feed-in tariff – but on the way this is structured, we will achieve that target, I think, without the need for other incentives. We may work with the companies to assist them with things like the location of land, and obviously fast-tracking planning approvals.

But if you look at the way the numbers work on this, there are two projects at the moment in Victoria which are either under consideration or under construction. The first of those is Silex.  We’ve committed $50 million towards that, plus the federal contribution is enough, with the Renewable Energy Certificates, for that company to go to the market. Second is the one that is out for tender at the moment. We’ve put $100 million on the table. We have a number of active bidders, and this we hope will be a project that would be picked up under the Solar Flagships Program, and again the combination of state contribution, federal contribution and Renewable Energy Certificates would get that project across the line. And then you’ve got the additional projects, which we would attract, obviously, through the feed-in tariff, the first of those with a 500GW/hour target by 2014.

So it is the feed-in tariff that would provide the necessary financial support for those projects.  You saw the numbers we ran out, starting at $5 a household, building to $15; they’re the numbers that have been calculated by our respective departments, and you can do your sums there on the number of households in Victoria, and what the implicit annual subsidy is towards those plans that would need to get us to 5 per cent.

GP: What is it?

JB: You can do your own numbers on that.

GP: How many households do you have in Victoria?  I’d have to know that.

[Silence]

GP: The other big issue, I guess, for Victoria is, apart from encouraging investments in solar, is what to do about weaning itself off brown coal. Clearly Hazelwood is an issue that’s upcoming at the moment, and the owners of that plant don’t want to invest in lowering their emissions. What’s the plan for Hazelwood? Will you be announcing, soon, the closure of part or all of the power station?

JB: To the extent we say more about this issue, I’ll be saying more about it in our White Paper, and there’s been some speculation, obviously, in the media as to what we might or might not be planning there. But the issue with Hazelwood is, it is the most energy-intensive generator in Victoria by a fair way. It compares very poorly to state-of-the-art coal generation or gas generation, and when the carbon price was proposed for Australia, Hazelwood was scheduled to close in 2016.  As a consequence, what you would have seen in Victoria is new base-load and peak gas generation brought forward as a consequence, most likely either at Mortlake or at Shaw River, or both.

The lack of certainty in relation to a carbon price has meant that there are real issues for our state in terms of energy security and, to the extent that you would want to replace Hazelwood, you would want certainty about that process, going forward. So there is a great deal of uncertainty at the moment and any steps which our government would take in the future would be about ensuring, firstly, that we lower carbon emissions in our state; secondly, that we provide a secure energy future; and thirdly, that we would bring forward new gas and renewable generation.

GP: Germany, another economy that’s dependent on coal, said this month that it could be 100 per cent zero carbon by 2050, and quicker if society and governments wanted it to be so. Do you see the day when Victoria might be 100 per cent renewable, or 100 per cent zero emissions? And when could that be?

JB: Well, I will say a little more about that in the White Paper, but if you look at the projections at the moment, where about 90 per cent of our power, in very round terms, is from coal and by 2020, if you add up MRET plus solar, plus a bit of hydro and gas, coal is likely to be somewhere in the 60s. So that transition is occurring. I think there are three elements to this. First is the shift to renewables; you need renewables for the medium and longer-term. That’s occurring, albeit slower than I would like to see. Secondly, we’ve got to have more gas coming on-stream, as a short to medium-term replacement for coal. And in the long-term, you’re looking at energy which will be produced either from renewable sources or from clean coal, which is coal involving carbon capture storage. So that’s the future as I see it. What the precise mix post-2020 will depend on lots of unknowns.

GP: What could solar be? Could it be 10, 15, 20, 25 per cent, or more, some time in the future?

JB: My own view is that we are likely to see a lot of activity in the solar space, and we’re likely to see a lot of activity in geothermal. And if you can get geothermal to work, it’s pretty simple; you pump it down and you pump it up.

GP: Yes. If you were Prime Minister right now, what policies would you be announcing?

JB: I think that there will be, well, I hope that there will be announcements over the next few weeks in relation to these areas, but energy efficiency is fundamental. You can make huge savings in carbon emissions in households and small-to-medium businesses, so tackling that – but not just through retrofit-type programs; grants for new industry development are really crucial.

It is still a fact that 50 per cent of the world’s energy passes through an electric motor, so whether it’s in a printer or an air-conditioning system, or whatever it is, getting efficiencies in those technologies are crucial to reducing emissions.

Secondly, accelerating the move to renewables. Thirdly, I think it is important to continue to provide support for carbon capture storage. The world is going to continue to use coal – and there are many environmental groups who don’t like hearing that message – but if you look at China for example, China has now surpassed the US as the world’s largest energy consumer and they consume a huge amount of oil and coal – so continuing to advance research in carbon capture storage is important for Australia, but perhaps even more important for places like China and India, which are going to have galloping energy consumption curves. 

So those three things are really fundamental. I think the fourth area is obviously providing the right environment to turn this challenge into an economic winner, and whether that’s research and development, and new technologies in solar or geothermal, whether it’s through ceramic fuel cells and their development and production, whether it’s through the new technologies that might hypothetically halve the amount of energy that an electric motor uses. I think there is just a huge raft of new economic opportunities that are going to come as the world really focuses on a cleaner environment and knocking down carbon emissions. So they’re the four things I would focus on.

GP: But what you say there – the opportunities that will present themselves to an economy that lowers emissions – that doesn’t seem to be recognised in Australia. In Australia, the debate seems to be around, “Nuh, it will be damaging to our economy, we can’t do it and hence we are going slow”. How do you convince either the business community or the political community, or whatever, actually it’s probably best to go quicker?

JB: Well, we’re doing our best on that. We went to the summit in Bali in 2007, and I coined the phrase there, ‘climate of opportunity’, and we’ve got to turn this into a climate of opportunity and we’ve just got to keep talking about it. The reality is that, in energy generation alone, you will see far more investment in energy generation, not less, as a result of tackling climate change. And I think many people don’t understand that, and we just need to be saying it more often. And you’re seeing that here in Victoria, because apart from the investment we’ve seen in coal, and particularly some improvements that have been made to reduce energy intensity, we’ve seen significant new gas generation come online, particularly at Mortlake. We’ve seen significant new renewable come online through wind, and we’re about to see significant new renewable through solar. 

So the fact is there’s a net increase in investment in energy generation, not a reduction. And that translates to more jobs, not less. Ditto if you look at industry. Talk to VECCI about their Carbon Down Program. It’s been fantastic for the industries that have participated; they’ve become more efficient, but they’ve also spent more money up front on new capital innovations and new ways of doing things. So there will be more jobs, not less. We’ve just got to keep saying that, and I think it’s already showing that what is said is proven.

GP: Very good. Thank you very much for your time, Mr Premier.

JB: Thanks Giles, good luck in the job.