Renewable Energy Targeted?

Australia’s new independent Climate Change Authority recently embarked on a review of the federal government’s Renewable Energy Target (RET). At least one company, Origin Energy, is using the review as an excuse to demand the RET be weakened.

Australia’s current target is 45 terawatt-hours (TWh) of new renewable energy by 2020, split into the 41 TWh Large-scale Renewable Energy Target (LRET) and 4 TWh Small-scale Renewable Energy Scheme (SRES). That would bring the total amount of renewables to 60 TWh, 20% of the demand projected for 2020 at the time the legislation was passed. But future demand has been revised significantly downward in recent forecasts, implying the RET could potentially deliver enough renewables to provide more than 20% of Australia’s power in 2020.

Any reasonable person would welcome this possibility – but not Origin. Origin is a “gentailer” (both an electricity generator and a retailer) with large investments in gas, and the rise of renewable energy threatens their profits.

CEO Grant King complains that the RET is increasing electricity prices, and that a higher percentage will mean a higher cost. This is the latest in a long line of claims blaming climate change policies for electricity price rises. While it’s nice to know electricity retailers are so concerned about overcharging their customers, in reality the major factor driving up prices is ill-advised investment in the electricity grid. Of the price rise projected for the next two years, more than 85% will be due to network and distribution costs, and less than 15% from the carbon price and RET. While the grid does need to be updated for a renewable energy economy, the current investment is only to supply peak demand on the hottest days when everyone turns on their air conditioners, which could be rendered unnecessary by better demand management. And though renewable energy is painted as expensive, it is increasingly cheap and can actually reduce electricity prices.

The solution Origin proposes to the non-problem is to reduce the RET to 20% of the currently projected 2020 demand. This could halve the amount of renewable energy investment driven by the RET. And demand projections could change again; it would be impractical to constantly adjust the RET accordingly. In any case, it’s not clear if the discrepancy is as large as Origin is claiming. Ironically, some of the reduction in projected demand is due to installation of solar PV, so lowering the RET on that basis could make it less than 20%.

At first sight, the RET appears relatively secure. According to Climate Spectator, Origin is so far the only player actively calling for RET to be weakened. The renewable energy industry support the RET as is, and want it to expand beyond 2020. All three main political parties remain committed to the RET; indeed the Greens have called for it to be strengthened. Yet we must be vigilant. When asked last week Labor and Liberal were evasive on whether the target should be weakened. And business lobby groups like the Australian Industry Greenhouse Network (AIGN) and Business Council of Australia (BCA), though yet to declare their positions on the RET review specifically, are campaigning against non-carbon-price climate policies in general. (CORRECTION 18 September 2012: An internal document obtained by the Australian Financial Review in April showed AIGN is actually lobbying to scrap or weaken the RET.)

The RET review will be a key test of whether the Climate Change Authority can resist the siren songs of vested interests (I am already concerned that two board members have conflicts of interests). This is critical because in 2014 the Authority will be tasked with recommending five years of emissions targets.

Meanwhile, in the first half of 2012 Germany drew 25% of its power from renewables. Closer to home, in the first quarter of 2012 South Australia got 34.5% of its power from renewables (31% wind, 3.5% solar PV), overtaking coal (26%) and approaching gas (39.5%). Six years ago, wind provided less than 1% of South Australia’s power. Their lights are still on and their wholesale electricity prices have fallen by 50% in a year. South Australia is also closing two brown coal power plants, partly due to the federal carbon price, and there is a local campaign to replace them with solar thermal plants.

The federal government should follow the lead of South Australia and increase the RET to ensure the Clean Energy Finance Corporation delivers investment that would not have occurred otherwise, and to help Australia get to 100% renewable energy as soon as possible.