Renewable Energy Target: Who benefits from scaling back the scheme?

Renewable energy scheme under review. Source: News Corp Australia

So far about $9.4 billion has been pumped into supporting the Renewable Energy Target (RET) and, since 2001, the amount of electricity produced by clean energy has almost doubled.

In July, South Australia got nearly half its electricity from wind and solar, and Australians’ take-up of small-scale systems such as home solar panels, has already exceeded levels anticipated for 2020.

Aussies love their solar panels, they are installed on about 1.3 million roofs. Supplied: NQ Solar Source: Supplied

An expert panel’s report released this week into the scheme suggests the RET should be scaled back because it is a “high cost approach” to reducing carbon emissions.

It has suggested amending the scheme by either closing the scheme to new investors like wind farm operators, or by setting targets based on electricity demand.

There are widely differing predictions about whether electricity bills will go down or increase if the RET is scaled back. It may just stay the same.

Greens Leader Senator Christine Milne has criticised the review, headed by climate sceptic Caltex Australia chairman Dick Warburton, who has rejected suggestions his personal views coloured his work.

Senator Milne suggested the review’s recommendations reflected the fact that “clean energy is proving way too good at making coal obsolete”.

“The RET review is part of the dinosaur protection racket - an $8 billion favour for Tony Abbott’s mates in the fossil fuels sector, at the expense of clean technology,” Senator Milne said.

“To protect his big-business mates Tony Abbott got rid of the carbon price, making it free to pollute, and now he’s destroying the market for renewable energy.”

So is this big business and coal’s dirty attempt to crush clean energy?

No conflict: Dick Warburton says his personal views had no bearing on his report into RET. Photo: Hollie Adams Source: News Corp Australia

WHO BENEFITS?

From a commercial point of view the fossil fuels sector seems to have the most to gain if the RET is scrapped or scaled back.

The Climate Institute, Australian Conservation Foundation and WWF Australia commissioned independent modelling that found weakening the RET could result in $8 billion in additional profit to coal and $2 billion to gas generators.

Their modelling also suggests there would be no decline in electricity prices, and they could actually increase slightly.

As noted in the expert panel’s report, the RET is making wholesale electricity prices cheaper because clean energy companies are creating more competition for coal-fired power stations.

International Power's Hazelwood coal fired power station, near Morwell, in Victoria's Latrobe Valley. Source: News Corp Australia

As far as the impact to people’s power bills, the panel’s report suggested that the direct costs of the RET had increased people’s electricity bills by about 4 per cent. This equates to about $60 per year for someone with a $1500 yearly electricity bill. However, it said modelling found the net impact over time was “relatively small”.

But while most Aussies might not have experienced a significant change to their power bills, the same could not be said for fossil fuel companies.

The panel criticised the fact that the RET had not increased wealth in the economy but had prompted “a transfer of wealth among participants in the electricity market”.

In other words, renewable energy companies were not creating more demand for energy, and were instead making more money at the expense of the fossil fuels sector.

Too successful: A wind farm in Macarthur, western Victoria. Picture: Mcevoy Stuart Source: News Corp Australia

The panel also noted that while the scheme had increased employment, this had come at the cost of employment in other sectors.

Compounding the pressure on the fossil fuels sector is the fact that demand for electricity has dropped.

The report notes: “Over the past five years demand for electricity has been significantly lower than forecast and electricity demand in 2020 is now expected to be much lower than when the current RET was adopted.”

One of the aims of the RET was to ensure at least 20 per cent of Australia’s electricity came from renewable sources by 2020, but it is actually on track to achieve a 26 per cent share.

This is due to cheaper prices for rooftop solar and other technology and falls in electricity demand.

Widely differing opinions on whether electricity bills would go up or down if RET is scrapped: Photo: Stephen Laffer. Source: News Limited

The panel has suggested that a further $22 billion in cross-subsidies, funded by polluting companies, would need to be provided to the renewable energy sector under the scheme, to encourage additional investment of $15 billion.

The panel says the amount of spending makes the scheme a “high cost approach” to reducing carbon emissions.

“The RET in its current form is imposing significant costs on the economy, it should be substantially reformed, with greater emphasis placed on lower cost alternatives for meeting the Australian Government’s (carbon) emissions reduction target,” the report says.

“This investment is not required to meet likely growth in the demand for electricity, which could largely be met from existing generation capacity.”

The panel argues that the scheme would be diverting resources from “more productive uses” elsewhere in the economy, lowering productivity and national income.

A waste of resources? Wind turbines at the Toora Wind Farm in South Gippsland, Victoria. Source: News Limited

The Grattan Institute energy program director Tony Wood suggests that the panel should be applauded for challenging the government to deliver lower-cost alternatives for meeting Australia’s carbon emissions reduction target.

However, it is unclear where the $22 billion in funding for the scheme could be diverted to.

In comparison, Tony Abbott’s direct action plan to reduce carbon emissions, proposes to spend $2.5 billion over four years for its Emissions Reduction Fund.

WHO LOSES?

The clean industry sector has railed against scaling back the scheme, warning it would gut future investment in renewables in Australia, damage the $10 billion already committed and put 21,000 jobs at risk.

Australians would also lose subsidies for installing devices such as solar hot water, panels or wind turbines. This is worth about $2500 for those installing a typical three kilowatt solar power system.

Australian National University’s Professor Andrew Blakers, said most of Australia’s fossil fuel stations would be retired over the next few decades.

“The RET target of 41,000 gigawatt hours by 2020 drives renewable energy investment at a sufficient annual rate to reach more than 90 per cent renewable electricity if continued until 2040,” he told The Conversation.

“Thus Australia has the wonderful prospect of moving to a clean electricity future at approximately zero net cost, as retiring coal and gas power stations are replaced by renewable energy.”

Infigen Energy has warned the proposed changes offered the “worst outcomes for electricity consumers”.

Scaling back RET would be worst outcome for electricity consumers says wind farm operator. Source: News Limited

The wind farm operators said modelling in the review showed the RET would result in a net benefit to consumers compared to closing the scheme.

“The claims that the RET would drive up electricity prices have once again been shown to be incorrect,” Infigen managing director Miles George said in a statement.

He said the results were driven by ideology, not facts.

Clean Energy Council CEO Kane Thornton said scaling back the scheme would only serve old-coal generators well past their use-by date.

“These recommendations would stop renewable energy in its tracks, stifling competition within the Australian energy market and ultimately disadvantaging electricity customers,” he said in a statement.

The wider industry has also warned of a sovereign risk issue if a message is sent globally that Australia is not open for business.

RET review is a “dinosaur protection racket” says Greens Leader Senator Christine Milne. Source: News Corp Australia

Greens leader Senator Milne said the uncertainty generated by the review has already deterred investment in clean energy.

“A huge solar farm in Mildura has halted development; Hydro Tasmania stands to lose millions, and countless other innovative businesses, as well as the jobs and families they support, are now in danger,” Ms Milne said.

“The Renewable Energy Target is cutting pollution, rolling out investment, creating jobs and will bring power bills down. Why on earth would we get rid of it?

“Once renewable energy projects are built, they cost almost nothing to run. They are crucial to keeping power prices under control, because the cheap energy they produce drives down the wholesale price of power.

“The reality is that the fossil fuels sector can’t handle the competition from renewables, so the Abbott government is trying to delay the inevitable.

“We support renewable energy” says Tony Abbott. Source: News Corp Australia

WHAT NOW?

Prime Minister Tony Abbott is remaining tight lipped about what his government has in store for climate policy and is not due to deliver a response to the review for at least a fortnight.

The government has promised it would not break its election commitment to stand by the 20 per cent renewable energy target.

“We support renewable energy,” Mr Abbott told reporters in Canberra on Friday.

“But we also want to try to ensure that we use renewable energy in ways that don’t lift the price of power, don’t result in unnecessary cost to the Australian people.”