June 25, 2012

Green power in the red

by: GRAHAM LLOYD, ENVIRONMENT EDITOR | The Australian | www.theaustralian.com.au 23 June 2012

With electricity prices rising, the carbon tax looming and the world turning away from expensive deep-green ambitions in Rio and beyond, the race is on to reshape Australia’s renewable energy landscape into a more coherent national strategy.

The Renewable Energy Target, which forces electricity suppliers to buy a percentage of electricity from renewable sources and pass the additional cost to consumers, is back in the spotlight.

There is fierce debate about what impact the RET schemes, for large and small-scale projects, are having on electricity prices today and into the future.

The NSW Independent Pricing and Regulatory Tribunal has called for a review of all green schemes, including the RET, following the introduction of the carbon tax.

Energy giant Origin wants the RET scaled back to take account of falling electricity demand.

The renewable industry wants certainty, not more reviews.

In contrast to the carbon tax, the RET continues to enjoy bipartisan support from the federal government and the opposition.

But as Climate Change Minister Greg Combet lashes state governments over power price increases, opposition environment spokesman Greg Hunt has been negotiating with his Coalition state colleagues to centralise green schemes under a single federal umbrella in exchange for giving states control over federal environment approvals.

Meanwhile, this week federal Energy Minister Martin Ferguson announced commonwealth funding for a study into how the national energy market might achieve cuts in carbon emissions most cheaply while increasing the use of renewable energy.

Australia is not alone in questioning the political cost and economic value of a decade-long rush towards green power.

As the financial crisis continues in Europe it would be easy to conclude the developed world’s infatuation with heavily subsidising renewable energy had peaked.

Last month the compliance committee of the UN Economic Commission for Europe issued a draft ruling against the EU’s renewable energy target, saying it was introduced without proper consultation.

Wind energy companies are abandoning Spain after the government killed off generous subsidy schemes that had spawned a modern-day gold rush in renewables. Spanish spending of $US69 billion ($68bn) in power capacity from 2004 to last year was three times the per-capita rate of the US and created an electricity network that could supply almost three times peak demand. Wind investment in Spain is forecast to plunge to $US244 million in 2014 from $US2bn this year. Spanish investment in solar photovoltaic is expected to drop to $US107m next year from $US1.5bn last year.

In Germany – which introduced the solar rooftop revolution – the Merkel government has gone cold on government handouts for photovoltaic systems as prices have fallen. But the bill to taxpayers has continued to rise.

The cutbacks were delayed last month when Germany’s upper house referred the issue to a parliamentary inquiry to investigate the impact of rooftop solar on electricity prices.

In Britain, debate remains confused between green-Tory rhetoric of a renewable energy led economic recovery to growing despair about generous subsidies for increasingly unpopular wind turbines ruining the nation’s balance sheet and the countryside.

Prime Minister David Cameron will reportedly come down firmly on the side of cutting renewable subsidies worth £400m ($621.2m) a year to onshore wind companies.

John Constable, director of Britain’s Renewable Energy Foundation, says high subsidies have harmed the reputation and integrity of the renewables sector, which has been “corrupted by easy money and undeserved fortunes”.

In the US, President Barack Obama’s renewable energy ambitions were quickly tarnished after solar hopeful Solyndra collapsed and sacked thousands of workers after picking up $US535m in government support.

The US wind industry is forecasting a decline of 80 per cent if a US2.2c-a-kilowatt-hour tax break is not extended past December.

Big corporations including Microsoft, Nike and Starbucks are lobbying hard for the retention of the scheme, which effectively subsidises their clean energy bragging credentials. Extending the tax break, first offered in 1992, is forecast to cost $US4.1bn in forgone tax revenue across a decade.

No decision is likely before the November presidential elections.

Meanwhile, US and German solar companies are deep in a trade war with cheaper manufacturers in China and India.

While developing nations including China and India are investing heavily in wind and solar, they are spending up big on coal, gas and nuclear power generation as well. And despite the global addiction to subsidies, which has underpinned a big role in wind and solar capacity during the past five years, global carbon emissions continue to rise. The International Energy Agency has put forward a “golden opportunity” blueprint to reduce carbon emissions and boost energy security.

As always, the energy revolution will not come cheaply but the IEA says the long-term benefits far outweigh the costs.

It says an additional $US36 trillion of investment will be required to overhaul the world’s energy system by the middle of the century, but this will be offset by $US100 trillion in savings through reduced use of fossil fuels.

And here lies the real puzzle of the renewable energy rollout. Are green power subsidy schemes really responsible for soaring electricity prices? And, if so, is it still a good investment for the long term? Will an abundance of installed renewable capacity result in lower electricity prices?

This certainly is the argument put by the renewables industry, which claims rooftop solar and demand-management programs are responsible for an unexpected fall in electricity demand, which in turn will drive lower wholesale electricity prices across time. But this is not the cut-through message for today’s hard-pressed electricity consumers or government.

Community attention is on the news from energy price regulators that have approved electricity price increases of almost 20 per cent for the next 12 months.

The federal government wants to downplay the impact of the carbon tax and the RET on the electricity price increases.

Combet instead highlights heavy spending by state governments to “gold-plate” distribution networks after years of neglect and their opportunistic grab for dividends.

Given the fierce political debate over the carbon tax, there is a surprising bipartisan support for the RET.

This week Tony Abbott stared down partyroom criticism of the RET on the basis there was still a lot of public support for renewable energy.

The loudest voice of dissent against the RET in its existing form has come from energy retailer Origin Energy, which wants the basis of the scheme reworked.

Origin argues the RET is not adjusted to reflect actual demand for energy, resulting in higher costs for consumers.

Origin managing director Grant King enraged many in the renewables industry last month when he called for the 20 per cent renewables by 2020 scheme to be just that.

“Australians signed on to a 20 per cent by 2020 target, not a 26 per cent by 2020 target, which is what it is likely to be given current industry forecasts for lower total electricity sales,” King said.

The renewables industry rejects King’s calculations as uncertain and says the “20 per cent by 2020” target was always more a slogan for political convenience. They say the RET was legislated as a fixed amount of electricity, something Origin supported to enshrine certainty in commercial decision-making.

Renewable energy companies say changing the rules now will create uncertainty and make their project financing more difficult, if not impossible. Origin also has called for a rationalisation of state-based energy efficiency schemes including the level of subsidies for rooftop solar installations and the rate of feed-in tariffs.

The government and opposition are listening. This week Ferguson announced a $900,000 grant to the University of Melbourne for a $1.2m study.

He said the project would produce software modelling of Australia’s electricity market to assist with understanding how the national energy market might achieve the cheapest cuts in carbon emissions while using increased levels of renewable energy.

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