Renewable energy target review backs closure of scheme to new entrants 

Investment in windfarms and other large-scale renewables would dry up and subsidies for household solar power and electricity could cease under recommendations to the federal government from its review of the renewable energy target (RET).

The recommendations from the review, chaired by businessman and self-professed climate sceptic Dick Warburton, are set to be opposed by Labor, the Greens and the Palmer United party, setting the stage for another fight over climate policy in the upper house.

The issue has divided the cabinet, with Tony Abbott favouring the idea of closing the RET to any new investment, and the environment minister, Greg Hunt, and the industry minister, Ian Macfarlane, fighting for it to be “pared back” rather than closed.

The review, which the prime minister took responsibility for when the Coalition assumed government, includes Abbott’s preferred option as one of two recommendations.

It says closing the scheme to new investment avoids the cost of shifting any generation from the high-emitting brown and black coal Australia largely relies on now, given that electricity demand is lower than anticipated and no new generation capacity is needed.

“This approach avoids the costs to the community associated with subsidising additional generation capacity that is not required to meet electricity demand,” the review says.

As an alternative, it recommends that renewable energy could be allowed to represent 50% of any growth in the electricity market, which in the short term would be minimal since demand for electricity is falling. The review says confining the RET to a growing electricity market “would protect the broader community from the cost of subsidising unnecessary additional generation capacity if electricity demand continues to fall”.

Hunt said the “share of growth” option could take renewables close to 20% of Australia’s generation by 2020, but the renewable industry said it was highly unlikely anyone would make a long-term investment under such an uncertain scenario.

The review also says the “small scale” target – which subsidises solar PV and solar electricity – should be wound up or phased out.

It says closing the small-scale renewable energy scheme (SRES) “would have an immediate effect of reducing the install rates of rooftop PV by at least 30% and the number of solar water heaters by around 16%” but calculates that “by the early 2020s, the rate of small-scale solar PV systems installed each year would recover to a rate similar to that if the SRES was left in place”.

Hunt and Abbott issued a statement saying the government would announce its response to the report in the coming weeks.

Greg Hunt said before the election: “We will be keeping the renewable energy target. We’ve made that commitment. We have no plans or proposals to change it.

“We have no plans or intention for change and we’ve offered bipartisan support to that.”

On Thursday Hunt said the Coalition’s promise was for a 20% renewable energy target but that there would be a review “under the ALP’s own law”.

“What we said at the election is our policy was for 20% and a review,” he said. “I feel very comfortable about where we are at the moment.”

He said the Coalition had “a long-term commitment to renewable energy in Australia, but it is about finding balance”.

Labor’s climate change spokesman, Mark Butler, said it was a document written by and for climate change deniers.

“This is a political document – not an independent review. The climate change denialism endemic in the Coalition is written throughout this document. This is a report written by climate change deniers, for climate change deniers, and it shows,” he said.

“The recommendations contained in the Warburton report put 24,000 clean energy jobs at risk and will freeze the billions of dollars in investment that is already in the pipeline.”

And the Greens leader, Christine Milne, said the report was “climate denier drivel” and she was glad it was now public.

“Everyone can see it for the climate denier drivel it is. The outcome was determined long ago,” she said. “It’s now time to give the industry certainty by retaining and expanding the renewable energy target. The RET review is part of the dinosaur protection racket – an $8bn favour for Tony Abbott’s mates in the fossil fuels sector, at the expense of clean technology.

“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?

“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.”

The chief executive of the Climate Institute, John Connor, said: “If the government accepts the changes proposed by the Warburton review, it would see Australia increase the amount of coal in our generation mix effectively re-carbonising, rather than de-carbonising our electricity.”

Ben Pearson of Greenpeace Australia Pacific said: “If the prime minister accepts either recommendation he will destroy a policy that has generated handsome business opportunities and jobs for Australians, including $20bn of investment in renewable energy technologies.

“The two options recommended by the Warburton panel would be a disaster for the renewables industry.”

John Grimes, chief executive of the Solar Council, said the recommendations would “decimate” the solar industry and cost about 8,500 jobs. They would also remove the best way households could reduce their power bills, by installing rooftop solar.

The chief executive of the Clean Energy Council, Kane Thornton, said either recommendation would not only stop new investments but also cause “massive financial damage” to $10bn of existing investment in renewable energy.

Abbott initially said the RET review was necessary because the RET was pushing up the cost of household power.

“We have to accept that in the changed circumstances of today, the renewable energy target is causing pretty significant price pressure in the system and we ought to be an affordable energy superpower … cheap energy ought to be one of our comparative advantages,” he said last year.

But several modelling exercises – including one done for the review itself – showed that closing the RET to new entrants would not reduce electricity prices, or would do so by only a small amount.

The review concedes this, and changed the rationale it used to argue in favour of getting rid of the RET.

It now argues there are cheaper ways to reduce greenhouse emissions than by changing the way we generate electricity – clearly implying no change in electricity generation is necessary.

“With the renewables industry now established in Australia, the main rationale for the RET hinges on its capacity to contribute towards the government’s emissions reduction target in a cost-effective manner,” the review says.

“However, the RET is a high-cost approach to reducing emissions because it does not directly target emissions and it only focuses on electricity generation. It promotes activity in renewable energy ahead of alternative, lower cost options for reducing emissions that exist elsewhere in the economy. In the presence of lower cost alternatives, the costs imposed by the RET are not justifiable,” the review says.

And while it concedes that “overall, the RET is exerting some downward pressure on wholesale electricity prices” it says this is happening only because “the RET is increasing the supply of electricity when electricity demand has been falling” and therefore the cheaper electricity will not last.

“Artificially low wholesale electricity prices can distort investment decisions in the electricity market and are unlikely to be sustained in the long term. Over time, all other things being equal, wholesale electricity prices could be expected to rise to better reflect the cost of generating electricity,” it says.

The original intent of the RET policy was to deliver 20% of energy from renewables by 2020. Because of falling electricity demand, the RET’s designated 41,000 gigawatt hours will represent closer to 28% if the policy was left unchanged. If it is closed to new entrants Australia will have only around 17,000 gigawatt hours of renewable electricity by 2020.

ACIL Allen modelling done for Abbott’s own review showed the current target would increase the average household bill by an average of $54 a year between now and 2020, but would reduce bills by a similar annual amount over the following decade compared with what they would be if the RET were repealed. That modelling used assumptions highly unfavourable to renewable energy, including that coal and gas prices would remain almost unchanged until 2040.

Separate modelling for the Clean Energy Council by Roam Consulting – with different assumptions about gas prices – found that bills would be $50 a year lower by 2020 if the RET were retained.

Another modelling exercise, commissioned by three business groups from Deloitte, found household bills would rise by at most about $50 a year.

Abbott’s top business adviser, Maurice Newman, has long argued the RET should be scrapped and has said that persisting with government subsidies for renewable energy represented a “crime against the people” because higher energy costs hit poorer households the hardest and there was no longer any logical reason for them.