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Review of the Renewable Energy Target released

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The expert panel, set up to review the Renewable Energy Target (RET), has released its final report. The Government commissioned the review in February 2014, in the wake of the Prime Minister, Tony Abbott, arguing that the RET was placing ‘upward pressure on power prices’. The report provides several options to Government for making changes to the Renewable Energy Target scheme, which include abolishing parts of the scheme and grandfathering others. So what are the proposals, and what is their impact?

The RET was originally introduced by the Howard Government in 2001, as a part of its climate change strategy, and sought to increase renewable electricity generation by an additional two percent by 2010, on top of existing generation. The target was subsequently expanded in 2009 by the Rudd Government, to increase to 20 per cent of all electricity generation by 2020. This target, of 45,000 gigawatt-hours of electricity (which makes 60,000 GWh when combined with the 15,000 GWh that existed before the start of the RET), was based on the assumption that Australia’s electricity usage would grow to 300,000 GWh by 2020. Since then, Australia’s electricity demand has in fact declined, meaning the target will represent substantially more than 20 per cent.  The RET obliges electricity retailers and wholesale electricity buyers to source a specified amount of electricity from renewable sources, and the cost of doing so is passed on to consumers.

The report of the review concludes that the RET has achieved its aims of increasing investment in renewable energy in Australia, and that its rationale for existence now depends on its ability to reduce greenhouse gas emissions – the review argues that renewable electricity is a very expensive method for reducing emissions, and would require a very high cross-subsidy from electricity consumers to continue. Additionally, the review finds that the small-scale RET (that incentivises householders to install solar panels and solar hot water heaters) has over-achieved its target, and should be abolished or phased out.

The panel’s recommendations for reforming the large-scale RET (that incentivises large solar, wind, hydro, biomass and geothermal generators) include grandfathering the scheme, so that no new entrants can join, or to get rid of the current targets, and increase the target as ’50 per cent of new demand’.  This latter option would mean that the RET would not be increased for several years, until electricity demand increased. It would also mean that the relative proportion of renewable energy in Australia would grow relatively slowly, as existing fossil-fuel generation would not be displaced by new renewable generation.

The panel has generated significant controversy, with opponents criticising its composition. Various parties have prepared modelling reports, either on behalf of the panel or for organisations making submissions to the review. The modelling reports vary considerably in their conclusions and some have been accused of using out-of-date data.

The recommendations of the report will not be welcomed by the renewable energy industry. The panel predicts that the abolition of the small-scale target will reduce installation rates of solar panels and hot water heaters by at least 30 and 16 per cent respectively. With respect to grandfathering the large-scale target, this would likely mean that no new renewable electricity generation would be built until such time as it can undercut existing generation, some of which currently have substantially discounted market value. The ’50 per cent of new growth’ option would represent a ‘real 20 per cent’ target according to the panel’s current estimates; a move that renewable energy industry groups say would decimate the industry. This move would reduce certainty for those investing in the renewable energy industry (current large-scale targets are set in legislation), which renewable energy investors suggest increases sovereign risk concerns, but the panel contends that this allows renewable energy investors the same level of certainty as other entrants in the electricity market. 

However, it should be noted that the report delivered by the panel is only recommendations, in the same way as the findings of the National Commission of Audit. The Government may choose the option it wishes to proceed with, or proceed with none. The Government says that it will release its response in the coming weeks.

In any case, any changes to the RET will require changes to the Renewable Energy (Electricity) Act 2000, which will require the assent of the Senate. Both the Labor Party and the Greens support the existing form of the RET, and the leader of the Palmer United Party, Clive Palmer, has said that PUP will not support any change to the RET before the next election. If the ALP, PUP and the Greens vote against any amending legislation in the Senate, it will not be passed, which suggests that the Government may have a difficult time making any significant changes to the RET.