Renewable energy policy: retreat, renewal and revitalisation?

Juli Tomaras, Law and Bills Digest

Key Issue
The renewable energy sector seeks sufficiently stable policy settings to ensure the necessary investment to meet Australia’s emissions reduction target.

Renewable energy has an important role to play in cutting carbon pollution and meeting Australia’s emissions reduction target (26–28 per cent below 2005 levels by 2030), given that the energy sector accounts for both the largest proportion and biggest growth of greenhouse gas emissions created by people.

Renewable Energy Target

The Renewable Energy Target (RET) aims to reduce emissions from the electricity sector, and the Turnbull Government has stated that it aims to achieve a minimum of 20 per cent of energy from electricity coming from renewable sources by 2020. Currently, the commitment is for renewable energy to supply 33,000 gigawatt hours (over 23.5 per cent) of Australia’s electricity by 2020. Minister Frydenberg has locked in the 23.5 per cent renewable energy target by 2020, in what has been described as a ‘marked change from the avowedly pro-coal rhetoric of the Abbott government.’

The RET is made up of two schemes: the Large-scale Renewable Energy Target, and the Small-scale Renewable Energy Scheme. The Large-scale RET financially supports the creation and expansion of renewable energy power stations (for example, solar or wind) while the Small-scale RES creates a financial incentive for individuals and small businesses to install eligible small-scale renewable energy sources such as residential solar panels. The Large-scale RET is expected to create the majority of the renewable energy needed by 2020.

However, concern has been raised by some commentators that the Coalition Government has no renewables target beyond 2020. And Australia’s carbon dioxide emissions from electricity are on the rise, mainly due to a rise in black coal consumption after several years of falling or flat demand due to commencement and expansion of Liquid Natural Gas (LNG) exports from Queensland. Furthermore, concern has been expressed about the lack of clear, stable and sufficient long-term policy settings required to provide incentive and ensure the necessary investment in the large-scale renewable energy sector. It is notable that, between mid-2013 to 2015, there was negligible investment in the large-scale renewable energy sector in Australia. It is too early to see whether initiatives announced since then will address these concerns.

Renewable energy policy

Since gaining power in 2013, the Coalition Government has sought to make adjustments to policy and action in the renewable energy space.

In response to the 2014 Warburton Review and the Climate Change Authority RET Review, in June 2015 the then Abbott Government legislated to reduce the renewable energy target by 20 per cent from 41,000 GWh per year to 33,000 GWh by 2020. Meeting this lower target was estimated by the Clean Energy Council in mid-2015 to require approximately 6,000 MW of additional renewable generation capacity be built.

The Clean Energy Finance Corporation (CEFC) co-finances and invests, directly and indirectly in renewable energy and energy efficiency projects. ‘The CEFC focuses on projects and technologies at the later stages of development which have a positive expected rate of return and have the capacity to service and repay capital.’ However, they also engage with ‘earlier stage projects which have significant support’ and an appropriate risk profile. The CEFC’s 2014–15 annual report shows clean energy investment in Australia was $3.171 million in that financial year—falling 31 per cent from $4,596 million on the previous financial year under the Labor Government.

Prime Minister Turnbull shelved the plan by former Prime Minister Abbott to abolish the Clean Energy Finance Corporation and the Australian Renewable Energy Agency (ARENA). ARENA works to reduce emissions in the electricity sector by providing grants to projects in the research and development phase that would improve the affordability and increase the supply of renewable energy in Australia. In a joint statement with former Environment Minister Hunt, Prime Minister Turnbull announced new plans to retain and reinvigorate the CEFC and ARENA as part of a commitment to supporting jobs and innovation through investment in clean and renewable energy.

This development and shift in position follows the issue of a new investment mandate to the CEFC in December 2015 by former Environment Minister Hunt and Minister Cormann. The mandate directed the CEFC to focus its attention on emerging and innovative technologies, energy efficiency and clean energy technologies. This was a change to, and a tempering of, a draft mandate put to the CEFC in June 2015 by the then Treasurer Joe Hockey and Minister Cormann that would have largely precluded further investments in wind and small-scale and changed the mix in favour of large-scale solar. The emphasis was, instead, to be on investment in new and emerging technologies and not in established, mature technologies with existing access to mainstream finance.

In early 2016, the CEFC announced that it would be providing $9.1 million to the University of Melbourne to fund renewable energy and energy efficiency projects at the University.

Ramping up solar

Concern had been raised that where ‘Australia falls behind in the global solar rankings, is in the large scale sector.’ It had also been reported that ‘Australia still sources more of its power from fossil fuels than other comparable countries in the world and we’re not even in the top 10 for wind and [large scale] solar capacity.’ In September 2015, the CEFC and ARENA stated that they were targeting an additional 300 MW of large scale solar in two new funding programs.

In April 2016 Ministers Hunt and Porter announced that the Turnbull Government would provide $3.3 million funding to support the Alkimos Beach residential storage trial from 2016-2020, which combines community-scale battery energy storage and solar. The media release also noted that Australia has the ‘highest per capita rate of household solar in the world’. Minister Hunt has previously stated that the Government was investing in emerging battery storage technologies and had plans to accelerate the deployment of battery storage in Australian households. Minister Hunt has also said he wants Australia to become number 1 in the deployment of battery storage.

Clean Energy Innovation Fund

In March 2016 Prime Minister Turnbull and Environment Minister Hunt announced the creation of a new Clean Energy Innovation Fund (CEIF) which will be allocated $100 million annually for ten years and funded out of the CEFC’s $1 billion allocation. This coincided with what some commentators described as a corresponding defunding of ARENA. The CEIF will be jointly managed by the CEFC and ARENA. The CEIF will provide loans to businesses rather than grants, and will ‘support emerging technologies which make the leap from demonstration to commercial deployment.’ The CEIF’s focus will be on projects such as ‘large-scale solar with storage, offshore energy, biofuels and smart grids.’ The announcement of this initiative would also seem to align with Australia’s Paris commitment to invest ‘new money’ in clean energy innovation.

Low Emissions Technology Roadmap

In May 2016, Minister Frydenberg announced that the Government was commissioning the CSIRO to develop a ‘technology neutral’ Low Emissions Technology Roadmap that will highlight areas of potential growth in Australia’s clean technology sector and map the development of new emissions reduction technologies. However, there was no detail about what this may involve; whether there will be ongoing funding to support these technologies, and if they will be developed in time to meet Australia’s 2030 emissions reduction target. Also necessary for an investment in these technologies is a consideration of the relative price of coal, which is falling.

State and territory renewable energy

Also of significance in the renewable energy sector are the actions and initiatives of state and territory governments. State and territory governments have announced their own targets to support the renewable energy sector.

In June 2016, the Victorian Government announced ‘ambitious renewable energy targets to create thousands of new jobs and cut the state’s greenhouse gas emissions.’ The Victorian Renewable Energy Target (VRET) will commit the state to generating 25 per cent of its electricity from renewable energy by 2020, and 40 per cent by 2025. It is expected that VRET will be based on a similar mechanism to the scheme used in the Australian Capital Territory, which has managed to avoid the uncertainty that has affected the renewables industry in recent years.

In 2014, South Australia announced a target of sourcing 50 per cent its electricity from renewable energy by 2025, although it is already above 40 per cent at present and this policy is dependent on federal policies. In 2015, Queensland committed to generating 50 per cent of its energy from renewable sources by 2030 and to ensure that one million of its homes had rooftop solar by 2020.

These commitments translate to a considerable expansion of the future supply of electricity from renewable sources.