Coalition Senators' Additional Comments
Coalition Senators accept the intent of this legislation and
are sympathetic to the calls for it to be dealt with during the remaining
sittings of the winter session. We appreciate the need to provide greater investment
certainty to the renewable energy sectors targeted.
However, we are also mindful of warnings that have been made
in this sector previously and wish to see risks that still exist under these
Bills addressed prior to their passage. We remember the risk of investment
uncertainty for some major projects being raised at the time these issues were
last considered, just last year. And we recall the problems of boom-bust cycles
for some renewable sectors, especially solar photovoltaics, which have flowed
from various government incentives. We have since seen the troubles caused by
mismanagement of a demand driven scheme, in home insulation.
It is important that the opportunity presented by the debate
of these Bills to heed warning calls from industry and others is taken, so that
mistakes of the past are not repeated in this legislation.
Uncapped liability under the Small-scale Renewable Energy Scheme (SRES)
The majority report notes that the possible risk associated
with establishing an uncapped SRES liability was an issue commonly raised by
witnesses and submitters. Coalition Senators once again highlight the extent of
concerns about this uncapped liability, as demonstrated by the many companies
and industry groups who provided evidence to the inquiry.
Capping the price but not the quantity of small‐scale renewable
electricity certificates introduces uncertainty into the electricity price for
consumers. This problem is compounded in the case of electricity‐intensive processes
for which electricity makes up a significant proportion of their operating
costs. The small‐scale
portion of the RET should be capped, or removed from the RET altogether.
... the SRES portion is an uncapped volume which is a risk
placed entirely on large energy users in favour of small scale renewable
Transferring this risk to liable entities significantly
reduces their ability to predict RET cost impacts over the life of an
investment and therefore may dampen investment activity in electricity
intensive activities. This uncapped impact can be avoided by capping the SRES
pool or limiting the exposure of highly electricity intensive EITE activities
to the SRES.
The Australian Industry Greenhouse Network:
The effect of the SRES proposal is to remove all price risk
from SRES suppliers and to substantially reduce the price risk faced by LRET
suppliers. However, these risks have not been removed from the renewables
markets – rather, they have been transferred to liable parties and electricity
The Energy Supply Association of Australia noted that the
risk associated with the uncapped liability of the SRES would add to existing
risks in the electricity market:
One of the issues that the industry I represent faces very
substantially, right now, on every front is an enormous amount of risk. It is
being put at risk because of delays, because of changes and because of
open-ended schemes and, quite frankly, it is very hard to make efficient
investment decisions when there is uncontrollable risk.
Key areas that need to be considered in order to ensure the
viability of electricity-intense industries such as our aluminium smelter
include...A cap on the quantity of SRECs that can be generated or limit the
exposure of EITE industries – thus providing certainty to all investors
(small-scale renewable, large-scale renewable and electricity users).
Much of the convoluted and complex regulatory mechanics are
only necessary to cap the SRES volume/liability each year while avoiding an
overall scheme cap. It is understood that this is an attempt to provide liable
parties with a degree of certainty over their liability while maintaining a
guaranteed subsidy level to suppliers of small renewable technology.
However, this approach fails to achieve either of these
objectives, and does so at the expense of simplicity and administrative
Coalition Senators are concerned that the risks associated
with inaccuracy in estimating the uptake of SRES, driven by a variety of cost
factors, impact of subsidies and changes in consumer sentiment, are ultimately
borne by electricity consumers. We believe that for the liable entities
responsible for purchasing the Small-scale Technology Certificates (STCs)
created by the SRES the proposed forecasting mechanisms for setting annual
responsibilities fail to provide reasonable levels of certainty.
A particular concern for Coalition Senators is that these
unlimited liabilities, imposed by the Commonwealth, are actually significantly
influenced by the impact of State and Territory policies, as highlighted for
example by the Cement Industry Federation:
Many of the drivers that created falling REC prices within
the RET are now likely to put upward pressure on electricity prices for
electricity consumers. These drivers include the seemingly endless addition of
rebates and feed-in-tariffs offered by multiple Governments in effect competing
to support small scale renewable energy generation.
The uncertainty on price caused by this change needs to be
addressed through adequate mechanisms that ensure the size of the SRES does not
greatly exceed the 4000 GWH target of the SRES. The committee should be mindful
of the fact that state government incentives combined with the SRES will as a
combined incentive drive the uptake of the SRES.
The CIF has previously recommended to the Australian
Government, capping the size of the SRES and note this suggestion has not
flowed through to the legislation. In the absence of an actual cap, it will be
important to ensure there are adequate policy levers available to the
Australian Government to control a blow out in the uptake of the SRES.
Even the Minister for Climate Change, Energy Efficiency and
Water, Senator the Hon Penny Wong, acknowledged this problem under questioning
in Senate Budget Estimates hearings:
What you are alluding to is actually a real policy issue,
which is that this market is not only guided by what occurs through
Commonwealth legislation and market responses; there are a range of other
policies that impact upon the market which state or local government can put in
place. In an ideal world, you would have simply one policy framework which
applied across the country, but the reality is that state governments—and
possibly local governments—will have their own views about what additional
assistance they want to provide to renewable energy.
While the "ideal world" referred to by Minister
Wong may not exist, Coalition Senators are disappointed that more concrete
steps have not been taken by this Government to align and coordinate state
initiatives and incentives in this policy area. This lack of coordination
further exposes all parties, both those creating STCs and those liable for
them, to uncertainty. More so, it exposes the scheme to pressure from
unpredicted demand levels as a result of state initiatives which either
encourage or discourage participation in the scheme. This compromises the
scheme’s effectiveness and could lead to a range of undesirable and
Regrettably, there appears to be no easy way to change the
proposals in these Bills without shifting the balance of uncertainty from one
party to another. Fixed annual caps on the number of STCs that can be generated
will, of course, establish a level of uncertainty for those companies creating
STCs, with the risk that reaching the cap prior to the end of the year would
create a price spike and presumed demand slump until a new year, with a new
quota of STCs, commenced.
However, Coalition Senators are nonetheless attracted to the
certainty for liable entities that concrete annual caps would establish. Caps
would help to limit the extend of undesirable consequences which could
otherwise flow from actual demand diverging widely from predicted demand. We
also believe that the establishment of such caps would place greater
responsibility on the Commonwealth, state and local governments to avoid new
policy measures that could create either spikes or slumps in demand in future.
That the Government consider a model to release fixed,
annual quotas for the next two years capping the size of STCs, with the quota
to be announced before the commencement of each year.
That these annual quotas be set at levels consistent with an
overall generation target for the SRES of achieving 4000 GWh by 2020.
Impact of the Solar Credits Multiplier
Coalition Senators noted the evidence provided concerning
the impact of the Solar Credits Multiplier, which is also canvassed in the
majority report. Several companies raised concerns that the current impact of
the multiplier risked creating an unsustainable boom, which could hurt industry
standards and fail to optimise environmental outcomes.
Greenbank Environmental highlighted the impact of past
incentives, as well as the emerging impact of the current multiplier:
Last year, we had 65,000 rebates of $8,000 each through the
department of climate change. Do the maths on that and it is quite significant.
There is a real possibility that the SRET, being uncapped, will again deliver
65,000 systems into the nation. That will be another pass through to Mr and Mrs
Jones and will again drive the price of electricity up.
Currently, in New South Wales, as I said in my submission,
there are companies giving away 1.5 kilowatt systems for free. If it continues
at this rate, we will soon end up with a situation along the lines of the
insulation program, which would be a disaster for the renewable energy
industry, as it has been for the insulation industry.
The Solar Shop, a potential generator of STCs, emphasised
this message that due to the decreasing costs of solar photovoltaic (PV)
systems the multiplier was now exposed as being too generous:
It is unsustainable for the industry to have solar power
systems available at no cost to consumers. Solar power systems offered at no or
low cost encourage low standards in materials, poor returns on financial and
environment investments, and could cause long term damage to the entire
Under the recent Enhanced Renewable Energy Target discussion
paper, members of the domestic solar power industry called for a change to the
Solar Credits Scheme to ensure the longevity and stability of the industry.
A number of companies joined together to propose to the
committee changes to the multiplier, specifically suggesting that there be an
increase in the maximum allowable system size from 1.5kW to 3kW, with a
commensurate reduction in the size of the multiplier from five to three. Strong
evidence was provided to support this proposition.
And in support of that, Conergy AG is a manufacturer of
photovoltaic modules. The price point of production is almost at its lowest
position and going forward even in increased volumes you would not see
significant price reductions that would allow a three-by multiplier for a three-kilowatt
to meet the price point of the system to end up with a free system in that
category. It would not happen.
Our proposed change to the multiplier is likely to see an
appropriate number of RECs (be it phantom or real) on the market produced from
Small Scale Renewable Energy Systems, but see a higher percentage of RECs that
are attributed to actual renewable energy. It also has the potential to see
larger systems installed which is a better outcome for the consumer and better
outcome for the environment. Most importantly it will remove systems being
offered at low or no cost to the consumer. This will ensure that the
installation standards remain optimised and that the industry can move away
from boom-bust cycle, securing the industry, securing jobs and increasing
Australia’s renewable energy capacity.
The Solar Shop further argued that such changes were about
sustainability and self sufficiency, not just of an environmental nature, but
of the renewables industry overall:
Our ultimate aim as an industry is to be self-sufficient, so
we are not relying on a mechanism from the federal government to encourage
people to purchase solar. That is why we think the solar credit scheme is a
good one and the proposed changes we have put forward will enable us, as an
industry, to grow to a level where we will be self-sustaining.
Coalition Senators note Recommendation 1 of the majority
report, largely driven by this evidence, that mechanisms to manage high demand
be considered. However, Coalition Senators strongly believe that the risks
identified by industry in the course of this inquiry warrant more immediate
changes to avoid yet another unsustainable boom in the solar PV sector.
Under existing conditions, Coalition Senators believe there
is too great a risk of unsustainable overheating of the small-scale market and
accept the arguments of solar PV businesses that longer term sustainability for
the renewable energy industry would be better achieved through a lower Solar
Credits Multiplier, but available to larger generation capacity units.
That the Government consider amending the Solar Credits
Multiplier to increase the maximum allowable system size and decrease the size
of the multiplier.
Coalition Senators note concerns expressed by some
representatives of emissions-intensive, trade-exposed (EITE) activities about
the adequacy of assistance under the Renewable Energy Target (RET) and the
linkage of some changes to passage of legislation enabling the Carbon Pollution
Reduction Scheme (CPRS). Particular concerns were expressed from the aluminium
and alumina industries, some of which are canvassed in the majority report.
Rio Tinto highlighted remaining links between EITE
assistance under the RET and the CPRS, specifically pointing to the uncertainty
that now exists around the CPRS given the Government's announced deferral of
For the electricity intensive industries, such as aluminium
smelting, where internationally competitive electricity prices are vital, the
proposed EITE partial exemption will become even more inadequate. The
pre-condition of passage of the CPRS legislation before activities become
eligible for partial exemption should be removed given the announcement on 27
April 2010 of the delay of the CPRS until "after the end of the current
commitment period of the Kyoto Protocol and only when there is greater clarity
on the actions of major economies including the US, China and India."
The partial exemptions granted to EITE industries that are
proposed appear overly complex to Coalition Senators and unreasonably reliant
on the uncertain passage of the CPRS sometime in the future. The different
exemptions for energy generated under the new Renewable Energy Target as
against the original Mandatory Renewable Energy Target are a recipe for
uncertainty for these industries.
That the Government consider measures to remove any
linkage of EITE exemptions under the RET to the passage of the CPRS and
simplify the operation of such exemptions.
Mary Jo Fisher Senator the Hon. Judith Troeth
Barnett Senator Simon Birmingham
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