Public embraces renewable energy

5 December 2013

Published in The Australian

On November 20, 1997, John Howard announced a proposal to establish a national mandatory renewable energy target.

In a speech titled Safeguarding Australia’s Future: Australia’s Response to Climate Change the prime minister said a mandatory renewable energy target would “accelerate the uptake of renewable energy in grid-based electricity and provide alargerbase for the development of commercially competitive renewable energy”.

Three years later Australia’s renewable energy target scheme was passed into law, with bipartisan support.

Over the past 16 years the RET has been expanded and improved, in each case with bipartisan support, and it continues to enjoy bipartisan support as an effective piece of market-based legislation that has consistently achieved its objectives.

During that period the scheme has enabled more than $20 billion of investment in the construction and operation of clean energy facilities, resulting in enough electricity to be generated to power about two million homes half of which largely represents utility scale wind and solar photovoltaic investments in regional areas, and the other half residential rooftop solar PV facilities.

Perhaps most important, it has been shown the RET creates significant downward pressure on electricity prices. This is because large-scale renewable energy facilities nearly always underbid fossil fuel generation in the wholesale electricity market, thereby reducing wholesale prices.

This fact is acknowledged by the Australian Electricity Market Operator, the Climate Change Authority, Bloomberg New Energy Finance and other experts.

The effect is most pronounced in South Australia, where more than 25 per cent of that state’s electricity requirements are met by renewable energy, leading to the pricing regulator’s proposal late last year to reduce the electricity standing contract price for a typical residential customer by 8 per cent ($160 a year).

The RET is certainly very popular with homeowners. More than a million households have installed rooftop solar voltaic systems and now enjoy lower electricity bills.

While state-based incentives have now largely been removed, the continuing decline in solar PV costs is likely to maintain strong growth in the take-up of residential PV systems.

More and more people are taking control of their electricity cost destiny, and this trend is expected to accelerate as costs continue to come down and recent lease financing innovations gain traction. The new federal government’s “million solar roofs” initiative will contribute to further growth in installation of solar PV and solar hot water systems for low-income households.

Over the past 16 years, the RET has continued to achieve exactly what Howard predicted in 1997.

The proportion of renewable energy in our electricity generation mix has been increased at the utility scale and residential levels, and greenhouse gas emissions have been reduced.

The unforeseen bonus has been that the small prima facie cost of RET is more than offset by the reduction in wholesale electricity prices that it drives.

For the Abbott government a further bonus is that the RET can do the heavy lifting of direct action, to achieve the 2020 emissions reduction target without any budget burden.

The Climate Change Authority carefully considered the costs and benefits of the RET during its review of the scheme last year.

A 130-page modelling report it commissioned from SKM-MMA concludes that the RET scheme’s net impact on retail electricity prices will be to reduce retail electricity prices in 2020, as the cost of the RET scheme will be completely mitigated by its downward pressure on electricity prices.

The Abbott government proposes another review of the RET early next year and the renewable energy industry looks forward to improved regulatory predictability once that review is completed. Removal of the RET’s legislated biennial review mechanism, an extension of the term of the scheme and a mechanism to accelerate depletion of the current large certificate surplus would be welcome changes to free up new investments in the industry.

Miles George is managing director of Infigen Energy and a director of the Clean Energy Council.