The Coalition Government supports the Renewable Energy Target (RET), requiring 20% of electricity in 2020 to be generated from renewable energy sources. The RET has been a key stimulus for the development of renewable energy projects. It should be noted however that whether this target is maintained may be impacted on by a review of the RET, which the Coalition Government has announced will be undertaken next year.
Outside of the RET, the outcome of the federal election has given the Coalition Government a mandate to scrap the carbon pricing mechanism and a number of ancillary government bodies, such as the Clean Energy Finance Corporation (please see our related update). These regimes were introduced by the previous Labor Government to reduce carbon emissions by, amongst other things, encouraging renewable energy development. Assuming that the necessary legislation is passed by both houses of parliament, the repeal of such mechanisms may – depending on the extent to which the RET is retained – introduce additional barriers to the development of renewable energy projects.
Barriers to the Development of Renewable Energy Projects
Australia's energy mix has traditionally been focused on gas and coal-fired generation. While hydro has traditionally had an important role to play in Australia's energy make-up, it is only in recent years that other renewable energy technologies, such as wind and solar, have been utilised on a commercial scale for electricity generation.
There are a number of factors contributing to renewable energy technologies only recently being employed on a commercial scale, including:
- Cost Competitiveness: Depending on the technology, many renewable energy developments have high up-front construction and maintenance costs. Furthermore, as many renewable energy sources are located in areas away from the electricity grid, there are additional connection costs. In comparison to fossil fuels, renewable energy developments often have a higher capital cost per unit of electricity generated.
- New Technologies: Contributing to higher up-front costs is the fact that gas and coal-fired power projects involve technologies that are readily available and have been widely tested. Obviously, as the Australian market matures this barrier will have less impact.
- Administrative Procedures: Power projects using fossil fuels as well as those using renewable energy sources require proponents to submit to extensive approval and permit processes. In recent years however, some renewable energy projects, in particular wind, have been subjected to an additional layer of procedural scrutiny.
- Policy Uncertainty: A key deterrent to investment is policy uncertainty as long-term returns on projects cannot be satisfactorily assessed.
Renewable energy developments have previously benefited from regulatory assistance, in order to overcome these barriers. The increase in the size of the Australian renewable market itself also assists in lowering a number of these barriers with time.
Regulatory Landscape Before the Election
Prior to the federal election, there were a number of mechanisms, primarily addressed at overcoming cost issues and technology barriers faced by renewable energy developments.
- Renewable Energy Target: The RET aims to have 20 per cent of electricity generated from renewable sources by 2020. The original RET was introduced by the Howard Government in 2001 and was further expanded in 2009 and 2010. A clear target provides certainty for investment. It is estimated that since 2001, the RET has delivered $18.5 billion of investment in renewable energy, and will deliver a further $18.7 billion of investment between 2012 and 20201.
- Carbon Pricing Mechanism: This mechanism imposed a fixed carbon price of $23 per tonne of carbon dioxide emissions on some of the country's largest polluters. The income generated from the CPM was intended to fund compensation to industry and households and provide investment in renewable power and energy efficiency.
- Clean Energy Finance Corporation: CEFC manages a $10 billion fund to partner with private investment in providing loans to clean energy proponents. It was established in 2012 and began providing loans from July 2013. By sharing investment risk with the private sector it was designed to encourage additional investment.
- Australian Renewable Energy Agency: ARENA is responsible for providing approximately $3 billion of grants to promote research and development and emerging renewable energy technologies. It also oversees a number of programs such as the Solar Flagships Program, Geothermal Drilling Program and the Connecting Renewables Initiative.
- Clean Technology Program This $1.2 billion Program, made up of the Clean Technology Innovation Program, the Clean Technology Food and Foundries Investment Program and the Clean Technology Investment Program assists business to develop clean, low pollutant and energy efficient technologies and helps manufacturing businesses to invest in clean energy.
The Coalition's Plan
The Coalition has announced that within the first week of government it will commence work on an Energy White Paper, to be publicly released by 2014. It is anticipated that the Energy White Paper will further guide the Coalition's policy with respect to energy generally. In the meantime, as part of the federal election campaign, the Coalition has released its Policy for Resources and Energy. The Coalition's Policy focuses on the removal of the carbon and mining taxes introduced by the Labour Government and the development of fossil fuels.
The Coalition is focused on reducing cost-of-living pressures and has identified a number of savings that can be achieved by reducing or removing a number of programs supporting renewable energy development introduced by the Labor Government. As part of this commitment the Coalition intends to:
- repeal the carbon pricing mechanism
- disband the CEFC
- cease funding the Clean Technology Program
- reduce funding to ARENA, and
- suspend the Connecting Renewables program until committed demand is identified.
In place of a carbon pricing mechanism, the Coalition will implement the Direct Action Plan. Details of the Direct Action Plan will be developed shortly. Although it is understood that the key focus will be soil carbons rather than renewable energy developments, the Direct Action Plan does include the Coalition's One Million Roofs Solar Program. This Program seeks to have one million additional solar energy roofs on homes by 2020 and will provide a rebate up to $500 to program participants, with rebates capped at 100,000 a year.
With respect to the development of renewable energy projects, the Coalition has, in the short term at least, committed to maintaining the RET, which to date has been one of the most significant supports for renewable energy development. It has indicated that the RET will be subject of a review in 2014.
The Coalition will also deliver a more streamlined environmental approvals process, by establishing a one-stop shop for project proponents seeking approvals and permits. Although the details of this body are yet to be released, it is intended to deliver certainty, by having a consistent nationwide system, and also provide determinations swiftly. This measure may assist renewable energy proponents to overcome administrative hurdles.
Beyond its commitment to the RET and the establishment of a one-stop shop for environmental approvals, there is a reduced focus on renewable energy developments. The Coalition's Policy is focused on fossil fuels and directly addresses renewable energy concerns only through its proposal to establish either an independent National Health and Medical Research Council research program or an Independent Expert Panel to examine and determine any actual or potential health effects of wind farms.
The RET has been a key factor in supporting the development of renewable energy projects. Its continued support by the Coalition Government should ensure that it can continue to provide this support. Despite this, it is anticipated that the impact of the removal of a number of supporting mechanisms, such as the carbon pricing mechanism, will result in the re-emergence of a number of barriers to renewable energy developments. Furthermore, the review of the RET scheduled for 2014 and the release of a new Energy White Paper will keep policy uncertainty brewing in the renewable energy industry. Whether the introduction of the Direct Action Plan and the establishment of a one-stop regulatory approvals shop can assist in overcoming these barriers will become clearer when more details are released and the industry has a chance to respond.
1Benefit of the Renewable Energy Target to Australia's Energy Markets and Economy, August 2012, SKM MMA
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