Who killed the Renewable Energy Target?

September 12, 2014
Hepburn wind farm, near Ballarat in Victoria.

With news that the unlikely climate conscience of the Palmer United Party is holding firm, it appears that the Renewable Energy Target (RET) and associated programs will not be scrapped just yet. But the uncertainty of what will happen in the long term may be enough to bring large-scale wind and solar projects to a standstill.

The federal government came to power with a promise to kill Australia's climate policies, and in the past year it has made it one of its priorities. Prime Minister Tony Abbott has achieved his explicit aim — to repeal the carbon price — and has followed up with attacks on the other climate and renewable energy programs.

Even if the government fails to pass all the required legislation to remove these, the regulatory uncertainty may be enough to stop investment. If the renewable energy industry is not killed, it may end up languishing on life support.

Australia's RET requires that bulk electricity buyers, such as the retail companies that sell electricity to the end user, prove they have met the target by buying certificates from renewable energy producers. If they fail to buy enough certificates, which will begin to happen if more renewables are not built, they pay a fine.

It now appears that the big energy retailers and generators are willing to risk paying those fines rather than see more renewable energy lowering the profits of their assets in big coal power stations.

This sad state of affairs is not as new as some critics of Abbott may think. The RET has seen the boom and bust pattern before. It originated as a policy of the John Howard government, for a 2% renewable energy target, and when this was achieved ahead of schedule, the target was abruptly scrapped.

The election of a Labor government in 2007 saw the reintroduction of an expanded target, for a total 41,000 gigawatt-hours of renewable electricity by 2020, about 20% of what was then forecast as 2020 energy demand. But by 2010 this policy was suffering dire problems.

The government had decided to make an extra incentive for household solar by allocating five certificates for every unit of solar installed. This multiplier made solar very successful, but created a massive oversupply of certificates which the big energy retailers were able to buy cheaply and store to meet subsequent years' obligations.

The result is the certificate price has been held down ever since. As a result, the construction of new wind farms slowed to a near standstill, compared to the rapid pace of construction in the earlier years. We may not know whether this was deliberate sabotage of the RET by Labor, but anyone familiar with the pro-coal agenda of then-energy minister Martin Ferguson will have their suspicions.

The multiplier for household solar was moved to a separate, small-scale renewable energy program, which removed the source of the problem, but left the oversupply in the certificate market untouched. It would have worked its way through the system, but the big energy companies (like Origin and Energy Australia) began to use this opportunity to argue that the RET should be reduced or abandoned because the lag in construction meant it was unlikely enough renewable energy would be built by 2020.

More recently, their real agenda has surfaced. Energy demand began to fall in 2010 and continues to do so. The likely reasons for this include the decline in manufacturing, increasing solar power, and energy-wise consumers. This was not expected by the energy industry and it changed everything.

When the target was set, it was reasonable to assume that in 2020 Australia would be using a lot more energy, and it would not hurt to have a percentage of the new energy coming from the upstart renewables industry. The established energy industry could even invest and make money from it.

However, as energy use fell it became clear that 41,000 gigawatt hours of renewable energy would mean that the existing gas and coal industry would be unable to sell all their energy and their profitability would be gutted.

This is why these companies want the RET dismantled — or at least moved to a floating 20% target, which would perpetuate uncertainty in the industry. Over the past two years, big wind farm and solar projects have been postponed time and again, as the RET suffers from review after review, first under Labor and now the Coalition. Why would anyone start building a wind farm now, if it may be stranded without a support mechanism when it is completed?

Although the Abbott government wants to inflict the mortal blow, the RET was already reeling from multiple attacks. To reverse the attacks and see renewable energy rolling out rapidly — as it did in the years up to 2010 — we need to do more than just prevent the RET being axed: we need to revamp it.

Friends of the Earth is supporting state renewable energy targets to take up the slack being left in the crippled federal scheme, calling for Victorian parties to adopt such a target for the coming state election. There is no reason such targets would need to limit themselves to the weaknesses of the federal scheme, and they could be set higher.

If Victoria built all the wind farms currently holding planning permits, it would provide at least 25% of forecast 2020 electricity demand. South Australia saw a massive expansion of wind power under the RET, and now has over 30% renewable electricity, largely wind, built in less than a decade. Other states could follow suit, especially if you consider the potential for large-scale solar to be included in the target.

The key weakness in current policy is that it is subject to double uncertainty: the uncertainty of a market in renewable energy certificates, which has been manipulated by the big players; and the uncertainty of hostile governments that have put a big question mark over the target's future.

Renewable energy technology is relatively simple, is becoming cheaper every year, and as multiple studies have demonstrated, could reliably supply all of Australia's energy before 2030.

Parties supporting serious action on climate change need to consider what would be in a serious renewable energy policy. Australia has not had one since at least 2010, and now is a good time to reflect on that. And more to the point, we need to end the uncertainty by ensuring that parties that firmly support a rapid rollout of renewables are the ones in power in future.

[Ben Courtice is a volunteer with Yes2Renewables, a campaign of Friends of the Earth Melbourne.]

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