Blackout on green projects if target for renewables is axed

 

Peter Keatley is a sheep farmer. But the 59-year-old, whose property sits in NSW on the outskirts of Canberra, is also in the business of harvesting wind.

The Keatley farm hosts five giant wind turbines, which are set to generate an inflation-adjusted $50,000 a year for at least 25 years.

Joe Hockey's comments have alarmed Infigen managing director Miles George.

This income will allow Keatley to pass his farm on to his son rather than selling out when he retires. ''I love them,'' the 59 year-old says. ''They've turned my life around.''

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Their very construction, with huge cranes and machines, ''was the best period of my life,'' Keatley enthuses. ''I was like a kid in a lolly shop.''

The turbines on his farm are, Keatley points out, ''the very first ones you see'' across Lake George on the approach to Canberra from Sydney.

So it may have been these very turbines that Treasurer Joe Hockey was referring to when, in a radio interview last month, he spoke of the ''utterly offensive'' towers he has seen on his drive into Canberra.

In the interview, with Sydney radio presenter Alan Jones, Hockey added that, in the case of existing wind farms, ''We can't knock those ones off because they're into locked-in schemes and there is a certain contractual obligation I'm told associated with those things.''

It was a comment that alarmed Miles George, the managing director of Infigen Energy - the Australian Securities Exchange-listed company that operates the Keatley farm turbines and hundreds more across Australia.

''What federal treasurer of a country says he would like to stop the investment of Australian public companies?'' Mr George said. ''I still can't believe he said that.''

This week saw US President Barack Obama unveil the most ambitious policy in US history to cut greenhouse gas emissions - a requirement for 1600 power plants to cut emissions 30 per cent on 2005 levels by 2030 - and news that China was also working on a cap for its greenhouse gas emissions.

Last week, South Korea announced plans to cap carbon emissions as part of a carbon trading scheme kicking off at the start of next year.

In Australia, however, the clean energy sector - which by its own count employs 24,000 people and has generated $20 billion in investment - feels under siege, amid government plans to dismantle climate agencies and uncertainty about the future of the nation's Renewable Energy Target.

The price of Large-Scale Generation Certificates (LGC) has plummeted, to the point where new renewable energy developments will not be viable and will struggle to get finance, according to industry figures.

Electricity retailers must buy these certificates - which are generated by renewable energy projects like wind farms - to meet their requirements under the Renewable Energy Target, creating a constant demand for the certificates.

Scrapping the target, or reducing it, means less demand for the certificates and less demand for renewable energy projects - and a reduced willingness for investment in the sector.

Since the start of the year, shares in renewable-focused companies have dived as the wider market has rallied.

Infigen shares are down about 25 per cent since January, while shares in Silex Systems, a solar power project developer, have almost halved in five months. Geodynamics Limited, a speculative geothermal or ''hot rocks'' play, was trading above 9¢ in January but now changes hands at 5 cents.

And billions of dollars worth of renewable energy projects - $2 billion in wind projects with Infigen alone - have stalled due to the uncertainty.

''The current uncertainty has really brought the whole industry to a standstill,'' George said. ''There's no incentive to develop new projects at the moment.''

Tony Wood, director of the Grattan Institute's energy program, warns that Australia's renewable energy industry may struggle to attract investors back if there is a large-scale flight of capital.

''Where's the phoenix that's going to arise from the ashes here?'' he wonders. ''Because there's an awful lot of things going to be burnt.''

As it promised, the government is proceeding with plans to scrap the carbon tax. A bill to kill the tax was blocked in the current Senate by the Greens and Labor, so the Coalition will try again in July.

The government has also been trying to shut down the independent Climate Change Authority - intended as an advisory and emissions goal-setting agency - and the $10 billion Clean Energy Finance Corporation, which lends money to low-carbon projects at a profit to the taxpayer.

It remains unclear what the fate of legislation to scrap these agencies will be under the new Senate.

In its budget last month, the government revealed it would axe the $3 billion Australian Renewable Energy Agency - which provides grants to emerging low-carbon technology such as geothermal - and would halt funding for the Howard-era Energy Efficiency Opportunities program, which saves $2.90 for every dollar invested.

Even the replacement for the carbon tax, the Emissions Reduction Fund, had only $1.15 billion allocated for the coming four years in the budget. The $2.55 billion to pay polluters to cut emissions - which falls under the Coalition's Direct Action on climate change policy - will be spread over 10 years, although Environment Minister Greg Hunt insists he has discretion to spend it sooner.

Fairfax Media sought comment from Hockey about his comments on wind farms and whether he supported the Renewable Energy Target. His office did not respond.

However, Mr Hunt says the US action announced this week was more in line with his government's Direct Action policy than the carbon price it aims to replace. ''These are exactly the type of actions we will see delivered through our Emissions Reduction Fund and complemented by our commitments to energy efficiency and renewable energy,'' a spokesman for Mr Hunt said.

Climate-related policies still in place include Australia's commitment to a minimum 5 per cent reduction of 2000-level emissions by the year 2020. Australia may struggle to reach this goal, with new LNG plants and coal power stations expected to boost pollution.

And still in place is Australia's Renewable Energy Target, which aimed to derive about 20 per cent of the nation's electricity from renewable sources by the end of the decade.

It is the principal driver of investment into clean energy, a goal of forcing retailers to buy 41,000 gigawatt-hours of renewable energy by 2020. A gigawatt is a billion watts of power, with Australia's total annual electricity use standing at about 230,000 gigawatt hours.

According to the Clean Energy Council, the peak body for companies operating in renewables, about $14.5 billion of renewable energy investment will flow if the RET remains as it is. More than 6600 jobs would be created if approved wind farms proceed.

Before the election, then shadow environment parliamentary secretary Simon Birmingham indicated the opposition had no plans to cut the target.

But the make-up of a panel reviewing the target has raised alarm bells among renewable energy investors.

''The Coalition was very clear that they supported the RET,'' Infigen's Miles George said. ''It would be a direct broken promise if that target is changed.''

The panel's chair is businessman Dick Warburton, a former head of Caltex who has said that he is sceptical that mad-made carbon dioxide causes climate change.

Other members include former government resources economist Brian Fisher and Matt Zema, head of the Australian Energy Market Operator.

The fourth member, Shirley In't Veld, is a former head of WA's largest coal-fired power producer Verve Energy. Ms Veld told a 2011 Senate Committee she didn't consider carbon dioxide - the major greenhouse gas - to be a pollutant.

The government is under no obligation to follow the advice of the panel. However, its recommendation is expected to be influential.

With billions of dollars of investments at stake, the panel's proceedings have been closely watched by participants in the renewable energy sector.

Some of those making submissions to the panel claim it has appeared to welcome statements critical of the target's costs, and seemed dismissive of people arguing that the target should be retained.

David Harries, an architect of the original renewable energy target design in 2000 and now a director of clean energy consultancy EMC, says that at a Perth event last month Mr Warburton said the target had been set up at a time when human-generated greenhouse gas emissions were thought to cause climate change.

''Now we know that's not true, we have to question the whole target mechanism,'' Harries, an adjunct professor at University of Western Australia, remembers Warburton as saying. But Warburton told Fairfax Media this reading of his view (about climate change) was ''absolutely not correct''.

He dismissed claims the panel had made up its mind. ''That is absolute rubbish,'' he said. ''We have not got any foregone conclusions at all.''

Major energy companies, Origin Energy and Energy Australia, have repeated their calls for a weakening of the renewable energy target.

Origin's main case is that energy demand is slumping, and may slump further, as Australia's manufacturers shut down.

Origin forecasts total electricity demand in the year 2020 to be about 230,000 gigawatt-hours - about what it is now - rather than the 300,000 gigawatt-hours predicted when the target was expanded.

Reducing the RET to a ''true 20 per cent'' would still leave ''plenty of room for more investment in wind farms and solar technologies and for employment in those industries'', Origin says.

But the Australian Industry Group - made of up big companies including energy-hungry manufacturers - has urged that the target be ''maintained or even strengthened''.

Acknowledging that some of its members ''strongly'' oppose the renewable energy target, AiGroup said last month that it views the RET as being ''important to Australia's future energy security and economic base''.

AGL, the third energy major, has sat largely on the fence, being both a big owner of renewable energy and of fossil fuel-sourced power. It backed the renewable energy target ''as part of Australia's strategic approach to reducing greenhouse gases'' but said at current market prices ''new investments in renewable energy projects cannot be justified economically''.

The issue has split the Coalition governments of NSW and Victoria, with the new Baird government in NSW deciding the arguments strongly favour keeping the renewable energy target.

It acknowledges that the target has raised consumer costs - about $40 per household in 2013. But it says that having wind and hydro operating with a fuel cost of virtually zero meant that wholesale prices were kept down - and overall bill costs were lower.

''The RET is good for NSW consumers and households - it ultimately saves money,'' Amy Kean, the state's renewable energy advocate, told Fairfax Media.

Support in the state is bolstered by the fact NSW has excellent wind resources close to major markets, with $13 billion of wind farm investments ''progressing through the planning system'', the state said.

By contrast, Victoria's Coalition government has called for natural gas - not generally viewed as a renewable energy source - to be added to the RET mix.

The price of gas is forecast to double in Australia as exports take off from this year, costing average Victorian consumers - the country's biggest gas consumers in the home - about $420 more a year, the Grattan Institute's Tony Wood estimates.

The impending export boom in gas is likely to boost domestic demand for coal from its current record low levels.

Indeed, total emissions from the National Electricity Market - which serves eastern Australia - are down 17.2 million tonnes, or about 11 per cent, since the carbon tax launched in July 2012, says Hugh Saddler of energy consultancy Pitt & Sherry.

That trend will reverse as gas is sent offshore and more coal is burned. ''If they crush the RET it will let still more coal back into the market,'' Saddler says.

The UN's Intergovernmental Panel on Climate Change last year estimated global temperatures could rise between 0.3 and 4.8 degrees this century because of increasing carbon emissions.

Fatih Birol, chief economist of the International Energy Agency, told Fairfax Media the world is on course for the high end of that range - at least 3.6 degrees of warming - on current energy investment patterns.

About $4 is spent on the extraction, transport and combustion of coal, gas and oil for every dollar spent on solar, wind and other renewables, the IEA said.

Climate scientists, such as Andy Pitman from the University of NSW, say Australian action alone won't make a big difference to global CO2 levels unless other nations act too.

But the economics of relying on coal and gas if major buyers shun these fuels have their own risks.

The Bendigo and Adelaide Bank is halting new fossil fuel investments, the first major local bank to do so.

''At some point of time, countries like China are going to wean themselves off the importation of fossil fuel,'' Andy Pitman, a climate scientist at the University of NSW, says.

''If we don't have a Plan B, and Plan A ceases to be viable because our export markets have dried up, we're screwed.''

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