By NATALIE OBIKO PEARSON
A government-appointed panel gave Australian Prime Minister
Tony Abbott two options to cut emissions
more cheaply: either
scrap or weaken its main clean- energy program.
Accepting either would imperil A$20 billion ($19 billion) of
s and shut the door on new
Essentially, this says Australia is closed for business
for renewable energy, Kobad Bhavnagri, an analyst for
Bloomberg New Energy Finance in Sydney, said by
phone after the government released the panels
The review covered Australias mandatory Renewable
Energy Target, which requires electricity retailers to buy
renewable certificates from wind and solar farms or generate
clean power themselves.
It concluded the programs costs were not
justifiable. It recommended either winding it down by
closing the program to new entrants or modifying it so the
share renewables hold as a fuel for making electricity
doesnt exceed 20% by 2020.
While Australias government has indicated it wants to
see the target reduced, it has yet to confirm what parts of
the report it will support. Any changes would need to be
legislated, and a bloc of Senators whose support would be
needed have indicated they oppose changing the target.
The findings of the panel contribute to unease within the
renewable energy industry about the commitment of the
worlds largest polluter per capita to clean energy.
Abbott has also eliminated Australias levy on carbon
dioxide and sought to
dismantle institutions set up to help the country limit the
pollutants blamed for climate change.
Abbotts government was required to review the program
this year as part of a bi-annual process. To lead the study,
it appointed Dick Warburton, a former Reserve Bank of
Australia board member skeptical about the causes of global
At issue was whether the programs goal of generating 41
terawatt-hours of clean electricity by 2020 is the most cost-
effective way of reducing emissions
. The government wants to
limit power prices to help bolster the economy. Complicating
that is Australias declining electricity demand,
meaning costlier renewable sources may account for a greater
proportion of overall generation than originally intended.
We have a long-term commitment to renewable energy in
Australia, but its about finding balance, Environment
Minister Greg Hunt
told Sky News
television. What was intended to
be a 20 percent renewable energy target, because of the
collapse in some areas of manufacturing, is now inadvertently
by law heading toward being 26 percent. That could come with
some very high penalties.
The panels report said meeting the renewables target in
its current form would cost the nation A$22 billion in
cross-subsidies. Australia spends about 5.6% of total
government revenue, or about $20 billion/year, in post-tax
subsidies for oil, natural gas and coal, according to a study
by the International Monetary Fund.
This investment comes at the expense of investment
elsewhere, the government review said. It is not
required to meet the demand for electricity.
While renewables currently add about 4% to retail electricity
bills, their impact over time is relatively small
as the cost of fossil fuel power converges with renewables,
the report found.
Even before its conclusion, the report contributed to the
suspension of plans by Solar Systems Pty Ltd. for a
100-megawatt photovoltaic plant in Victoria state.
If the goal posts keep moving on business, global
investors move on to more stable environments, said
Chris Judd, head of the Australia unit of Senvion, the third-
biggest supplier of offshore wind turbines. This will
be at the peril of a cleaner economy and environment
Paring back renewables would lock Australia into using carbon
-heavy fossil fuels.
Australia relies on coal for 69% of its electricity
generation, making it the fifth most- dependent in the world,
according to the World Coal Association.
Scrapping the renewables policy
by closing the program to
new entrants would destroy the value of renewable-energy
certificates, BNEFs Bhavnagri said in a report this
week. Solar and wind farms rely on revenue from selling those
certificates to meet costs. Without that, project
s could default on debt
payments and get stranded, he said.
The second option to modify the program to limit renewables
to 20% of the electricity mix would set yearly targets for
electricity retailers. That proposal is untenable
because it would give investors only one year of visibility
into demand for certificates. Thats not enough for
investors for some project
s, which may take four
years to build.
It would be like trying to build an aluminum smelter
but only knowing what incremental demand would be for one
year out, Bhavnagri said.
Infigen, Meridian Energy, AGL Energy, Acciona and Ratchaburi
Electricity Generating Holding are among the biggest
renewable energy investors in Australia, according to BNEF.
National Australia Bank, Australia & New Zealand Banking
Group, Eksport Kredit Fonden and Westpac Banking are among
Australias largest creditors for renewable energy, New
Energy Finance said.
The Australian Mines and Metals Association welcomed the
reviews findings, saying it addressed concerns that the
program reduced Australias competitiveness as an
attractive place to invest.
There is a strong argument to scrap the RET
altogether, said the group, whose members include
Chevron and ExxonMobil. It is vitally important the RET
has minimal impact on the rapid development of our
nations $200 billion LNG sector.
Environmental groups werent so happy. If the
recommendations are adopted, investors will flee the
renewables market, and Australia will further erode its
credibility in international global warming talks, said Erwin
Jackson, deputy chief executive officer of The Climate
Institute, an environment
al research group.
Theyll destroy the industry, Jackson said
by phone from Melbourne. Both options are effectively
asking renewable energy investors if theyd like to be
kneecapped quickly or slowly.