Unless someone casts a spell on Australia’s policitians, the country is unlikely to meet its own 2020 renewables energy targets. But with abundant solar, hydro, geothermal and wind resources, why should that be? PEi finds out.
Reid Smith & Elisa Wood
As many countries work to make renewable energy a larger percentage of their energy mix, Australia has gone the other way. In 1960, 19 per cent of the nation’s power came from renewable energy; today the figure is down to 8 per cent.
Efforts are underway to reverse the trend. But politics and King Coal stand in the way.
“Australia has a significant task of turning this around to meet its renewable energy targets,” says Steve Thornton, energy industry specialist at PA Consulting Group in New Zealand.
The Australian government in 2009 set a target for 20 per cent of the nation’s energy to come from renewable energy sources by 2020. Known as the Renewable Energy Target, or RET, the scheme encompasses both small and large-scale systems, requiring a certain percentage from each.
Australia has abundant solar, hydro, geothermal and wind resources, enough to power 100 per cent of demand. So what’s the problem?
“Australia has sufficient renewable resources for the targets – the only real question is the cost of meeting those targets and the political acceptability of these price increases,” says Thornton.
Australia already has 6 per cent of its energy coming from hydro resources, so it only needs to meet 14 per cent with solar, wind and other renewable energy sources, he says.
Because of Australia’s abundant coal resources, most new capacity over the past 50 years has come from coal, reducing the total amount of renewable energy of the energy mix. But achieving that next 14 per cent won’t be easy. Large-scale renewable energy generation will have to triple between now and 2020 for the nation to meet the targets. This appears unlikely to happen, especially since only 40 per cent of new generation is set to come from renewable sources by 2015.
So, Australia will only meet its 2020 target if it develops a lot of renewable energy in a very compressed, five-year time period. “Most of the renewable energy needed to meet RET targets will have to be installed from 2015–2020,” Thornton says.
What could reverse this trend? Mostly, strong government support – however, Thornton and others don’t see such support as likely as renewable energy opposition gains strength in Australia.
The renewable energy market has two major forces that impede its development: uncertainty over legislative and regulatory support, and coal’s continued importance to the country’s culture and economy.
Uncertainty and lack of commitment
On a federal level, Australia offers little in the way of incentives for renewable energy, according to Richard Horton, partner at law firm DLA Piper in the US. In contrast, the US has a 30 per cent federal tax credit, federal loan guarantees and cash grants for renewable energy systems of any size. “There is nothing like cash grants, loan guarantees or tax credits in Australia,” Horton says. Even when Australia passes legislation to aid renewables, the government often fails to follow through with action, he says. For example, Australia approved the Solar Flagship Program in 2011 and allotted A$100 million ($99.9 billion) for photovoltaic (PV) installations.
But after seeking proposals, the government chose only two developers with two large solar farms.
“The money was available from the government, but no one could get a power purchase agreement in place that would make economic sense,” Horton says.
|Many renewables projects, such as this wind farm operated by Oz Capital, have had little government support – however, the introduction of carbon taxes may make them more appealing Source: Ecogeneration|
Banks and other lending institutions were unwilling to fund newer solar technologies. Two projects were built from the programme, not enough to spark development of a solar industry in Australia. “The programme has now completely stalled,” Horton says.
In addition to the flagship programme, feed-in tariffs (FITs) were once available in various regions of Australia. However, the FITs have been tapered back or closed altogether in recent years. The state-based FIT programmes, which promoted localised, small-scale systems, dissolved from lack of interest or poor programme establishment. BP Solar tried to move into Australia, but subsequently pulled out because of the hostile, ever-changing incentive and market structure, according to Horton.
The government also started issuing renewable energy credits in 2000 – one credit equalled one MWh – with the idea of trading credits to create additional capital for renewable energy projects. But that programme failed as well, after energy suppliers banked enough credits to last for years, eliminating the chance to spur the market with such a credit system.
Why is it so hard to stimulate Australia’s renewable energy industry? Politics is a major hindrance. Energy is a highly politicised issue down under, so lasting commitments to programmes are rare. Without a long-term commitment, the renewable energy industry cannot gain the traction it needs to compete against other resources.
The current party in power in Australia, the Labour Party, led by Julia Gillard, supports renewable energy development. While some energy industry groups are calling for a reduction or elimination of the 20 per cent RET by 2020, she is pushing for even bolder targets.
In November 2011, the Australian government passed the Clean Energy Legislation Package, which includes a carbon pricing mechanism. The government also created an independent Climate Change Authority that will advise the Australian government on the setting of carbon pollution caps and a review of the carbon pricing mechanism, says Sylvia Tulloch, founder and director of Dyesol, which makes dye-sensitized solar cells in Australia.
The carbon pricing mechanism will place a carbon tax of A$23 per tonne of carbon emitted and is set to increase until 2015 when Australia shifts to a trading scheme that lets the market set the price.
The carbon tax will make fossil fuels more expensive, giving renewables a better price position in the market. With rising energy prices, renewable energy starts to look like a more feasible option against fossil fuels.
“Businesses reducing their carbon footprint will often choose the installation of renewable energy or energy efficient systems, so there will be an increase in investment in RE in the coming years,” says Tulloch.
|An Australian Conservation Foundation solar plant – one of the country’s most obvious resources Source: ACF|
But Australia’s Liberal Party – the right-leaning, opposition party to Labour – is doing everything it can to make sure the carbon tax does not last. “The opposition party wants to postpone starting the carbon tax and leave the decision up to the general election next year,” Thornton says.
Political observers see the Liberal Party as likely to gain power in the next election and set back any progress Labour has made in trying to spur a renewable energy market, he says.
The Liberal party argues that the carbon tax will hurt the economy by requiring the largest emitters – also the country’s biggest companies – to pay for the carbon they produce.
The current prime minister added to the acrimony by changing her position on the carbon tax. When she was asked a few years ago whether there would be a carbon tax in her term, she said no. Later, she approved the carbon tax, which has made her popular with younger people, but drawn attacks from liberal voters.
The carbon tax may be a good idea, but it’s likely to get shelved, according to Horton. The government needs to evaluate the real cost of dirty power, which will be difficult because it will require people to change their minds about fossil fuels. “The Liberal party will likely be the next president, and there is talk that the 20 per cent renewable energy target by 2020 may be revised,” he added.
Such politicisation has made it nearly impossible for renewable energy companies to predict what the market will look like in the future. With no clear understanding of market parameters, green energy companies say they cannot plan future development in Australia.
Coal is abundant in Australia, which was the world’s largest exporter in 2010, according to the International Energy Agency. With bountiful coal and gas resources – enough to last comfortably for 150 years or so – Australia is able to keep electricity prices extremely low.
“Cheap power from fossil fuels makes renewable energy development difficult,” Horton says.
Because the fossil fuel industry is so big in Australia, it employs many people, and is the backbone of the economy and culture. More than half of Australia’s energy comes from coal, which represents a $68 billion industry, according to the Australian government.
“Anything that takes 54 per cent away from the coal and gas industry is not popular with the majority of Australian’s because it comprises so much of the economy,” Horton says.
Fossil fuel dependence has also made it difficult for many Australians to accept climate change as a real possibility. “There is a cultural mindset that climate change is potentially a myth,” Horton ads.
The fossil fuel industries perpetuate the belief that climate change is not real and renewable energy lacks viability, according to Thornton. “The minerals and mining industry in Australia is very strongly in favour of fossil fuel generation, and it makes up such a significant part of the country’s economy,” he says.
Many Australians are being pulled in different directions as acrimony increases over energy. In general, Australians see renewable energy sources as a good thing for Australia, but they do not want increases in power prices, according to Thornton. In addition, many people work within the minerals and mining industry.
“The Australian economy is so dominated by fossil fuel resources that anything that could possibly impact those resources tends to come under considerable political focus and discussion,” says Thornton.
If the renewable energy market is not developing on its own, the government needs to step in and create the market mechanisms to get it going, according to Horton. To do this, the federal government will have to make long-term commitments to its development, he says. “The government needs to support the market so that businesses can begin to participate in it.”
|In two minds: Australian Labour Party’s Julia Gillard has changed her position on the carbon tax Source: ALP|
In addition to making a commitment to renewable energy, the government needs to evaluate the real costs of dirty power after considering the health and environmental costs associated with fossil fuel electricity generation. “The cost of renewable energy relative to fossil fuel generation has to include the cost of carbon in order to be competitive in coming years,” says Thornton.
The government is showing signs of commitment to renewable energy. It has recently set aside AUS$10 billion to invest in firms and projects utilising renewable energy, energy efficiency and low emissions technologies, says Telloch. But with a likely party change in the next election, the federal government could change or remove any progress made by the current government.
Such back-peddling, like the removal of the carbon tax credit, would greatly undermine Australia’s ability to meet its 20 per cent RET, according to Telloch.
The most important thing is policy certainty, says Thornton. If renewable energy generators had certainty over the carbon tax or what the targets and funding for renewable energy will be, they can make the appropriate development plans to meet targets. Certainty of legislation will enable renewable energy companies to gear up for a big increase in renewable energy supply from 2015–2020 and be able to meet targets.
“Any undermining of this policy environment is going to turn renewable projects off,” Thornton says.
Australia also needs a smarter transmission grid that is capable of better managing electricity and balancing out the intermittency of renewable energy generation sources. Demand response and other grid-stabilising programmes can provide the system support for balancing renewable energy resources,” says Kenneth Schisler, vice-president of regulatory affairs for EnerNoc in the US.
The Australia Electric Markets Commission recently held a stakeholder meeting on demand response and ancillary services market. They showed how demand response could prevent building additional peaking generation resources as well as balance the intermittency of new renewable energy resources.
“Demand response and ancillary services to the grid should go hand in hand with renewable energy development because they enable one another,” he says.
In addition to ancillary grid management services, Australian governments and utilities need to invest in transmission. Large renewable energy sources are abundant in Australia, but many of them are remote – in desert or offshore locations. The question is not whether transmission is needed, but who will pay for the interconnection: utilities, distribution companies, or consumers.
“As embedded renewable energy increases, there is a need to augment connection infrastructure, and the issue of who pays for that is currently unresolved,” says Tulloch.
As Australia gets closer to its 20 per cent renewable energy goals, the solar sites located near population centres will be largely developed, says Thornton. Solar resources will increasingly get further away from major load centres, and will become increasingly important going forward, he says.
To solve transmission capacity and digitalisation issues, federal and state governments need to cooperate, says Tulloch. Other experts also agree, the key to any sort of renewable energy development in Australia will come from cooperation that establishes a long-term commitment to market development.
Unfortunately, at this point, cooperation within the Australian government seems hard to imagine with the politicisation surrounding the carbon tax and other issues that foster renewable energy development.
With a slow economy, the Australian government – like other governments around the world – is focusing foremost on balancing the budget.
“When governments are considering renewable energy legislation, there is considerable attention to the cost of renewable energy programmes in the short term,” says Thornton.
The roadmap for Australian renewable energy development is unclear. Only time will tell how much the government commits to renewable energy and whether their RET will be met. But for now, time is working against the nation, and the renewables forecast is grim.
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