good news for new renewables

http://www.businessspectator.com.au/bs.nsf/Article/Catching-up-on-climate-change-pd20090501-RLTW8?OpenDocument&src=sph


Catching up on renewables
Giles Parkinson

The decision by COAG to endorse the federal government’s new Renewable Energy Target and agree to important amendments means that Australia may finally be able to play catch up to Europe and the US in the development of renewable energy.

For all its natural attributes, Australia has one of the lowest penetrations of renewable technology in the developed world. But while the country will take two step forwards by increasing the shortfall penalty and extending the duration of the scheme, it takes one step backwards by caving in once again to the demands of compensation by heavy emitters, so again shifting the cost burden elsewhere in the economy.

The two key endorsements made by COAG include the raising of shortfall penalty from $40 to $65 per megawatt hour, and the extension of the RET scheme until 2030.

The pricing is an important technical measure. The $65 fee that would be paid by utilities not meeting their RET quote is not tax deductible, so it adds up to a gross figure of around $93, and in theory means that the price of Renewable Energy Certificates will range between those two figures. Add this to the spot black coal energy price of around $40 to $50, and a whole new range of renewable energy installation become cost competitive.

It is below the minimum $70 fee called for by some participants, and recommended under a model proposed by McLennan Magasanik Associates, but should be sufficiently robust to avoid utilities electing to pay the shortfall instead.

This, and the extension of the limit of RECS income to 2030 from 2024 provides the certainty craved by the industry for so long before it could push the green light on an estimated $20 billion of projects, and while financing has been difficult there is evidence that investors are looking favourably on such new technologies.

Basically, the penalty price rise is good for wind power and its good for geothermal, even if the latter’s projects are a few years away from taking full advantage. The extension of the scheme is designed to avoid a mad rush of “mature” projects in the early years of the scheme that would have crowded out the opportunity for other technologies. That means it’s also good for emerging technologies such as solar thermal and wave and tidal.

Unfortunately, the cost of the scheme will not be evenly shared, as the government has once again bowed to the intense lobbying of trade exposed industries, who will gain similar exemptions – 60 per cent and 90 per cent – that they won in the emissions trading scheme. The mechanics of this latest assistance have not been revealed, but it means that the cost burden will be loaded elsewhere.

It adds a massive distortion to the market, and was opposed by energy groups such as Origin Energy. But, if going two shades of purple was enough to earn Woodside CEO Don Voelte an extra $160 million in benefits for his shareholders from the lobbying on the CPRS, it is not surprising they’d line up again in negotiations over the RET.

The announcements are a recognition that a carbon market by itself is not sufficient to generate a price high enough to drive investment in emerging renewable technologies of the scale required to reduce costs and transform the energy network into clean power – be it through renewables or technologies such as clean coal.

The government will need to go further. The Renewal Energy Development Program is a welcome addition to encourage commercial-scale demonstration projects of emerging technologies, but there are that many good ideas out there that need to be encouraged sooner rather than later. The $435 million made available by the government over the next two years will be gobbled up by a handful of projects. The government needs more technological options and could easily treble the amount it is seeking to allocate.

Such government incentives have been crucial to the development of solar and large scale wind developments in Europe and the US, where feed in tariffs or tax incentives have provided crucial support. In Spain, which now accounts for more than 90 per cent of the solar thermal energy now under construction across the globe, its growth was underpinned by a “Royal Decree” to provide 500Mw of solar thermal power by 2010.

Governments, however, are now going beyond mandated take-ups of clean technology and are now legislating against the expansion of polluting technologies. The UK government has announced that it will no longer allow any new coal-fired power stations to be built unless it can be guaranteed that one quarter of the emissions can be captured and sequestered immediately, and 100 per cent of emissions by 2025. Norway is considering banning the sale of any new cars powered by fossil fuels from 2015.