A price on carbon will be the elusive prize for the early movers in the renewable energy sector
AUSTRALIA’S clean energy sector is struggling because of delays in the imposition of an emissions trading scheme, leaving the renewable energy target system devised by the Howard government as the only reliable economic carrot worth chasing.
Business owners across the country are grinding their teeth at the delays in putting a price on carbon, the single most critical element in any energy regime that wants to increase the economic attractiveness of renewables and decrease reliance on coal-fired power generation, currently the cheapest system by a long way.
“Emissions trading scheme” (ETS) is the generic term for what we need and carbon pollution reduction scheme (CPRS) is the specific name of what was proposed and rejected in Canberra early in 2010.
And because the RET system is significantly smaller and less comprehensive than any ETS, we are beginning to see the scary phenomenon of lower prices for renewable energy stocks.
Why? Isn’t every new windmill or solar panel in Australia a long-term positive?
Yes, but until the much delayed Australian election result brought forward the likely date for a renewal of the ETS/CPRS debate, investors and generators alike have been thrust back on a little part of the overall picture, the one investment certainty in an ocean of waffle: the Renewable Energy Certificate system by which electricity producers must reduce their emissions by 20 per cent by the year 2020.
And because those generators have been buying certificates on the open market, as they have been encouraged, and building windfarms, the amount of clean energy being produced in Australia is at risk of plateauing.
They’re scaling up gradually but not only do they not have to get there just yet, but there are now reports that they’re very close to having enough certificates to cover themselves for 2011-2013.
Which means that anyone who builds a wind farm from scratch in Australia in the near future and who does not have a contract with an electricity provider had better have a lot of electricity users of their own planned, because those providers won’t be buying until they have to.
In simple terms, our attempts to wean ourselves off coal-fired power have struck growing pains and we’ve barely started.
Wind isn’t of course the only renewable, following well behind hydro power — but it is still well ahead, in cost and time terms, of large-scale solar power. That makes it the biggest game in renewables in Australia at the moment.
That’s something the existing generators have emphatically noticed and they are forging ahead with new wind capacity.
The bad guys, if you want to call them that, are ironically the only ones likely to make much money out of wind in the short to medium term.
For instance the $1 billion Macarthur wind farm in Victoria being jointly developed by AGL and its New Zealand partner Meridian Energy looks likely to earn its developers so many renewable energy certificates (RECs) that the price of those certificates will stay at around $40 per megawatt hour.
This is not enough to make any new wind farm economical on its own for a company that doesn’t generate electricity from more old- fashioned sources such as coal.
The $1 billion 420-megawatt farm, near Hamilton 260 kilometres west of Melbourne, is due for completion early in 2013.
That capacity, which incidentally was recently uprated by 25 per cent because of the introduction of bigger turbines, will be enough to power more than 220,000 average Victorian homes and save more than 1.7 million tonnes of greenhouse gases each year. AGL recently said that was the equivalent of taking more than 420,000 cars off the road.
There’s strong opinion out there that with that sort of scale of construction, Australia will hit its grated renewable energy targets easily. Jenny Cosgrove, a power analyst at stockbroker Wilson HTM, was recently quoted as saying we’re rapidly approaching a balance of supply and demand for the period up to 2013, and that’s not including the supply of small-scale RECs that she estimates to total more than 21 gigawatt hours by the end of this year.
“It will take a number of years before this excess supply is absorbed,” she said.
Our large-scale power generating industry turns out to be well ahead of our federal government on the renewables side of the ledger and householders are catching up fast.
So strong has been the demand by households to be involved in generating their own electricity that the federal government had to devise a whole new system called the SRES, Small Scale Renewable Energy Scheme.
To the credit of the ALP federal government earlier this year, “the number of systems receiving support under the SRES will be uncapped to ensure small scale installers have certainty”, to quote a government fact sheet issued in February.
The problem with all this is that there’s all the difference in the world between generating an increasing percentage of Australia’s electricity from renewables, and pushing less CO2 into the atmosphere by the more challenging process of phasing out coal-fired power generation.
It’s an irony that before the federal election John Brumby’s ALP state government in Victoria had done more to move on the emissions issue than the federal government had, by canvassing in July the idea of shutting at least part of the ancient and notorious Hazelwood brown coal power station in the Latrobe Valley.
At the time he did it Julia Gillard had put off the likely action date on setting a carbon price until 2012, thus earning him significant brownie points with his proposal to shut down 25 per cent of Hazelwood by 2014 to save four million tonnes of CO2 emissions annually.
Admittedly the idea is dependent on federal funding to hand as much as $1 billion in compensation to the plant’s owners.
But in a legislative landscape where nothing appeared to be happening, the idea got media traction.
The final 76-74 settlement of the House of Representatives on September 7 in favour of the battered ALP incumbent presages a likely second attempt to bring in an emissions trading scheme of the sort that was proposed, then abandoned, early this year.
New Green MP Adam Bandt clearly wants an ETS, if a tougher scheme than the one previously rejected, and during the negotiating process that followed the election ex-National Party independents Tony Windsor and Rob Oakeshott both highlighted the need for an early debate on the ETS as one of their most urgent priorities.
It’s also worth noting that on the eve of the August election, Gillard said she would view a victory as a mandate for a carbon price provided the community was ready for it.
The main reason for the Emissions Trading Scheme’s rejection in April was the Greens’ emphatic belief that it ought to go further than it did, particularly in relation to the excessively generous protection that the Greens thought it granted to existing “dirty” electricity generators.
Opposition Leader Tony Abbott’s noisy objection to it was the most widely reported element of the ETS’s rejection.
But it was the Senate Greens’ blocking stance against the ETS on the grounds of its perceived inadequacy, tied ironically in with the Coalition senators’ objection on the entirely opposite ground that the measure was excessive, that finally did for it. Coalition doubters weren’t its only executioners.
Can that happen again?
Certainly, particularly as the number of Green senators is going to go up on July 1 as a consequence of the August election, but there’s a growing belief among the majority of electors in Australia who want to see an ETS legislated soon that a modest scheme is still a great deal better, particularly in perception terms, than no scheme.
Perhaps we should leave it to Henry Derwent, President and CEO of IETA, the most powerful emissions trading body in the world, to give us an external view of the rejected Australian ETS.
“Australia’s emissions trading scheme was first-rate, comprehensive and effective.
“It was probably insufficiently flexible but it was potentially very efficient,” he told a press conference in Singapore in August.
Derwent runs the Geneva-based International Emissions Trading Association.