Today we’re joined by Anna Collyer, who is the Head of the Power and Utilities Sector and Grant Anderson who is the Head of the Climate Change Practice at Allens, and they’re here to talk about the Warburton Review of the Renewable Energy Target. Anna and Grant thanks for joining us again.

Thanks Kate.

Thanks Kate

Now Anna if I start with you, what were the main findings of the report?

Kate there were four main findings, the first one is that the Renewable Energy Target has in fact achieved its objectives, so it has three objectives, one of which was to promote the development of renewable energy, which it has done. The second is to reduce emissions which it has achieved by displacing some thermal generation, and the third one was that it as to be ecologically sustainable, which the report considered it has been to date.

The second finding was that the Renewable Energy Target has not had a significant impact on electricity prices, retail electricity prices that is, and that’s interesting in that when it was originally conceived it would have been expected that it would have increased prices because the purpose of the policy was to address what was seen as a market failure and provide a subsidy to promote the development of renewable energy. The reason that the prices have not been impacted by this policy has been the coincidence decrease in demand in the market, so that the additional supply brought about by the renewable energy target at the same time as the decrease in demand has sent wholesale prices have fallen, and that decrease in wholesale prices has offset the increase in retail prices. Notwithstanding these two findings what the report then goes on to say however is that in the context of a market with declining demand, looked at from the perspective of the economy as a whole, it does not consider it efficient for there to be ongoing investment in additional generation supplies when it’s not needed to meet demand, and the only reason that it would be needed is to address emissions by displacing the thermal generation. And what it says about that is the fourth finding is that while Australia remains committed to reducing its emissions by 5%, there are cheaper ways in which that can be done, and that this policy is no longer the best approach to addressing that issue.

And Grant what were the main recommendations?

Well Kate as was widely predicted before the report was released, the Committee has recommended significantly scaling back the renewable energy target, and that of course won’t be met with much joy by the renewable energy industry. The Committee came up with two options for scaling back the renewable energy target, the first of these is the grandfathering option which entails grandfathering existing and committed renewable energy generators. Now for these purposes a renewable energy generator is considered to be committed if it’s either under construction or if it’s fully financially and contractually committed. And on that point I would note given the uncertainty that surrounded the Renewable Energy Target for last year or so, there will be none or there will be no projects that will fall into that committed category. So essentially under the first option then that is to grandfather those renewable energy generators that are already in existence. Now if that option’s adopted then the targets under the renewable energy target scheme will simply be reduced so that they correspond to the generation from those existing generators.

The second option is to allow limited growth in renewable energy generation where electricity demand is increasing, and of course at the moment electric demand is actually reducing. Under this particular option the renewable energy target would increase at 50% of the projected growth in electricity demands for a particular year. What that means is that the clean energy regulator each year will set the Renewable Energy Target based on its forecast of electricity demand growth in the next year. If there is in fact going to be no projected increase in electricity demand then it will just be the previous year’s targets that apply. Now the issue with this option is that it exposes generators to considerable uncertainty because they won’t know well in advance what the targets are for the years going forward. The Committee actually recognises the vote of these options are likely to lead to volatility in the price of renewable energy certificates, and so its suggested some ways of dealing with that for example having an immediate increase in the renewable energy target to soak up the existing surplus in the renewable energy certificates are fixing the price for those certificates or enclosing a cap and a floor on those certificate prices, but those options have yet to be fleshed out in any detail.

The other thing that has been reported in the media is that the emissions intensive trade exposed industries like aluminium smelting for example, have been seeking a 100% exemption from direct liabilities. The Committee actually has pushed back on that, and said that it doesn’t support increasing the exemptions available to those industries.

And the final point I’d mention is that there is a small – or there is a small scale Renewable Energy Target component of the overall scheme that has been the component that supported roof top solar for example, and the Committee there has suggested that either that scheme should be abolished immediately or it should be significantly scaled back over the next couple of years.

And Anna if we look at the electricity sector, what are the implications of the report for that sector?

Well I think in the case of either of the two options for the large scale scheme it suggests that the obvious immediate effect will be to cease investment in renewable energy on a large scale, I think what’s quite interesting to think about though is what the report means over the longer term for the sector. The report comments about the current state of change that the sector has been undergoing and a move from the traditional model of large scale generation feeding into a grid to much more distributed generation alternative forms of generation and more customer involvement in the market, it points to a number of reforms that are being undertaken in particular in the national electricity market to increase demand side participation, and in the recent report on the review of the Western Australian electricity market some of these reforms were also sort of flagged with being for further consideration in that market.

Of course a lot of that change has in fact been driven by policies including the Renewable Energy Target and policies at state level such as feeding tariffs. So the most obvious change that’s been driving this shift in the sector generally is the proliferation of solar roof top, which has been very heavily promoted by the subsidy from the Renewable Energy Target as well as the feed in tariff. But that change in the way that customers are seeing their electricity, they’re taking control of their own generation and installing their solar panels to achieve that, has been promoted by both those policies. I think what the report is perhaps is implicitly saying is that the market is now at a stage where that kind of innovation and change can now proceed or is self sustaining through the market – in the market itself as opposed to any additional policies to support it. And I think that will be the subject of much debate within the industry going forward.

The next thing we’re expecting to see from the Commonwealth Government in terms of energy policy generally is an energy White Paper which is expected this year, and I think it will be really interesting to see how that paper takes the implications from the Renewable Energy Target Review and feeds it into the – our policy directions that the Commonwealth Government feeds to the sector going forward.

Yeah certainly. Well Grant what about for Australia’s Emission Reductions Target, what do you think the implications will be here?

Well as Anna mentioned at the outset, one of the objectives of the Renewable Energy Target Scheme was to reduce the rate of increase of Australia’s carbon and dioxide emissions, and the renewable energy target scheme has contributed to that, the Committee considers that contribution to have been fairly minimal it points out that the scheme has contributed to reduced emissions of about 20 million tonnes between 2001 and 2012, and that compares with the 2,500 million tonnes of emissions produced by the electricity generation sector at the moment. Looking forward the Renewable Energy Target Scheme was forecast to reduce emissions by around 24 million tonnes per annum between 2020 to 2030. The repeal or the scoping back of the Renewable Energy Target is therefore going to have some impact upon Australia’s emissions reduction effort. Now the Committee points out that the Government’s principle policy for tackling climate change is its new Emissions Reduction Fund which is designed to buy up low cost emissions reductions.

The Committee points out that the cost of emissions reductions achieved through renewable energy generation is around $32 to $62 per tonne between 2014 to 2020, and therefore it seems fairly obvious that renewable energy generation will not be something that the Emissions Reduction Fund is buying up.

The problem with the Emissions Reduction Fund though is that there’s no cap on overall emissions for Australia and that means that even if it buys up emissions reductions, those emissions reductions can be significantly offset by increases in emissions from other sectors of the economy, one of those other sectors will be electricity generation with the removal of the Renewable Energy Target, you would expect to see that coal fired generators for example will increase their share of electricity generation with a corresponding increase in emissions. So I think what you probably need is both the Emissions Reduction Fund and the Renewable Energy Target Scheme to work in tandem to assist Australia to achieve its minimum commitment to producing emissions by 5% by 2020 on current levels.

And Grant just finally what are the next steps?

Well the Government of course has yet to respond to the Committee’s report and we already know that there are different views within Government about what that response should be. Those range from immediate abolition of the renewable energy target, through to a grandfathering option similar to that which the Committee has recommended. Right through to maintaining the 20% target, but maintaining it as a real 20% target, that is reducing the absolute amount to which that target relates. Irrespective of what the Government response is though, to implement the committee’s recommendations it will be necessary to have legislation and of course that legislation needs to be approved by the Senate.

If we look at recent history we can see that that’s not necessarily going to be an easy task and we just need to think back to the fairly protracted negotiations that the Government had to go through with parties such as the Palmer United Party to get the Carbon Tax Repeal Bill passed. So I think the next couple of months will be very interesting to see exactly what the response of the Senate is to whatever the response of the Government is to the Committee’s report.

One thing we can be certain though is that the uncertainty that has dogged the industry to date is likely to continue for a number of months I would have thought.

Yes certainly, well some really interesting points there. And Anna and Grant thanks so much for sharing your insights on the Review.

Pleasure Kate.

Thank you very much.

That was Anna Collyer who heads up the Power and Utilities Sector and Grant Anderson who is the Head of the Climate Change Practice both at Allens. Now listeners if you have any questions for Anna or Grant you can send them through either using the panel on your screen or via email to law@brrmedia.com.

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