01/03/2016

Australia Risks Missing Clean Power Goals, With Households To Pick Up The Bill

Fairfax - Tom Arup

Households will ultimately have to pay if interim renewable energy targets are missed. Photo: Getty Images

Australia risks not hitting its 2020 renewable energy target with analysts now forecasting that interim goals will be missed – a situation that will trigger penalties that households will have to pay.
Many in the energy industry agree that this year will be "make or break" for achieving the end-of-decade target, which aims to deliver about 23 per cent of Australia's electricity from clean technologies such as wind and solar.
"This year is critical" said Kane Thornton, who heads the Clean Energy Council.
"We are expecting all the major players will start taking action, meaning projects can move quickly, will reach financial close and construction will get under way."
"But if that hasn't happened by the end of the year then clearly there will be a problem."
While it appears a two-year investment freeze on new large-scale renewables in Australia is thawing, analysts say it is unlikely enough commitments will come through this year to meet annual interim renewable energy goals between now and 2020.
If an annual shortfall occurs major energy players are required to pay penalties to the federal government, with the costs being passed on to consumers.
Advisory firm Green Energy Markets calculates falling short of the target would cost the average household $5 in Victoria and $8 in NSW on their quarterly power bill. That is on top of the otherwise expected costs of meeting the renewable energy goal.
Analysts and traders in clean energy certificates, which underpin the target scheme and provide a financial boost for renewables projects, are forecasting that situation will arise in 2018, and even as early as next year.
Green Energy Markets says commitments for 4400 megawatts worth of large-scale renewable energy projects is needed this year to avoid penalties in 2018. They forecast government-backed projects will deliver 1100 megawatts, with an additional amount expected from other sources.
Elsewhere analysts at Bloomberg New Energy Finance calculate that 3500 megawatts in commitments are needed this year to avoid future annual shortfalls. They forecast up to 2000 megawatts worth will be made.
Mr Thornton said renewable energy developers had well over the 6,000 megawatts of projects ready to be deployed.
"In order for us to meet the [2020] target something has to change, " said Marco Stella, a senior broker at another firm, TFS Green Australia.
"Either people have to start committing to projects or financiers and project proponents need to be prepared to take on more risk."
"It is an enormous amount of generation that still has to be built. And because we have been doing nothing for years the requirements are getting larger and larger."
Matthew Warren, chief executive of the Australian Energy Council, which represents coal and gas power plant owners and retailers, said multiple uncertainties still hung over renewable energy investments, including commercial, government, demand and technology issues.
"Basically this is a financing problem. There is still insufficient certainty around the nature of those investments," Mr Warren said.
"But that can evolve a lot in 12 months. It will just depend on whether we can find ways for that risk to be managed and what do we do if we can't."
Some continue to blame the sluggish investment on the uncertainty created by then Prime Minister Tony Abbott's ferocious push across 2014 and 2015 to cut the renewable energy target. Last year the government and Labor struck a deal to lower the target.
In recent times there have been some positive signs of movement.. This month energy giant AGL launched an investment fund aimed at delivering 1000 megawatts worth of renewable energy, while Origin Energy head Grant King was quoted saying his company was preparing to back new projects.
Kobad Bhavnagri ​, head of Australia for Bloomberg New Energy Finance, said these were signs of intent from the big energy players. He added hitting the penalty in one year – while not the best outcome for consumers – did not mean the target was not working, and pointed out the scheme included retrospective make good provisions.
"In the short-term the capacity and investments may be short of what is required to meet the annual targets, but if progress is being made to the larger target then the scheme is succeeding," Mr Bhavnagri said.
"If it is not met in 2020, but we are getting close and it is met in 2021 and 2022, the target has still worked."
Environment Minister Greg Hunt said that 2020 renewable energy target was fixed and had the rock solid support of the government.
He pointed to the recent AGL announcement as an indication the market was responding to the revised target and the "certainty created".
"We expect significant further announcements in the coming six months," Mr Hunt said.

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