The Implications of Axing RET 2

Tuesday, August 26th, 2014
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The potential demise of the Renewable Energy Tax (RET) is already taking its toll on Australia’s clean energy sector, with major projects annulled due to developers’ concerns about their economic viability in the absence of government-backed incentives.

Following years of preparatory work, Silex Systems has withdrawn plans to build what would have been Australia’s biggest solar power plant, with CEO Michael Goldsworthy citing the possible cancellation of RET as one of two key reasons behind the company’s decision.

“Low wholesale electricity prices and the uncertainty surrounding the Renewable Energy Target – they’re the two main factors,” he said.

According to Goldsworthy, RET serves to safeguard profitable prices for renewable energy, and the shadows cast over its fate makes big projects like the Silex Mildura power station much too risky to pursue.

The project would have marked a major milestone for Australian solar energy, supplying 100 megawatts of power to around 40,000 homes.

Wind power suppliers have also felt heavy trepidation about projects in Australia as a result of doubts surrounding RET. Pacific Hydro has put five wind farms in south-western Victoria on hold as result of the federal government’s review, alongside geothermal, hydro and solar projects around the country.

A total of $15 billion in large scale renewable energy projects are reported to be on hold as a result of jitters over RET, with next to no new financing committed during the past 18 months.

With Australia’s clean power sector already so heavily shaken by uncertainty surrounding the future of RET, what will the implications be for the country’s broader energy sector should the Abbott government succeed in reducing it, or bringing about its total demise?

According to a recent study commissioned by environmental groups, a reduction in RET would come as a huge boon for coal and gas suppliers, who could look forward to an additional $10 billion in profits over the next decade and a half.

Modelling by the Jacobs Group for the Climate Institute, the Australian Conservation Foundation and WWF-Australia found that reducing RET’s goal to 20 per cent renewable energy by 2020 as advocated by EnergyAustralia and Origin Energy would provide huge economic benefits to these conventional power providers.

Energy Australia would obtain $1.9 billion in extra profit during the 2015 to 2030 period in current-dollar terms, while Origin would garner an additional $1.5 billion. AGL would see gains increase to $2.7 billion should it be successful in its efforts to acquire the portfolio of plants held by NSW government-owned Macquarie generation.

Jacobs imputes the profit gains to the removal of price competition from the addition of solar and wind energy sources, which enjoy marginal costs approaching zero. This source of benefit would obviously would come at the expense of consumers, who would see cause wholesale prices rise by 15 per cent on average and retail prices increase 2.5 per cent by 2030.

While the big three power companies would reap huge gains from a watered down RET, Australia’s burgeoning yet still fledgling renewable energy sector would suffer from heavy adverse effects. Jacobs’ modelling also found that Australia would see a decline in new renewable energy investment of $8 billion in current dollar terms by 2040.

The Australian Solar Council said the country’s solar energy sector would be “gutted” by any reduction in RET, while a cancellation of the measure completely would have even more disastrous effects.

According to Australian Solar Council CEO John Grimes, the total removal of RET would halve demand for solar power almost immediately.

“If the government goes ahead with its plans to axe the RET, demand for solar will fall 40 – 50 per cent straight away,” he said. “Thousands of Australians will lose their jobs. Hundreds, if not thousands, of small businesses will shut up shop.”

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  1. Laurence Hutchinson

    I an trying to think of an energy company that would not feel the pinch if its competitors were subsidised.Tax revenues are bound to be used to subsidise other renewable enterprises. The government obviously would like to keep as much of these revenues as possible, who it has lined up to give them to is another question.

  2. Paul Brandon

    The renewable energy target will probably go.

    It seems Tony Abbott is hell-bent on not doing anything real about global warming, protecting his mates in the coal industry and not doing anything that could offend his mates at News Corporation – especially if it means actually supporting a growth industry.