In the past 12 months, the change in political landscape around carbon has been as dramatic as the very effects the country is already experiencing as a result of climate change.
The Senate has been flooded with politicians that do not prioritise climate change, setting fire to the carbon price mechanism, Energy Efficiency Opportunities and Information Grants programs and the Million Solar Roofs commitment, among others. There is an extreme warning notice for the Clean Energy Finance Corporation, Australian Renewable Energy Agency and the Renewable Energy Target. This is all expected to leave the industry in drought.
At an industry level, the primary consequence leaves the renewable energy industry struggling with policy uncertainty over the future of the RET. Self-professed climate sceptic Dick Warburton has been charged by the government with carrying out another review of the RET. Since then, a number of modelling exercises have concluded that leaving the RET at its current levels will lead to a substantial reduction in wholesale electricity market prices.
Despite this, the options under active consideration still include unwinding or severely curtailing the whole program. The impact on the industry has been significant: investment in large-scale renewables all but dried up in the first half of 2014, falling to just $40 million compared to $2.7 billion in the whole of 2013. On 25 June, an unlikely saviour appeared in the form of Clive Palmer who, flanked by an uncomfortable looking Al Gore, announced that he would not support any changes to the scheme in this term of office as no such proposals had been taken by the government to the election. The one certainty in this turbulent time is that other twists and turns will unfold, and threatens to cripple the renewable industry.
Getting more practical and looking more broadly at businesses in general, there are some significant implications for those interested in taking positive steps to reduce carbon footprints and support renewable energy. The RET is perhaps the most influential. The RET is a scheme designed to ensure that by 2020, 20 per cent of Australia’s electricity comes from renewable sources. Abolishing the RET threatens the affordability of installing solar on site, renewable energy in the electricity grid and the GreenPower program. In turn, it evaporates the opportunities companies have available to them to meet their carbon reduction goals and progress towards carbon neutrality.
Solar affordability
One major component of the RET is Small-scale Technology Certificates, which are tradable certificates you can claim on small-scale (under 100 kilowatt) solar installations. These STCs are sold to energy retailers, which use them to meet their obligations under the RET. In effect, it acts as a discount to your solar installation. As an example of the size of this discount, Climate Friendly recently quoted a solar installation for 20kW, which included an STC rebate of about $15,000. Without the RET, these discounts are taken away.
Organisations are increasingly turning to solar generation as a strategy towards going carbon neutral. The disappearance of STC rebates is a material consideration for a business case proposal, but is not a deal-breaker. The benefits of solar PV and hot water installations are compelling with or without the RET, especially with the prevalence of commercial leasing and no-upfront-cost options that good energy efficiency and solar companies can now package into their offers. But how can you not be disappointed in losing a discount to your solar install from a program that cost the government next to nothing?
Renewable energy generation and GreenPower
Another component of the RET is the Large-scale Generation Certificate, which is a similar tradable certificate – only this one is sold by large-scale (over 100kW) solar installations and energy generators to retailers as a fundamental mechanism that makes the national energy market work. Renewable energy LGCs are distinguished from other LGCs as “green LGCs” if you will. This is where GreenPower comes from.
Throughout 2014, the price of these certificates has basically mirrored the levels of uncertainty around the RET. Prices crashed to their lowest levels since 2007 when the RET review was announced on 17 February. Uncertainty grew through the Coalition’s bushfire budget right until 24 June, the eve of the Palmer-Gore press conference, where the price fell even further. During this period a number of clever, market savvy GreenPower buyers jumped at the opportunity to get GreenPower at a sizeable discount. Within a week of the 25 June Palmer-Gore presser, the price rose 50 per cent! Since then, the Palmer United Party has adjusted its position on specific climate change legislation leaving some experts cynical. Who knows if PUP adjusts its thinking on the RET? The RET is still under review, so GreenPower buyers should still brace themselves for high price volatility.
The implication of this for business going carbon neutral is that GreenPower’s price uncertainty makes it a more risky tool to reduce carbon emissions from electricity consumption. Should businesses take a punt on the RET being scrapped, to capitalise on a cheaper GreenPower price? One of our suppliers alerted us soon after the announcement it expects pricing to rise at least another 10-15 per cent. Should businesses lock in a price now to save future higher costs?
As a company that has supplied GreenPower to individuals and organisations since 2005 – Australia’s first GreenPower supplier that is not an energy retailer – Climate Friendly has experienced many of the fluctuations associated with GreenPower markets. What is happening now is unprecedented, and our experts cannot even predict with confidence what will happen. It is why at the moment we are recommending clients strongly consider other options for renewable energy, such as GoldPower, carbon offsets and solar installations.
It’s up to the private sector
In the absence of government action and uncertainty of the RET, the private sector is and has been stepping up to demonstrate that environmental sustainability and climate action is important.
The business case for solar is compelling regardless of the support of STC’s. The renewable energy sector can be supported regardless of the RET by continuing to support GreenPower, GoldPower and voluntary carbon offsets from renewable energy projects.
Beyond the RET, LED lighting upgrade projects generate irresistible financial appraisal metrics. The best performing carbon market, the voluntary market, continues to offer businesses the opportunity to invest in projects that deliver real, tangible, measurable, sustainable development benefits that go far beyond just reducing emissions, such as social entrepreneurship, education and health, water treatment and purification, and biodiversity. Finally, there is the growing movement of staff and customer engagement programs, which seek to drive change in individual behaviour to reduce carbon emissions. In other words, actions to reduce costs, mitigate risks, engage staff and customers, improve products, strengthen brand and boost reputation.
The “Millennium drought” – Australia’s worst drought since colonisation and perhaps ever – officially came to an end in 2012. Similarly, the drought of policies and programs to support the threats of climate change on our lands, industries and lifestyles, will too come to an end. It will have to. Not just because of the threats of climate impact, but because the stronger the sustainability movement in the private sector gets, the sooner our government will follow.
Darren Willman is business development manager at Climate Friendly.
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