Alternative Technology Association explains changes to Australia's Renewable Energy Target (RET) policy

Beyond Zero's Scott Bilby speaks to Damian Moyse, energy projects and policy manager at the Alternative Technology Association (ATA), to discuss amendments to the renewable energy target (RET) recently passed by the Australian Parliament. This includes increased support for off-grid renewable energy sytems from July 2010 and also the Small Renewable Energy Scheme (SRES) and the Large Renewable Energy Target (LRET).

Futher reading:

http://www.ata.org.au/

http://www.orer.gov.au/lret-sres-updates/index.html

Beyond Zero speaks to Damian Moyse from the Alternative Technology Association

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Transcript

Scott Bilby: My name is Scott Bilby and today on Beyond Zero we are speaking with Damian Moyse. He's the Energy Projects and Policy Manager at the Alternative Technology Association, and he's going to talk to us about amendments to the Renewable Energy Target that was passed by the Australian Parliament recently. Thanks for joining us on the show today Damian. How're you going?

Damian Moyse: No problems Scott. Glad to be here.

Scott Bilby: Now, a question we normally ask people is, how did you first get interested in renewable energy?

Damian Moyse: I suppose I've had an interest in it for a long time. My background is actually in town planning, and even in town planning you get to work with communities and households, and so forth, that are interested in what they can do to be more sustainable in a whole range of different environmental issues, energy definitely being one. I got involved in projects there at a local community level through local governments and councils and decided that I was quite interested in the area and wanted to go and study it a bit more. I did some studies, particularly in the energy space, and wound up with a great job at the ATA, who really are leaders in that sort of space - trying to work with households and communities in terms of what they can do to reduce emissions and be more sustainable on a whole range of fronts, water and food and transport, and other things.

Scott Bilby: Okay. So you're at the ATA. Now, can you tell us how long you've been there and who the ATA are?

Damian Moyse: Yes. I've been there a couple of years. The ATA have been around since 1980, so they're not a new organization. They started as very much a grassroots organization with very much a technology focus. So, sustainable technology is one of the technologies we can use, particularly in a household or a community context, that are sustainable on an energy or water or transport front. The organization is a member-based organization, so we've got about five and half thousand members now across the country. It’s a national mob. The members are all generally individuals, mums and dads, householders. We do have some corporate and government members as well, but the organization really exists to share information and ideas between the members. We exist in terms of the people that run the branches and work in the head office to really provide independent information. We're not industry. We don't represent the PV industry or the water industry. We represent our members. Our members are consumers, and we're trying to give them independent good information and advice through our magazines and on the telephone, and via our forums, about whether it be cost, or environmental benefit, or other factors of sustainable technology. So, it's really a focus on providing good information to the members.

Scott Bilby: Yeah, good information on renewable energy and all sorts of sustainability things across a very broad range of areas.

Damian Moyse: Yeah, that's right. And the organization is a growing one, so we're very good in some areas, and I think we're quite strong in small-scale renewables and on the water front. Other areas we'd love to expand into, and if the membership keeps growing in the way it's done in the last five to ten years, then we should be able to get more people in to do research and help the members out in other areas.

Scott Bilby: Awesome. That's really good! Now, we want to talk about the Renewable Energy Target. Now, in August 2009, the government implemented the Renewable Energy Targets scheme, designed to deliver 20% of Australia's electricity supply from renewable sources by the year 2020. We'll talk about that and the amendments in a second, but can you tell us, the precursor to that was MRET, wasn't it?

Damian Moyse: Yeah, same mechanism…

Scott Bilby: They just changed the name...

Damian Moyse: Yeah, MRET was Mandatory Renewable Energy Target, but they decided at some point, I think in 2009, that they drop the "M"… [laughs] the "Mandatory".

Scott Bilby: Was that originally out of the State of New South Wales, the MRET, or not? I don't know how that first began.

Damian Moyse: Ah, no. RET, or MRET, was a national mechanism. It was introduced by the Howard government in 1997.

Scott Bilby: Okay.

Damian Moyse: What did start, I think had its origination in NSW, was GreenPower, which still is a national mechanism as well. It's a voluntary mechanism that still trades RECs - certificates through the REC market - but it's voluntary purchases above the mandatory requirements in the RET, but we can get into that in a minute. Yeah, both mechanisms have been around for probably just over a decade now.

Scott Bilby: Okay. And so, on the 26th of February, I've got written here, of this year, the government announced changes to be made to the RET scheme, and these changes were passed by the Senate in late June of this year. So what were the flaws in the Renewable Energy Target that needed to be addressed?

Damian Moyse: Yeah, there were a few, but the problem was…it was great government expanded the RET. Really we were tracking, or still are tracking, at about 5% or so of Australia's electricity coming from renewables. So the RET needed to be expanded, and that was the Labor commitment at the last election, to do that, and that was the 20% by 2020 target, which is great. We'd like it to be more. We think it can be more, but it was a good start. But, the problem is that the way the RET market works is, it has fixed targets, every year. Those targets are actually mandated on electricity retailers. They're forced to buy an increasing share of their electricity purchases from renewables, adding up to 20% by 2020. Now, there's lots of different renewable generators that can generate these Renewable Energy Certificates that can be traded through the market. It can be a large-scale wind farm. It can be a small-scale solar PV system on a household. It can be a solar hot water system. Er…it could be a large-scale solar system like features in the BZE report. All of these generators can create these certificates and trade them through the market, and the retailers will buy those. The market itself, it’s a market measure, so the price of those certificates fluctuate, and then the market itself finds what economists would say would be the optimal price point given the demand and supply in that market. The problem up until February this year, and particularly through the last 6 months or so of last year, was that government was using other support measures, like stimulus money and other measures within the RET itself to provide more incentive for people particularly to buy the small-scale stuff - so, like solar hot water and solar photo-voltaic panels - so last year, in 2009, we had a situation where about 80% of the certificates bought in that year, or 80% of the target for last year, was basically taken up by solar hot water. And government had great stimulus incentives, $1,600, if you went out and bought a solar hot water system, and you could take that $1,600 as well as the money that you got from RECs, and that was a discount off the system price. So that's great if you are looking at solar hot water, and solar hot water is a fantastic energy efficiency technology, but of course, suddenly it's taking up the majority share of the available RECs in the REC market. Solar PV last year was about another 10% on top of that. So you had about 10% left for any other generator, particularly the large-scale renewable generators, such as big wind and biogas plants, which are proven commercial and are operating around Australia, and are wanting to expand. And the government, I think, and most people, would argue they'd like those technologies to expand as well, but of course there was basically an over-supply of RECs. There's only a fixed purchase at the other end by the retailers and so it crashed the price. The price dropped to well below $30. The wind farm companies will say that they need about a $50 REC price to actually start to look at being able to get finance and build projects. So there was little space for them in the market to operate and not a lot of certainty that that situation would improve over the next two, three, five years. So, while yes, solar PV this year has probably changed, and that has been the dominant one particularly in the first six months of this year, and solar hot water has tracked off a little bit, but still up until the changes announced, or actually passed in Parliament back in June of this year, really the small-scale stuff was dominating, and that's great. I mean, ATA members love that because we love the small-scale stuff, but ultimately people recognize that we need big structural changes to our energy system. We need these big, large-scale solar and wind plants to make a difference.

Scott Bilby: Post the amendments at the end of June - it's been June, July, August, - oh it's only about a month and a bit really! So do we have any idea of whether that's changing now?

Damian Moyse: The REC price itself has gone up a little bit, so it's probably worth touching on the way the government has changed the market. So, essentially what they've done is actually split the market into two. So there's a small market and a large market. The large market operates pretty much the same as the RET did before, but it's only large-scale generators that qualify for trading through that market. There's fixed targets, again on retailers to purchase a certain amount, and that'll add up….the large-scale market is about 80% of what the existing RET was anyway, and the small market sits separately to that. It's an uncapped market, so, at least for the moment, as much solar hot water or solar PV or heat pumps or small wind that’s actually purchased by people, and RECs are created from that, that'll be bought by - all of that will be bought by electricity retailers. So the good thing there is that by 2020 they should push the overall percentage target a bit higher than 20%. The modeling demonstrates about 22% at the moment, and lots of groups will be trying to push that up. But so, even in splitting that market, and it's only been, what, sort of two months since the legislation passed, but we've seen a bit of an increase in the REC price, and we've seen more interest from the large-scale developers to talk to banks and talk about finance and so on.  

Scott Bilby: Now you said, what? Has government mandated that…legislated that there's a split, a percentage split, between how many RECs there can be in the large-scale implementations and in the small-scale implementations?

Damian Moyse: Yeah. The way it works is that they've definitely legislated that the large market will still have fixed targets, and those fixed targets are about 80% of what the RET was. So, if we take an example, in 2020, the 45, RET was supposed to deliver 000 Gigawatt-hours for that year, in that year. The large RET market now I think is supposed to deliver 41,000 Gigawatt-hours, with the rest coming from small-scale. But the critical thing with the small-scale market is that it's not going to be capped. The Minister has the power to potentially adjust the price, and so forth, if that market is over-heated and governments don't like the cost of the scheme overall, but at the moment the market is uncapped. So that 4,000 Gigawatt-hours shortfall in 2020…the modeling at the moment shows that the small-scale market will deliver more than that, which is great. As I say, overall, fundamentally, our view - and probably others would share it - we think the renewables industry in Australia can deliver more than that and go well above the 20 or 22%. But look, it’s a good start, and it’s a good framework for the moment, and the industry will kind of respond to that and we'll see it evolve over the next few years.

Scott Bilby: Yeah, okay. So does that mean that the amendments now allow for people, and businesses too, to go beyond the kind of mandated targets in the small-scale section if they want to?

Damian Moyse: That's right. It just means that all the RECs traded through the small-scale market at the moment will have to be purchased by retailers at the end of that financial year or the end of that trading year. Yeah, so if the market delivers more than what the total target was under the old RET, then they'll be bought and the market will achieve a bit more in terms of generation investment in those years.

Scott Bilby: Okay, okay.

Damian Moyse: The other key thing with the small-scale market at the moment is they are looking to fix - or they will fix - the price for Renewable Energy Certificates for small-scale technology. So, the price itself, once we've got out of the doldrums of where it was over the Christmas period and early this year, it's hovering around the $40 mark. The legislation now is going to, er, it specifies that - this all starts on First of January next year - that certificates for the small-scale technologies will be a fixed $40. And the price in the large-scale market, the certificates still fluctuate based on supply and demand.

[Music interlude]

Scott Bilby: We're speaking with Damian Moyse, and he's a Project and Policy Manager…?

Damian Moyse: Yes.

Scott Bilby: …you are, at the Alternative Technology Association, and he's an expert in all things renewable energy technology and Renewable Energy Targets and RECs and….now I just want to ask you a question about other countries, because I know other countries have had considerable success with feed-in tariffs, which is kind of like a very similar sort of system anyway, but are there other people who have mandated renewable energy target schemes that are similar to ours?

Damian Moyse: Yeah, I mean, feed-in tariffs, and what we call quota or certificate systems like the RET, are the two main policy mechanisms that are used globally. Feed-in tariffs are actually used a lot more, internationally. You've got 45-50 countries throughout the world that use feed-in tariffs. There are a few countries that use quota systems like the RET. The UK, being one. They've had a Renewables Obligation Certificate scheme, I think it's called, for about the same time as Australia's had our RET. It's worth just mentioning the key difference. The key difference of the feed-in tariff as opposed to a quota system like the RET, is that the price is fixed. So government, through the legislation, will say that for a specific type of technology, say it might be large-scale wind, that that will attract say a $40 price per Megawatt hour for electricity that they feed into the grid. So it's fixed. The advantage of feed-in tariffs I suppose is, because that price is fixed, and government can aim that price at a level which makes those technologies economic, it means that the developers of those technologies have much more financial certainty, and the investors or the banks that support those technologies have much more certainty that, over 15 or 20 years, they will get a certain amount of price for the "green price", as they call it, plus whatever price they sell through the wholesale market as well. Yeah, the evidence is that generally feed-in tariffs deliver renewable energy more efficiently and a bit cheaper than the quota renewable energy target type systems, and the evidence suggests the main reason for that is because of that price certainty that the feed-in tariffs provide. Yeah, so lots of other countries have done it. Germany, Spain, Denmark are some of the classic examples. Australia has been playing around with feed-in tariffs now for a couple of years. We're only really aiming them at the moment at small-scale technologies, such as solar photo-voltaic and small wind technologies. Our view is that feed-in tariffs are great and we should be looking at other ways of using them, particularly for technology, large-scale technology, that is more expensive than some of the cheapest commercialized technology at the moment, which is basically wind and biogas. For any technology such as large-scale solar, which is more expensive per Megawatt hour than that, it's very hard for that to trade in the Renewable Energy Target market because they're still trading at a price which is determined by that market. Those technologies at the moment are more expensive, and a feed-in tariff could be very useful for them too, to be able to obtain finance and actually build and operate projects.

Scott Bilby: So yeah, so big solar needs a set price for a considerable period of time so that bankers, more conservative bankers, can say, well, we can make our money out of this and…

Damian Moyse: Yeah.

Scott Bilby: You’ve got to get over that hump of the initial massive kind of capital costs. Well, not massive compared to an existing coal plant or something, but, compared to the life of a solar plant, because after that your power is being provided for free anyway.

Damian Moyse: Yeah. Yeah that's right, and very much over that - you know it’s the time frame too - so governments can say 15 or 20 years, that price is going to be fixed. And so you've got long-term certainty there in terms of the financing for a project.  

Scott Bilby: Yes, okay. Cool. Excellent. Now, in those countries, some of the ones you named, like Denmark and Spain and Germany, and even a place like Ireland and stuff like that, I think that the feed-in tariff actually…

Damian Moyse: I don't think they have a feed-in tariff in Ireland, do they?

Scott Bilby: I'm not sure.

Damian Moyse: I'm not sure about Ireland. I know Scotland, they do. They have lots of different ones that apply to small-medium-scale, which are actually going quite well there at the moment. Yeah, the US, there are many, many countries around that use them, and some of them are using them like Australia in terms of just targeting them at small-scale stuff, but there's many countries that drive all of their renewables just through a feed-in tariff system, and they apply different rates to different technology types.

Scott Bilby: Yeah. I guess the point I was trying to make before I threw Ireland in there - I wasn't sure whether they have a feed-in tariff or not - was that where they have the feed-in tariffs, it really is a big…you see large, considerable penetration of renewable energy in those countries. Anyway, I was also going to talk about - getting back to Australia now - has there been any kind of news from some of the big kind of…from AGL or someone, some of the big electricity and gas guys, saying well basically, now the amendments have come in, wind farm X is now viable and it looks like it is going to go ahead? Has there been any sort of news like that?

Damian Moyse: Yeah. There's actually an article I was reading in the paper yesterday. Macarthur wind farm, which is one that I think has been on the books for a while, is now…

Scott Bilby: It’s a pretty big one, isn't it, I think?

Damian Moyse: Yeah, it's I think in the range of almost about 200 turbines, and they're looking to now move forward with that project. I think there's a number of projects, particularly in Victoria, that have had planning approval for quite some time, but just haven't had the certainty there through the RET market, but they can actually obtain the finance to build. And now there's already been a few, you know, murmurings through the paper, and so forth, that companies are now looking strongly…and talking to banks and so forth, and looking at how to either expand existing projects or build new ones. There's other issues as well. Obviously the RET is not the only issue. There's issues with, obviously, transmission connection and constraints in the lines in various spots. Some of the best resources for wind in this country are in South Australia, yet they have real transmission constraints. So, there are other issues there and hurdles to get across, but I think at least the changes in the RET now will open up some opportunities that have been sort of waiting in the wings for the last five or six years, yeah.

Scott Bilby: I heard the transmission, the grid in South Australia, is privatized. Is that correct?

Damian Moyse: Um, I…

Scott Bilby: Because if that is the case, it could put a bit of a dampener on trying to push these large-scale projects through.

Damian Moyse: Yeah. I'm not sure about the ownership structure. I do know that the hurdles for transmission and grid connection, particularly for wind farms in South Australia, are a bit steeper than the other states, and that's mainly to do with the quality of the infrastructure in South Australia being a little bit…older assets and lines that potentially can't carry the capacity of electricity once they're connecting more generators in those regions. Or, just the fact that the transmission infrastructure doesn't extend to the best spots where there's a good wind resource.

Scott Bilby: Yeah, sure.

Damian Moyse: So there are hurdles there. We know lots of companies that are looking at good potential projects throughout that region, but there are constraints there in terms of the transmission infrastructure, yeah.

Scott Bilby: Now, okay. Now here's some interesting things I'd like to kind of run by you. Some of the trade-exposed industries and stuff like that - have they been given a free ride in any of this stuff, or what sort of benefits have they been given?

Damian Moyse: Yeah, the trade-exposed industries basically got the same, and they pushed for more, but [laughs] my understanding is that they ended up at the same level of exemption, because the Renewable Energy Target as a policy mechanism costs all electricity consumers. We all pay for it through our electricity bills, whether we're a household or a business. So, for example, the modeling shows that the RET puts an average household bill up by about $39 a year. Now, for a large business that is energy intensive, it's going to be a lot more than that, obviously. And if they are trade-exposed, they're competing with similar companies internationally that are not exposed to that additional price, then ... they've basically designed the policy about the same way as they designed the Carbon Pollution Reduction Scheme in order to exempt…I think it's two levels of exemptions…about a 60% and about a 90% exemption, depending on how trade-exposed you are and how energy intensive you are in your manufacturing or your operating plant. So, I know that some of the businesses pushed for more than that, so basically to be fully cut out of contributing anything or paying anything to the RET, and that was resisted in the last round of legislative amendment through the Lower House and the Senate in Canberra. And I think where it sits at the moment, it's about the same as what the CPRS offers in terms of exempting those trade-exposed industries.

Scott Bilby: Okay. And what about things like coal-seam gas and coal-seam methane, and stuff like that? You know, those sort of things that are released in the process of mining for coal… Do they get, er…?

Damian Moyse: Yeah, some of those…a small amount of those existing waste coalmine gas generators…my understanding is that they became economic because they were supported by the New South Wales GGAS system, which is another sort of support mechanism for renewable energy. With the CPRS supposed to have been coming in, that State New South Wales scheme was going to close, and these generators were going to become uneconomic. And so what happened, actually back in the August 2009 changes to the RET, was that they allowed eligibility basically for these generators. There's only I think a couple of hundred Megawatts worth of generators around. I think it's mainly in New South Wales and Queensland. They allowed them to basically be eligible under the RET market and achieve additional support there so that they could continue to operate. Now, there's differing views on that. The key thing is that their eligibility didn't actually take away from or reduce the amount of renewables that was already agreed to in terms of the targets. So, the 20% by 2020 is not impacted by that. The support that these guys, the waste coalmine gas generators, get is above that, so it doesn't detract from the investment that's guaranteed, at least under the 20% target. Whether or not, in the long term, we want to support these generators, or whether or not we want the coalmines in the first place, is a whole other argument there, and obviously people have got their views on that.

Scott Bilby: Okay, and with only a minute or so to go, can you tell us where you think we are going to be with the RET. Are there any indications of how successful it might be, and…it's probably a bit unfair because it's such early days since the amendments…but, where to from here, basically?

Damian Moyse: Yeah, I think the framework is right for it now in the sense that it splits the large- and small-scale market. The one good thing about the RET is that it does allow government to control the end point. So, the fact that it mandates purchases on electricity retailers means that those targets will be met. It's a fixed mechanism. They have to buy that amount of renewables every year. And if the target's 20% or 22%, or 30% or 40% if we get it increased over the next few years, then the mechanism ensures that that target will be met. So that's a good thing. I think that there's a whole lot of other opportunities for Australia to look at, particularly with large-scale renewables, for technologies that are more expensive than wind and biogas, and we're going to need to look at feed-in tariffs to do that. And even medium-scale community type projects as well. So, there's lots of other opportunities that the RET, on its own, won't be able to tap into, but I think as a mechanism driving wind and biogas and a few other large- and small-scale technologies, it's proven to be a successful mechanism, and will still continue to operate and do a good job I think over the next ten years. And hopefully by then we'll have a carbon price, and that will, of itself, make renewables much, much more competitive with its coal and gas counterparts.  

Scott Bilby: Yes, I think that's what we're all very much looking forward to, and the sooner the better, I must say!

Damian Moyse: [laughs] Yeah…absolutely!

Scott Bilby: Well thanks Damian, and thanks for telling us all about the Renewable Energy Target.

Damian Moyse: Not a problem.

Scott Bilby: Cheers Mate!