The solar wars have raged ever since the Budget in May. At stake has been the Government’s environmental and renewable energy credibility, the future of one of our key off-the-shelf renewable technologies and, maybe more than anything else, the reputation of Environment Minister Peter Garrett.
Garrett, because of his background, entered the first year of government with absurdly high expectations and, in failing to live up to them, is perceived to have been a failure.
Yesterday Garrett, along with Penny Wong and Wayne Swan, announced a new solar program to replace the current means-tested rebate. Wong and Swan were there because it wasn’t just another program, it was part of the Government’s Renewable Energy Target of 20% by 2020.
Media coverage of the announcement has been rather confused because the new scheme is complex. On ABC Breakfast this morning the presenter was talking about how terrible it was that the rebate for solar systems had been slashed while the ticker along the bottom referred to the removal of the means test.
In simple terms, the new scheme replaces a means-tested Government rebate for low and middle-income households with the purchase of solar energy credits by power companies so that they can count toward the Renewable Energy Target. Purchasers of solar systems won’t have to deal directly with power companies, it will be handled at the point of sale. The new scheme is not means-tested or limited to households, but in the early years, it multiplies the value of the power generated to increase the incentive to invest in solar sooner rather than later. It also links the amount of power generated to the purchasable credits, so that solar systems installed in sunnier locations — i.e. up north — generate a higher return.
The Greens and the Opposition have criticised the new approach, as has Greenpeace, which wanted to see a solar feed-in tariff.
But there are significant benefits to the new program. It plugs solar power directly into the Renewable Energy Target, meaning the solar industry has an assured growth trajectory between now and 2020. It also links credits to actual energy production, and isn’t constrained by means tests or for domestic use only. It also takes pressure off the budget by shifting the cost of renewable to where it belongs — power companies.
This is important because, in the light of the Government’s cop-out on ETS targets on Monday, there were real questions about what incentives there were to drive a switch to renewable energy. As it stands, the Renewable Energy Target will be about the biggest mechanism to drive a shift to low-carbon energy production.
It would’ve been far more effective if the Government had designed an ETS that didn’t reward polluters but established clear price signals to shift to renewables, but for the moment the new scheme is all we’ll have.
In announcing the scheme, Garrett took the opportunity to point out that the now-notorious imposition of a means-test for the current program in May had, rather than destroying the solar industry as predicted, caused it to surge. This has been a fascinating policy lesson that will be studied by wonks, academics and public servants for years to come. Perhaps because of publicity from a complaining industry, the Budget changes caused an explosion in applications for solar systems, which went from about 370 a week before the Budget to over a 1000 a week currently.
Far from killing off the solar industry in one blow, as Malcolm Turnbull predicted, it gave it a huge shot in the arm. The program ran through all its allocated money so quickly the Government had to inject more funding to keep it going.
Just to show that Garrett can’t win, though, today he’s been accused of performing a backflip because the new RET-linked scheme has no means test.
There’s one worrying aspect of the program announced yesterday, however. According to the Government’s own commentary on the bill that will introduce the scheme, “the treatment of electricity-intensive, trade-exposed industries under the RET scheme is to be considered separately in the context of decisions around the treatment of emissions-intensive, trade-exposed industries under the Carbon Pollution Reduction Scheme.”
The issue is the higher electricity costs incurred by trade-exposed industries as we move to 20% of energy coming from renewable sources. Penny Wong is to release a paper on this issue “before the end of the year”, which gives her eight working days.
The Australian Conservation Foundation correctly spotted this reference, and has expressed concern that it doesn’t mean more handouts to big polluters.
Judging by the ETS White Paper, that’s exactly what it means. All the likes of the cement and aluminium industries need to do is bleat “renewable leakage” and the Government will, on past form, cave in and give them a massive free kick. Trade-exposed industries will benefit from massive and wholly unwarranted handouts in the ETS. They should get absolutely nothing under the Renewable Energy Target. Don’t bet on Wong’s paper saying that, though.