At a recent discussion in Sydney about the prospect of nuclear energy in this country, Resources and Energy Minister Martin Ferguson reflected that Australia may have no choice but to go nuclear if it was unable to find a clean energy alternative.

It was a valid point. The trouble was that few in the renewable energy industry were confident that Ferguson would want to invest enough money, and early enough, to give them the best chance of developing new technologies and getting the scale of deployment needed to reduce costs.

That need to unblock investment in emerging technologies seems to be the underlying reason behind the push by the Greens and environmental groups for two new statutory bodies, the Australian Renewable Energy Agency, and the Clean Energy Finance Corporation.

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Both bodies will be independent and will sit beyond ministerial interference. Furthermore, the Australian Energy Market Operator has been commissioned to plan for the time when the Australian grid operates with 100% renewable energy.

The government has announced that Arena will assume $3.2 billion of funding that had already been allocated to about nine separate programs to be spent over nine years.

However, another new statutory body, the Clean Energy Finance Corporation, will be created with $10 billion of funding to be spent over a period of five years from 2013-14, which will be allocated through commercial loans, concessional loans, loan guarantees and equity.

Half of the funds will be reserved for a renewable energy “stream”, while the other half will be allocated to a “general clean energy” stream, but may also invest in renewables.  Officials say the first stream is designed to support emerging technologies such as solar and geothermal, as well as battery storage, although not necessarily as an extra boost to wind farms.

The other stream is supposedly not earmarked for gas-fired generators, but might include “hybrid” plants that combine solar and gas, or solar and coal, as two new projects at Kogan Creek in Queensland are designed to do. Carbon capture and storage is not included, and will continue to be managed by schemes under the auspices of Ferguson’s Department of Energy.

The CEFC will have an independent board, comprised of experts in banking, investment management and clean energy and low-emission technologies. A chair will be appointed by the Prime Minister to report back by 2012 on a proposed investment mandate, a policy on investment in foreign listed companies and how to frame risk management policies.

The funding in renewables, however, is nearly matched by compensation to coal-fired generators, which were to received $7.3 billion over 10 years under the CPRS, but will now receive $5.5 billion in cash and permits over six years, as well as loan guarantees, and the option of closing down capacity under a government-sponsored buy-back program.

The $5.5 billion in funding in cash and permits will be focused towards brown coal generators, meaning that back coal generators will miss out, which in most cases won’t matter because they were mostly owned by state governments. So this decision removes a perverse situation in the CPRS where the federal government was providing compensation to state governments. The government is handing $1 billion of this compensation over to those generators in 2011-12, ahead of the carbon price regime, as an upfront payment.

However, this figure does not include an unspecified amount of loan guarantees that will be made available to generators to help them buy permits if they are unable to source finance from elsewhere.

The government also says it has “provided scope” under the Energy Security Act to buy out 2000MW of capacity from coal fired generators by 2020. Note the language, it is not a commitment to buy out that much capacity.

This offer will be limited to the dirtiest generators of emissions of more than 1.2 tonnes of C02-e — which means that it will only be open to Hazelwood (1600MW), Yallourn (1480MW), Morwell (195MW)  and the Playford B plant in South Australia (240MW).  It won’t include Loy Yang B.

These so called “contracts for closure” were criticised by Professor Ross Garnaut as inefficient and unnecessary. He thought only loan guarantees would be required. However, a buyback of capacity will provide an extra signal for investment in gas-fired generation, but there appears to be no clear date for this to occur. Climate Change Minister Greg Combet said it “might be four or five years or more before any capacity is closed”.

*This first appeared on Climater Spectator.

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Peter Fray
Peter Fray
Editor-in-chief
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