Ron Boswell (Queensland, National Party) Share this | Hansard source

The government’s renewable energy target is not 20 per cent. It may not even be 25 per cent. It could be more. Nobody knows how far past 20 per cent it will go. What we do know is that it is designed to exceed 20 per cent by an uncapped amount and is certainly expected by the government to exceed 20 per cent. How do we know that? Minister Wong has said as much at the Clean Energy Council national conference in Adelaide last week. She said that the government’s latest changes to the RET ‘are actually expected to deliver more renewable energy than the original 20 per cent target’. This parliament has previously supported a 20 per cent target, and I voted for it. It has not supported a 20 per cent-plus target. I will come back to the magic pudding—RET. But there is another unknown that needs to be on the table—that is, the price of power. How much will the second Rudd RET in a year drive up the price? We do not know. There are wildly different estimates. What we do know is that the scheme is deliberately designed to drive prices up, in the same way it is designed to exceed 20 per cent.

Both issues need very close examination. I will deal with the size of the RET first. The necessary background is that in June last year the government legislated for 45,000 gigawatt hours of power to be sourced from the renewables by 2020. There were two other big variations to the Howard ERA MRET, which the first Labor RET replaced. The first was an increase in the penalty that so-called liable entities—the big wholesale consumers and retailers of electricity—who will have to meet the target will have to pay if they fail to meet their annual obligations under the scheme. That rose from $40 to $65 per megawatt hour per REC, which was a bid to carve room for a profit margin for the big end of town renewable producers who need a REC price of around $50—I would say it is slightly more—to make a profit and attract investors.

The second major change from the MRET was totally contradictory of that bid to provide an opportunity for wind, and that was the provision of extremely attractive subsidies to the rooftop solar power generators, rooftop solar hot water systems and, to a lesser extent, rooftop heat pumps that were already flooding the renewable energy certificate market. This part of the RET, boosting the small-scale operations, had an immediate effect from the middle of last year. The government well knew, even when it legislated it last year, that the federal and state subsidies were creating a flood of RECs from the rooftops. They had doubled between 2007 and 2008 and were growing rapidly in 2009. But the government went ahead anyway with a policy designed to increase that flood and thus to defeat what was supposed to be the principal purpose of encouraging wind.

That is exactly how it played out. Within weeks of the full implementation of the scheme in January, with the commencement of the need for liable entities to start accounting for their RECs, the policy was turned on its head. It was turned on its head in mid-February because the flood of the rooftop RECs had predictably totally collapsed the price. RECs fell late last year as the new policy bit from about $47 to barely $20. In 2009, almost half the RECs created, about 4½ million, were from subsidised rooftop domestic solar hot water systems. Another 16 per cent were from rooftop solar generators. Wind created 25 per cent of REC power.

Wind could not compete with solar hot water. Co-generation in the sugar mills could not compete—and I warned them not to touch it. The price of RECs was so low it killed investment and the return from these projects was not enough. So Rudd’s first RET was a dud—it had it written all over it before it even started. The failure was built in. The first Rudd RET thus has the hallmarks of the insulation debacle, the building the education revolution debacle, the NBN debacle and the boat people debacle—badly thought through policy, badly administered, with poor oversight and lots of high-minded spin.

In its place we now have a two-headed RET scheme. We have the LRET—the large-scale renewable energy target—which will be 41,000 gigawatt hours. That target will have to be met by liable entities exclusively from the big end renewable projects, which means basically from wind. We also have the SRES, the small-scale renewable energy scheme, which is mainly rooftop generating and water heating. The SRES is nominally, but only nominally, 4,000 gigawatt hours. In fact, it is uncapped, and that is the big trigger for a plus 20 per cent RET. Liable entities will have to buy every single SREC produced, even though they will not be able to use them against their target.

That small-scale sector continues to boom. Big subsidies from the federal and state governments remain in place. People who put in rooftop solar generators still get upfront five times the number of RECs that their system will generate over 15 years. At a locked-in price of around $40 per REC in the SRES—small renewable energy certificates—that is an average of $6,000 plus subsidy on the installation cost. Householders then on-sell all or some of the power they generate. That is done through state power tariffs typically set at around three times the price of grid power.

Solar hot water systems and heat pumps will also continue to be popular. Their upfront government subsidies have just been downgraded from $1,600 and $1,000 respectively to $1,000 and $600. They also still receive their phantom RECs upfront. I must make the point that it is not these subsidies that are generated that are paid for by the government. They are paid for by spreading the cost to other electricity users. In this area the SRES will provide the momentum for what The Minister for Climate Change, Energy Efficiency and Water, Senator Wong, has described as the ‘original’ 20 per cent target being exceeded. As more people put these things on their roof, the higher the price of power will go and the more people will put these things on their roof to cash in.

Let us consider the price issue. What is going to be the impact? The minister says it will be a mere $4 per household. Industry estimates are vastly different. Origin Energy, for example, suggests the RET will be a major factor—not the only factor but a major factor—in the 200 per cent to 300 per cent increases in power prices by 2020. ERM Power estimates prices will go up, again strongly influenced by the RET but not altogether by the RET, by about 170 per cent.

The aluminium industry says in its submission on the new RET that prices will rise by almost as much as if the CPRS and the RET were in play. That will in part be driven by the fact that big-end RECs are now in a sellers’ market and are likely to hit $90. That is the real floor under the price, given that the $65 penalty for noncompliance is not deductible. Therefore, there is a $90-plus cost to liable entities.

Minister Wong’s own departmental secretary, Dr Martin Parkinson, has said that rooftop abatement is vastly expensive, at $200 billion to put a solar power system on every roof. So we have vastly different assessments of the price impact of renewables. As with the overall size of the 20-plus per cent RET, the only thing we really know about its price impact is that we do not know what it will be, other than that there will clearly be upward pressure, and of course we have to know what the price impact will be. If we see prices double over the next 10 years, then it will not just be the aluminium and concrete industries that will disappear offshore; we will see food processors, abattoirs and fish processors disappear. Very few Australian industries or manufacturing processors could withstand a doubling of electricity prices.

The first thing we need to see is the minister’s modelling. We need to know what it includes and what it does not include. For example, does it include the fact that wind power is so intermittent that much of it has to be backed up by conventional power? I will bet it does not. How many people realise that we are going to have to build thousands of megawatts of conventional capacity to make up for the fact that wind has a capacity factor of 0.3? That rating means wind is going to be useful less than one-third of the time. That means we are going to have to build thousands of megawatts of back-up capacity, at a cost of billions, with that huge investment then sitting idle for much of the time, ready to come into operation every time the wind drops or blows too hard, which is about 70 per cent of the time. Does the minister’s modelling take into account that often remote, relatively small wind farms will have to be connected to the grid and that that is going to be immensely expensive?

These are the realities by which renewables, providing a fraction of power consumed, can have a massive end cost, way out of proportion to their scale and economic value. So I ask the minister to come clean. We are not going to give you a blank cheque. Just how big is this RET going to be, over and above the ‘original’ 20 per cent? And how much is it really going to cost Australian families and businesses?