06 Sep 2011

Renewables a big winner, but more needed on energy efficiency and carbon capture and storage

by Nick Thomas

The Clean Energy Future Plan (CEF Plan) which the Federal Government announced on 10 July proposes some significant incentives for renewable energy, and the message from most stakeholders about that has been overwhelmingly positive so far. However, there seems to be less detail on energy efficiency initiatives than we thought there would be, and – apart from assistance for closures of emissions-intensive power plants (which is the ultimate carbon abatement solution) – there is little in the CEF Plan for carbon capture and storage (CCS) and other abatement initiatives.

What's in it for renewables?

According to the Clean Energy Council, the renewable energy proposal in the CEF Plan will "turbo charge the clean energy sector". Headlining the proposal are two new major funding initiatives.

The Clean Energy Finance Corporation (CEFC) will invest $10 billion over five years from 2013-14 in the commercialisation and deployment of renewable energy, energy efficiency and low-pollution technologies (including cogeneration). It will also invest in manufacturing businesses which provide inputs for these sectors (eg. wind turbine and solar cell manufacturing), providing potential for a new industry in Australia. Funding will be in the form of loans and loan guarantees on commercial or concessional terms, as well as equity investments, and capital returns on the CEFC's investments will be reinvested.

The CEFC will be independent from government, and will have a Chair and a Board with expertise in banking, investment management and renewable energy and low-pollution technologies. This should promote sound, long-term investment in viable initiatives.

The CEFC concept is similar to that of the UK Green Investment Bank (which commences in April 2012) and the US Department of Energy's clean energy loan guarantee system. However, the CEFC is more sophisticated in its approach and has more funding than its UK and US counterparts.

The CEFC will sit within Treasury or the Department of Finance and Deregulation.

The CEFC proposal has the potential not only to provide a boost to local businesses and initiatives but also to attract considerable foreign investment.

The Australian Renewable Energy Agency (ARENA) will co-ordinate and administer $3.2 billion in existing Government support for R&D, demonstration and commercialisation of renewable energy technologies, through competitive grants. It will bring together a range of renewable energy grant programs such as the Solar flagships program under a single, independent statutory body.

The result should be a more efficient, consistent, streamlined and long-term approach to existing funding programs.

ARENA will have an independent Board with expertise in renewables and the commercialisation of new technologies, as well as business and investment skills.

ARENA's existing funding will be topped up with discretional dividends from the CEFC and possibly a share of future carbon pricing revenue.

ARENA will sit within the Department of Resources, Energy and Tourism.

The independence of the CEFC and ARENA should insulate them to some extent from policy shifts and short-term thinking, and is one of the key benefits of the plan.

The Government will continue its $200 million Clean Technology Innovation Program, which is focused on R&D, proof-of-concept and early stage commercialisation initiatives and operates on a co-contribution basis.

There must also be infrastructure and grid planning support for large-scale renewable generation, especially given the intermittent nature of existing renewable sources and the fact that generation projects are rarely conveniently located. The Government has indicated it will ask the Australian Energy Market Operator to expand its planning scenarios to prepare for more renewable energy, including "consideration of energy market and transmission planning implications of moving towards 100 per cent renewable energy"!

The Government predicts that the CEF Plan will drive $20 billion of investment in large-scale renewable energy by 2020, and predicts that renewables will provide 40% of Australia's generation capacity by 2050. This is a significant step up from the current target of 20% renewables by 2020 under the Renewable Energy Target (RET) scheme. It's important to note here that the proposed Climate Change Authority, whose main task will be to administer the carbon pricing mechanism, will also review the RET every two years, starting in late 2012.

There are many large-scale renewable energy projects around Australia in the planning phase, but a low renewable energy certificate (REC) price under the RET scheme and uncertainty about a carbon price have hampered efforts to raise project capital. In its CEF Plan the Government has left the REC market to operate.

While this is encouraging, there are questions about whether a sudden influx of Government capital might adversely affect the REC price. However, the Government has signalled a potential increase in the RET (which, in turn, could drive the REC price up) and has provided other significant investment opportunities. Clearly, this is a major boost for the industry.

Still early days for energy efficiency

The CEF Plan highlights energy efficiency as a core component of the Plan, but the energy efficiency offering is still a work in progress.

New commitments in the CEF Plan include:

  • $40 million in energy efficiency information grants over four years;
  • expanding the Low Carbon Communities program from $80 million to $330 million to improve the energy efficiency of council and community buildings and low-income households;
  • establishing the Clean Technology Investment Program, which will provide grants to manufacturers totalling $800 million over seven years, to invest in energy-efficient capital equipment and low-pollution technologies, processes and products.

The Government has also promised more work in response to the October 2010 report of the Prime Minister’s Task Group on Energy Efficiency, including:

  • investigation of a national energy saving initiative, or "white certificate" scheme. This scheme would place obligations on energy retailers to help their household and business customers find and implement energy savings. White certificate schemes have been in place in NSW, Victoria and South Australia for several years, and any national scheme would be conditional on the State schemes ending.
  • expansion of the Energy Efficiency Opportunities (EEO) program, which requires large energy users to find and publicly report on opportunities to save energy in their operations.
  • mandatory CO2 standards for new light vehicles sold in Australia, via a national target.

Thankfully, this is not all that's happening in the energy efficiency space.

Australian business is already well advanced in implementing energy efficiency initiatives, recognising the financial benefits of doing so. Voluntary, market-based schemes such as Green Star and NABERS provide significant incentives for energy efficiency and drive innovation, especially as many major commercial building tenants (including the Commonwealth and some State Governments) have set minimum ratings for buildings they occupy.

NSW and Victorian Governments have introduced legislative schemes to encourage energy-efficient retrofits of office buildings.

In addition, the Government imposed mandatory energy-efficiency disclosure requirements on sellers and landlords of large office space last year, and the full effect of those requirements starts this November.

What about CCS?

Currently about 75% of Australia's electricity comes from coal-fired generation, reflecting the historic low cost of coal and the abundant Australian coal reserves which remain. Coal mining generates significant royalty revenue for Government and provides important employment opportunities, especially in regional Australia. So it seems that if Australia is to reduce its carbon footprint, it must consider CCS.

The CEF Plan specifically says that CEFC funding will not cover CCS, and refers instead to existing programs such as the CCS Flagship Program and the Global CCS Institute (which the Government established in 2009). CCS is still in the development phase, but it promises significant emissions reduction benefits if it is applied to large-scale CO2 emitters.

The Greens, who played a major role in developing the CEF Plan, have said that major emitters, rather than the Government, should pay for CCS research. However, this drew robust criticism from supporters of CCS in the week following the release of the CEF Plan, who cited the importance of CCS as a realistic, potentially lower cost, global carbon reduction strategy. The Prime Minister and Energy Minister have since expressed support for CCS and said that funding will come from other streams, but have not yet provided details.


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