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Australia’s Renewable Energy Market is a Pig’s Breakfast

March 1, 2012

To the uninitiated, working in Australia in the renewable energy sector looks like fun right now – it’s like being a kid in a candy store.  Or, more accurately, it’s like being a kid locked outside a candy store looking in.  In fact, recent developments highlight in black-and-white that the Australian renewable energy market is toast.

There is so much promised.

There’s the tempting, sugary taste of the energy commercialisation funding body, ARENA, which we’re all looking forward to getting our little mits on.

There’s the delectable energy efficiency industrial funding, and the large-scale solar flagships program.

Then we have the ‘old’ programs such as ACRE, which are apparently still operational.

There’s the Renewable Energy Target, which is designed to promote the deployment of renewable energy so that it accounts for 20% of Australia’s energy generation mix by 2020.

Last, but not least, the delicious $10 billion Clean Energy Finance Corporation.

Submissions to the CEFC closed last December, since when the Expert Panel have been shut up in a dark hole reading the sage opinions of all men and their dogs (or shredding them).

The best comment that we’ve heard about the CEFC is at an industry meeting last week at which an industry sage was asked whether he thought the CEFC could fix some of the problems faced by the renewable energy industry, to which he replied that the CEFC seemed like “a solution looking for a problem”.

When the shop opens later this year, it really could mean that goodies will be splashing around to anyone with a plan.

Well – there is a problem – and a very, very big problem it is.  We’ve discussed various aspects before at this blog – see here, and here, for example.

Official policy preference at State and Commonwealth levels is for funding to target technologies for which Australia has a competitive advantage.  There are two aspects of interest raised by this policy: first, an assumed knowledge of which technologies Australia has an advantage in and, second, the ramification that part of this competitive advantage is implied by a signficant domestic deployment potential.

The problem with funding that targets domestic deployment potential, is that the deployment may not happen.

It’s a fact that Australia’s Renewable Energy Target is facing a renewable energy certificate supply glut.  The Solar Flagships program debacle underscores the structural issues at root:  Power Purchase Agreements (offtake contracts) not being signed.

The energy market is dominated by three large companies, which are not signing up to any new Power Purchase Agreements with project developers.  This credit oversupply is likely to persist for a few more years.

Government policy interventions abound, which have distorted the market beyond repair.  Policy and regulatory risk is extreme.  No-one knows whether the renewable energy market will even exist after the next election.  Australian party politics is a public joke.

There is a practical implication of this deployment market distortion for the direct funding aspects of the Government’s Clean Energy Future package of legislation.  Mechanisms targeting technologies with short-term horizons to market may not result in project deployment.

The actual window for renewable energy project deployment pre-2020 will be short (assuming REC liable parties don’t just pay the non-compliance penalty), and the opportunity for project development thereafter uncertain.

In short: billions of tax-payer dollars are being proposed to be spent on renewable energy companies and technologies, but projects are not being built, investment is not and will not be made.  The Renewable Energy Target needs urgent focus.

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