Why Turnbull’s COP21 Paris talks won’t save renewable sector
When the prime minister jetted back into Canberra early Wednesday and updated his party room on the global climate talks in Paris, his language was typically Turnbull.
“We don’t doubt the implications of climate change,” Malcolm Turnbull was quoted as saying to a meeting of Coalition MPs. “But equally we don’t doubt the ingenuity of mankind to deal with it.”
Of course, some in his party room do doubt the implications and are not keen on him showing too much ingenuity in dealing with them.
The strictures this imposes on him were clear this week, as Turnbull offered gestures in Paris that were heavy on symbolism but also tried to avoid antagonising internal Coalition critics.
But back in Australia, at what one might term the “coalface” of green energy development, there’s an intriguing story unfolding.
Six months after a bipartisan deal was finalised to salvage and cement the renewable energy target, investment should be bouncing back. Instead, the recovery has been slow. The political contortions, it seems, are not the only factor stymieing it.
An investment strike from major energy retailers, which are baulking at signing long-term power purchasing agreements, is now holding back new projects that will need to be operational within years in order to meet the revised renewable energy target.
In Paris, Turnbull was walking a tightrope on climate policy. He promised with some fanfare to ratify the second commitment period of the Kyoto Protocol, which runs to 2020, as world leaders launched the two-week talks aimed at reaching agreement to limit global warming.
But he backed off signing a New Zealand-led communiqué pledging to phase out fossil fuel subsidies. There had been pressure from Coalition backbenchers and lobbying from mining and farming groups, concerned it could jeopardise diesel fuel rebates.
Back home, Coalition MPs were also warning him not to tamper with the modest emissions reduction target set under Tony Abbott, of a 26 to 28 per cent reduction by 2030. Labor, meanwhile, is pursuing more ambitious targets for both emissions reduction and renewable energy, prompting familiar lines of attack from the Coalition. Climate policy is once again emerging as a clear political faultline in the lead-up to an election year.
Treasurer Scott Morrison declared Labor’s recently announced ambition to cut emissions by 45 per cent was a “job crunching, economy munching, carbon tax on steroids”. That same day, the Climate Change Authority wrote of the Coalition’s Direct Action policy that the “fiscal cost could become unsustainable” if it needed to scale up to deliver deeper emissions cuts. It’s a critique that will be familiar to Turnbull, who years ago warned it was a recipe for “fiscal recklessness on a grand scale”. Now, however, he enthuses about the scheme.
In Paris, the prime minister joined a global push, led by Bill Gates, to double signatories’ investment in clean energy research and development by 2020. With the upbeat title Mission Innovation, this program seemed tailor-made for the optimistic age of Turnbull. The PM’s pledge, involving an extra $100 million from Australia in the next five years, will dovetail with the innovation statement he is due to unveil next week.
In Canberra, however, his government was still sticking to its plan, thwarted by the senate, to abolish the agencies that already support the development and financing of clean energy technologies.
“It has been rejected twice by the senate,” Foreign Minister Julie Bishop said when asked about the government’s plans to axe the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC), both set up by Labor. “But it is still our policy.”
Such mixed signals have left the renewables sector in Australia, which is still recovering from Abbott’s repeated attacks, perplexed about future policy settings and prospects.
Abbott’s war on renewables may be over, but the new rules of engagement are still being written.
Investment recovery slow
Within a week of Turnbull ousting Abbott, the ARENA and the CEFC were transferred from the department of industry to the environment department, which was interpreted as a sign they would be spared. Still, they remain officially on death row. And Turnbull has pointedly declined to give them a reprieve. Similarly, there is no clarity about whether the government might persist with a directive preventing the CEFC from investing in wind technologies.
The costs of the battles with the Abbott government – the uncertainty over policy, the attacks on the wind turbines that Joe Hockey considered a “blight on the landscape” – are still being tallied. There are war stories of opportunities missed and experts who have decamped overseas. But there are also green shoots.
Some investment is returning to the sector since the finalising of a bipartisan deal in May that ended 18 months of uncertainty about the renewable energy target, but it’s gradual. New investment in large-scale clean energy projects ground to a halt as the target was reviewed by businessman and climate sceptic Dick Warburton, and then wrangled over for months.
In the CEFC’s annual report, chairman Jillian Broadbent observed that clean energy investment in Australia fell 31 per cent last year, as global investment grew to an all-time high of $US320 billion. Recovery was possible, she wrote, but only if policies do not continue to chop and change: “Investment opportunities in utility-scale renewable energy projects should recover in the coming years with stable policy settings and clear parameters from government.”
But the future is not at all clear for the CEFC, which finances clean energy projects on a commercial basis and has thus far delivered returns to the government above its bond rate.
Indeed, the prime minister has questioned the need for the CEFC.
“We do not support government banks performing roles that can be performed by the private sector,” said Turnbull when asked in October about the fate of the CEFC. “Yes, it has done some good work. The question is whether it is an appropriate use of government money.”
Clean Energy Council chief executive Kane Thornton, representing the sector, says the CEFC and ARENA play an “extremely important role”. He is hopeful the government will overturn its policy of abolishing them.
Thornton says it will take a while for confidence to fully return to the sector but Turnbull and senior ministers are sending the right signals.
“It takes months for renewable energy developers to negotiate agreements for the purchase of the electricity produced by wind and solar farms, and we are expecting to see increased activity early next year,” he says. “A strong agreement at the UN climate conference in Paris would also help to provide further momentum heading into 2016.”
Others are not so sure of Turnbull’s intentions.
John Grimes, the chief executive of the Australian Solar Council, welcomes the change in tone under Turnbull, but doubts there has been any change in substance.
“Prime Minister Turnbull is a man of his word,” says Grimes.
“He said when he took the prime ministership he would not roll back the anti- solar, anti-renewables and anti-climate policies of his predecessor. And he’s been true to his word. He has not done anything to roll it back.”
He says the rhetoric about research in Paris is “rank hypocrisy” given cuts to funding for ARENA, which supports the development and deployment of renewable technologies, particularly those in their early stages.
Andrew Bray, of the Australian Wind Alliance, representing farmers who support wind energy, and small businesses and workers in the industry, says there will be mounting pressure on energy retailers to sign contracts, but investment is yet to bounce back. “The industry is still reeling from two years of war the Abbott government fought,” he says, “and confidence is taking longer to pick up than we thought it might.”
The revised RET requires the renewable energy capacity to double by 2020. And new projects need to come online soon, to ensure there will be enough renewable energy certificates available in the coming years.
Even so, the sector’s recovery is not straightforward.
Thus far, major energy retailers have been reluctant to commit to long-term power purchasing agreements, given an oversupply in the national electricity market and the option of ongoing cheap electricity from old coal-fired power stations. One industry observer describes it as a “Mexican stand-off” between project developers, investors and energy buyers.
Dan Tehan, a Liberal backbencher, stuck his neck out in May to urge the government to compromise in order to finalise a deal on the renewable energy target, rather than leaving the industry in limbo.
His motivation was pragmatic and local: the prolonged stalemate over the RET’s future was jeopardising jobs in his regional Victorian electorate of Wannon, in south-west Victoria. Local wind turbine manufacturer Keppel Prince had laid off staff as the uncertainty over the RET dragged on, and Alcoa’s Portland aluminium smelter was pushing for an exemption from the revised target.
Tehan was trying to balance these interests and secure an outcome for both. He got it in the bipartisan deal that followed, reducing the RET to 33,000 gigawatt hours by 2020 – down from 41,000GWh – and exempting energy-intensive industries, such as aluminium.
Tehan argues that this deal has provided the renewables sector with the certainty it needs to attract investment.
“Last Friday I was in Ararat, where they turned the first sod of a $450 million renewables project, a wind farm,” Tehan says of a 240-megawatt project, the biggest of a handful of wind and solar projects that are now under construction or close to it.
“That’s a sizeable investment. All the companies involved pointed to the certainty from the RET.”
Now, Tehan considers the ARENA and the CEFC expendable.
“In the current budgetary climate we have to take measures to restore the budget,” says Tehan. “We have the Kyoto Protocol commitments and the commitment to the RET: they’re giving a clear direction for the industry. Therefore, ARENA and the CEFC are areas where we can look to make necessary budget changes.”
Planning for no support
The message to the renewables industry seems to be that, under this government, they should not count on ongoing support beyond the RET.
At least that’s how Angus Gemmell, the managing director of Solar Choice, interprets it.
Gemmell’s company, which develops solar farms and manages commercial solar tenders, has chosen to see any funding it might source from ARENA as a bonus, rather than a given, as it progresses the development of three large-scale solar farms in Queensland and Victoria.
He says the RET is the main game for the industry as it scales up to 2030, when he thinks it should be able to compete with other power sources without any further support.
“The RET – a sound one and a strong one – is important to gain a foothold but, as an industry, I think long term we want to stand on our own two feet and compete on a level playing field where there are no subsidies, for either fossil fuels or renewables,” he says.
Gemmell is optimistic about the industry’s prospects. During the standoff over the RET he had nearly 100 meetings with potential investors, but little success.
“It was 18 months of investment limbo. It was unnecessary,” he says.
“But that’s turned around completely, and now we’re having to turn investors away. Everyone knows where the goalposts are now and we’ve just got to line up the balls and try to kick a few goals.”
This article was first published in the print edition of The Saturday Paper on Dec 5, 2015 as "Why Paris won’t save renewables". Subscribe here.