Abbott’s campaign to kill renewable energy sector
John Grimes isn’t happy with the prime minister, and he’s not shy about saying so. The former Royal Australian Air Force officer and CEO of the Australian Solar Council has watched what he considers the government’s vindictive “crusade” against renewable energy – and his pique increased this week after the treasurer and finance minister directed the statutory body, the Clean Energy Finance Corporation (CEFC), to cease investment in wind farms and domestic-scale solar projects. Environment Minister Greg Hunt argued that the directive merely nudged the CEFC back to its original mandate – as an investor of immature technologies with only speculative commercial viability.
“The purpose of having a government entity, which of course it’s not been our position to support, because we thought it was not creating any additional renewable energy, it was simply displacing one form of renewable energy with another,” Hunt said. “The purpose of it, though, is to support innovative and emerging technology. And precisely as was tabled in the senate, we have asked it to focus on its core mandate of emerging and innovative renewable technology.”
Grimes sees it differently, arguing it’s a stealth attack upon his industry. “If Abbott continues this way, we’re finished,” he tells me. “We know that solar and other renewables are competing with coal, and Abbott is intent upon protecting that industry. So, this is our WorkChoices moment. We will be mobilising, and we’ll be campaigning in marginal seats. We’re starting to plan this now.”
Regarding the CEFC, the government has made isolated – and legitimate – arguments. However, everyone I spoke to for this story – bureaucrats, politicians, academics and industry leaders, each with competing positions on the new CEFC directive – said the decision has been undermined by an aggressively ideological agenda. “The new investment mandate isn’t as draconian as it looks from the outside,” a senior bureaucrat told me, “but I admit the surrounding politics are problematic.”
In defending its decision, the government has rhetorically shorn it from a long pattern of disruption to the sector. There is a larger frame for it. And certainly, to understand the vexed politics of renewable energy, it’s necessary to rewind.
The CEFC blueprint
It might be said that the conception of the CEFC had both politics and policy in mind. Tony Wood, an energy expert from Melbourne University and the Grattan Institute, tells me the CEFC was a “cobbled-together dream” of former Greens leader Christine Milne, and considered a necessary mollifier by Julia Gillard, whose minority government required support for an emissions trading scheme. But, Wood says, the CEFC was also “designed to help correct certain market failures”.
Specifically, the failure the CEFC sought to mitigate was what policy experts refer to as the “valley of death”. The phrase emerged in the 1990s to describe the difficulty of introducing agricultural technologies to the Third World. Later the phrase described the low levels of funding or investment for the commercialisation of technologies, relative to the funding available for its development. This is especially true of renewable energy, where there is a “gap between opportunity discovery and product development”. The so-called valley appears when you plot the amount of resources available for various stages of development – it’s high in very early research and development stages, and high again at the very end of market deployment, but it sags miserably in the middle.
The CEFC was created through legislation passed in 2012, and became operational in July 2013. It was based upon Britain’s Green Investment Bank, a model that was attractive to Milne. But Labor also promised that it would make money – and it has. This week, shadow assistant treasurer Andrew Leigh said it was making returns “3 per cent over the bond rate, by investing in things such as wind farms in Victoria, solar in Alice Springs, energy efficiency in other contexts”.
As the valley of death problem suggests, there is a spectrum of development – the CEFC was designed merely to serve the middle of it. The corporation would ultimately complement the other two levers for renewable investment – the Australian Renewable Energy Agency (ARENA) and the renewable energy target (RET). These three form the triumvirate of renewable energy policy in Australia. And each one has – for reasons of varying legitimacy – been attacked by the current government.
It is worth describing the functions of these other two pillars before looking at their treatment by the Abbott government. ARENA is a grants-based system that targets projects at the very beginning of research or development. Like the CEFC, it was established in 2012. So far, it has invested $1.1 billion in 230 projects. The other lever is the RET, first introduced by the Howard government in 2000, and which mandated electricity buyers to source an additional 2 per cent of their energy from renewable resources by 2010. This was overhauled when Kevin Rudd, during the 2007 campaign, announced his party would introduce a “20 by 2020” scheme – mandating an additional 20 per cent of electricity from renewable sources compared with 1997 levels. It was legislated in 2009.
As Wood explains, the “RET takes established technologies and puts them out to market”. It services the far end of development – commercial deployment – and does this by creating a trading scheme that confers returns to renewable energy providers that are above market price. In other words, it rewards green energy providers.
But times have changed.
A vindictive directive
John Grimes laughs when I suggest to him that perhaps the CEFC had drifted away from its charter – after all, similar international bodies operate essentially as venture capitalists for riskier, emerging technologies. “The CEFC is about financial engineering,” Grimes tells me. “Wind and solar are established technologies but they are not mature in terms of financing. This is what CEFC can do – create innovative financial mechanisms for investment. That’s the emerging or innovative part satisfied. Now, the CEFC has been making commercial returns. But now the government writes to them and says we want you to double your commercial return, but you can’t invest in wind or small solar. What planet do they live on? This is an asset class that banks haven’t much invested in before. These institutions are risk averse. Finance 101 is that you don’t get high rates of return on speculative investments, and investment is hard to source. So, this is a stitch-up. It’s part of a war the government has waged on the industry.”
I put it to Tony Wood that innovative financing might satisfy the charter’s emphasis upon the fledgling. He says it’s possible. “Refinancing an existing wind farm or just lending to roll out bog-standard solar PV makes no sense,” Wood tells me. “But there are certain situations in the market that the CEFC might help overcome. For instance, those times when investors don’t bother – like when there are many small projects not worth investing in, but aggregated could become substantial. Or a need for longer-term debt than the commercial banks will provide, as apparently is the case in the solar deal with Origin. Or perhaps applying a team of renewable energy experts who, through that specialist knowledge, can be comfortable with what appears to be higher risk to commercial lenders simply because they do not understand it.”
The shadow environment minister, Mark Butler, this week supported the CEFC, echoing some of Wood’s points. “Well, again we heard from the finance minister that this body was set up to support emerging technologies – that’s simply not the case,” Butler said. “The Renewable Energy Agency otherwise known as ARENA was set up to provide grant support to the development and the commercialisation of new technologies. The Clean Energy Finance Corporation had a very different job very similar to the green banks, the so-called green banks that have been set up in America and Europe and in China and elsewhere, and that was to develop a mature lending market for renewable energy because we know that banking institutions are very conservative by nature and take a long time to develop lending habits to new industries like the renewable energy industry. So the CEFC provides lending support, usually in partnership with the private banks.”
But Wood still has his doubts about the CEFC. “There’s a small number of things it should be doing,” he says. “And they’re assuming risk the commercial sector won’t abide. But, well, there’s two ways of looking at it. We can take Abbott at face value. So, the way ARENA worked was to invest in vertical wind, ocean technology, emerging technologies – then RET would take them to market. So perhaps there’s not a need for it anymore, though I do believe there are some market hurdles the CEFC can help overcome.
“Or you can look at this week’s news another way: that this is vindictive. The government always wanted to get rid of it, and this is one way to cripple it. I don’t know what it is. But the government does have consistency on this.”
This was a recurring refrain. Regardless of where people sat on the CEFC, everyone I spoke to expressed suspicion or dismay at the political context of the decision. While the pros and cons of the CEFC are debatable, it is accepted by everyone that the government has form and this decision is compromised by its history. A senior bureaucrat, largely sympathetic to the CEFC decision, told me: “They’re spending so much time and effort on [renewables]. It’s like an obsession. Doesn’t come across as rational to me. So, no denying this is part of an ongoing campaign to undermine and destabilise renewables. And to what end? Seems Luddite.”
An industry under attack
The Coalition went to the 2013 election with the stated intention of killing the CEFC, reviewing the RET and supporting ARENA. The party also had a solar panel policy, which through generously increased rebates wanted an additional one million homes equipped with solar panels by 2020. But in 2015, much has changed.
For a start, the solar panel policy vanished. And that’s not all. “The government didn’t contact key agencies during its review of RET, and the process was cynically stretched to 18 months,” Grimes says. “The prime minister didn’t take the advice of independent experts. Then the climate commission was shut down. They tried to shut down the Renewable Energy Agency (ARENA), but that failed. So they denuded it – removed $750 million from it.”
It’s true that government tried to abolish ARENA – it introduced legislation that would have repealed its statutory existence – but it failed to attract the support of crossbenchers. And so, during the 2014 budget, it was stripped of funding and absorbed by the department of industry. Because of this absorption, and the staggered withdrawal of funding, it’s difficult to corroborate Grimes’ figure – but it is safe to say it has lost a lot.
“ARENA had bipartisan support and didn’t seem under threat,” Tony Wood tells me. “The government seemed to think it was a good idea. Then, during the long night of the knives – the budget of last year – it was suddenly slashed. And it was tragic because they had been doing a lot of good work.”
As promised, the government has tried to kill off the CEFC – twice – but both times the repealing legislation has failed to pass, which means it can now serve as a double dissolution trigger. The prime minister has also expressed disappointment that the Howard government – of which he was a part – had ever introduced the RET. He has plotted for its destruction, but failing that has introduced legislation that would lower it – it has so far passed the senate. Abbott has since said the smaller RET would reduce the number of wind turbines – to the prime minister, an unforgivable blight on our landscape. “When I’ve been up close to these things, not only are they visually awful, but they make a lot of noise,” Abbott told radio broadcaster Alan Jones last month. “I would frankly have liked to reduce the number a lot more but we got the best deal we could out of the senate. And if we hadn’t had a deal, Alan, we would have been stuck with even more of these things. What we did recently in the senate was reduce, Alan, reduce, capital R-E-D-U-C-E, we reduced the number of these things that we’re going to get in the future.”
It echoed Treasurer Joe Hockey’s comments from last year, when he described wind farms as “utterly offensive”, and he reinforced his feelings in a conversation with Victorian premier Daniel Andrews this week.
Such is the context of this week’s move on the CEFC. Decisions that may well be defensible and offered in good faith are hopelessly undermined by a long, singular campaign against renewable energy. It is not a surprise that a conservative government might question, entirely legitimately, the efficiencies of grants schemes and other funding. But it comes as a shock to see an industry – and a burgeoning commercial market – so aggressively undermined.
Grimes is certain he understands the angle. “Abbott says that solar is increasing energy prices,” he tells me. “Well, his own Warburton report says that the more renewables you have on the network, the cheaper energy is for all consumers. This is the PM’s big lie … Abbott is simply helping protect a coal industry that is scared of solar.”
Wood concedes the government’s long contempt for the sector, but dismisses Grimes’ interpretation. “That’s bullshit,” he tells me. “It’s silly. The bigger threat to the coal industry is the loss of the international markets – what happens to global demand for coal and gas if the world really does what they have committed. Remember that the fossil-fuel industry has been arguing that the world needs the cheap electricity that comes from fossil fuels. That’s the biggest threat. It’s not solar. Right now, about 2 per cent of our energy comes from solar. Now, that number could increase quickly, sure. But [the modelling] suggests healthy international demand for coal for some time.”
Still, Grimes is insistent. He sees this is a watershed moment for green energy in Australia, believing he can mobilise popular support in such a way that it will be politically damaging to Abbott. Meanwhile, energy bureaucrats wonder how far this fixation will go.
Abbott’s war on renewable energy has been protracted and aggressive. It has destabilised investment. It has been fought through an attrition of uncertainty. This week, one wonders if he has entered the final campaign.
This article was first published in the print edition of The Saturday Paper on Jul 18, 2015 as "The campaign to kill renewables". Subscribe here.