PV Talk: What Australia’s Renewable Energy Target compromise means for solar

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The long-running saga over reviewing Australia’s Renewable Energy Target (RET) came to a head recently with a chaotic muddle of well-touted agreements between the two leading political parties cut down by last-minute u-turns. The ensuing confusion simply reinforced 14 months of uncertainty in the solar energy sector since the review first began.

Nevertheless, this week the Coalition Government and Labor Opposition agreed to reduce the RET to 33,000GWh, down from 41,000GWh, while excluding controversial plans to continue reviewing the target every two years. John Grimes, chief executive of the Australian Solar Council, spoke to PV Tech about what the new target means for solar.

John Grimes, chief executive of the Australian Solar Council. Image: AuSES
Grimes: 'We have probably seen the potential for big solar scaled back by about 80% as a result of the reduction in the target'. Image: SunPower

What is your reaction to the reduced 33,000GWh target?

There was never any rational argument made for reducing the target. The RET scheme has had three federal government reviews in the last three years and even the biased Warburton review on the RET concluded that the legislation was enormously successful. It creates jobs, delivers billions of dollars of investment and reduces electricity prices for all consumers over the long-term. The government opposition to the sector is purely ideological, fought on the basis of tying Australia’s future to the coal industry.

How much large-scale solar will get built under this target?

We have probably seen the potential for big solar scaled back by about 80% as a result of the reduction in the target. There will be some large-scale solar projects but nothing like what would have been delivered under a 41,000GWh target to 2020, which provided a lot of head room.

As the cost of solar continues to fall, all the projects become increasingly price competitive with wind because Australia has very good solar resources. Our modelling shows that in 2018-2020 there would have been significant take up of large-scale solar. However, now the target has been cut, we expect a huge backlog of wind projects, which have been at a standstill for more than two years, to crack ahead as soon as possible. It is very likely the RET target will be saturated with wind projects well before the point that solar out-competes wind in terms of economics.

What is the impact of the RET on small-scale solar (below 100kw)?

Our response to the prolonged review was to run a pointed political campaign called ‘Save Solar’. We ran forums in seven marginal seats held by the Coalition government around the country and in every case the turn out and the support from the community was overwhelming. In many of those states it would only take 500 people to change their votes to change the scene.

At the end of that process, there was strong media interest, with opposition leader Bill Shorten talking at the forums. It is now generally regarded that small-scale solar is actually beyond the reach of politics. Neither side of government would be able to close the small-scale credit scheme down because the political implications of that would just be too great. That is a massive victory for the solar industry and it has now provided more confidence for the below-100kW market going forward.

What impact has the prolonged RET review had on the Australian solar industry?

It created massive uncertainty. We saw hundreds of solar businesses close and we saw thousands of people directly employed in the solar industry lose their job.

Under the RET, if you put in a small-scale solar installation under 100kW, the government awards certificates based on the energy produced over 15 years. The Warburton Review on the RET recommended closing this small-scale scheme to new applicants immediately or phasing it out rapidly over five years. It also recommended dramatically scaling back the scheme for large-scale solar or closing it straight away. There is no doubt it was the Prime Minister’s intention for both those closures to occur.

However, the government could not get the numbers in the senate to make that a reality. Thus, it used the prolonged review process instead to effectively close down the industry. If you don’t have certainty, how do you make an investment decision based on a legislative framework which you know the government wants to abolish?

Will the latest agreement definitely go through as legislation this time?

I don’t underestimate the federal government’s desire to obfuscate, booby trap and delay anything in this policy area. Until we see draft legislation, I don’t think you could competently answer that question. It seems as though there is genuine agreement now at the macro level, but there’s still some way to go.

The State of Victoria has called for legislation allowing it to set its own RET target. Is this likely to start a trend in other states?

As long as we have an obstructionist federal government, the states will play a really important role, and we’ve seen leadership from Queensland, New South Wales, Victoria and South Australia in this area. While they can’t adopt a formal RET, they have got a lot of other policy levers that they can pull to encourage the take up of large-scale solar in particular. I think we will see, as a trend, more being done at the state level.

What has caused the reported rise in commercial solar in Australia with nearly 25% of new solar capacity being installed for businesses generating onsite energy, according to the Clean Energy Funding Council?

Firstly economics; previously support had been targeted to individual households. There had never been any specific stimulus packages put forward to help commercial scale solar, but as electricity prices continued to rise and as the cost of solar PV continues to fall, it is now economically viable without subsidy. It is cheaper for SMEs and medium-size businesses to install solar than it is to buy electricity from the grid.

Secondly, the federal government’s latest budget has had an unintended consequence. It put in a stimulus measure for business and gives small businesses an immediate tax deduction on all purchases up to AUS$20,000. It means if you are an astute business person you can now benefit through the RET target scheme and this tax write-off, so there’s actually never been a better time for businesses to buy solar than right now.

Furthermore, installed solar in Australia is cheap, the cheapest in the world, so for AUS$20,000 you can get a 15kW solar array. We expect to see a significant boost as a result

From a government who is trying to shut the sector down this is a genuine unintended consequence which I think will lead to a short-term boom in the commercial solar sector in Australia.

What is the general outlook for solar in Australia?

The domestic market remains strong with high consumer interest. The economics continue to improve. The advent of cost-effective storage technology is a potential game-changer and there are 1.5 million installed solar systems in Australia that could benefit from the addition of small-scale battery storage behind the meter. It will be a very interesting space for the next couple of years and it is going to be quite transformative.

What other effects has the Abbott government had on solar?

It is actually crystallising the federal opposition’s position, so the Labor party have said in the lead up to next year’s election that their interest, if they were to gain office, would be to increase the target out to 2020, and to adopt a policy of at least 50% renewable energy in Australia by 2030. The opposition of the current government is solidifying and strengthening – that’s a positive development.

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