Will carbon legislation Down Under set solar energy on a fast track to deployment?

By Giles Parkinson in Sydney

A little more than a year after a hung parliament, and a deal between the Greens Party and two country independents that forced the ruling Labor Party to readdress legislation it had previously abandoned, Australia has passed legislation to impose a price on CO2 emissions.

The Clean Energy Future Package (CEFC), which was passed by a handful of votes in the face of vigorous opposition from the conservative parties, will introduce a carbon price from July 1, 2012, with a fixed setting of $A23 a tonne, rising to $A29/t by July 2015, when it will evolve into a trading scheme, albeit with a floor and cap collar.

“The scale of the transformation it unleashes will be immense,” Prime Minister Julia Gillard told delegates at a Carbon Expo conference the following day. "It will unleash a new industrial revolution that will change the way we live and change it for the better".

Slowly but surely

But it may take a while. Most analysts says the $23/t on its own will not trigger widespread investment in cleaner energy technologies, although it could encourage investment in energy efficiency options that were cheap and could offer a one to three year payback.

The key to investment in renewable energy and other low emission energy technologies will depend on legislation that has yet to be passed: one bill to establish the Australian Renewable Energy Agency, which will martial Au$3.2 billion of funds to help early-stage development; and another bill to create the Clean Energy Finance Corporation, a type of “green bank” which will have Au$10 billion to assist the deployment of emerging renewables such as solar and geothermal, and enabling technologies such as smart grids and battery storage.

At this stage however, even the early deployment of base-load gas generators to replace dirtier coal-fired power, and to meet Australia’s rapidly increasing power demands, is in doubt because of the “pledge in blood” by the leader of the Opposition, Tony Abbott, to repeal the legislation should he win power in an election that must take place by the end of 2013.

Abbott is favoured to win power, based on his large lead in opinion polls, and could technically repeal the legislation, but it would require reversing promised tax cuts worth $10 billion, and forcing a second election to seek control of The Senate, where the Greens are certain to retain the balance of power.

Still, given the uncertainty, power companies say they are reluctant to commit to large combined cycle gas turbine investments. “This is an industry that has very long-term investment horizons and what you want is some certainty about what the policy position is,” said Michael Fraser, the managing director of AGL Energy. “The sooner we can get to a bi-partisan agreement on the policy, the better for the industry.”

The pace of deployment of gas power will also depend on the results from a proposed buyout of 2000MW of capacity from the dirtiest coal-fired power stations – those with emissions of more than 1.2 tonnes per megawatt hour. Four brown coal power stations in Victoria and South Australia have lodged initial bids for the program, with the results expected to be announced some time in the New Year.

REC market slack, CEFC future uncertain

Despite bipartisan support for the 20 per cent renewable energy target in 2020, the deployment of renewables, particularly wind power, is also stalled by the weak price of renewable energy certificates. This is largely the result of a flooding of the market caused by a miscalculation of the success of rooftop solar subsidies, which also generated certificates on a five-for-one basis.

That excess in supply is expected to last through to 2014. That said, REC prices are slowly rising, (they are now around $A42) and developers are hopeful that power purchase agreements can be negotiated soon. (Wind developers need a PPA of at least $90/MWh. The black price (wholesale rates of less than $40/MWh) and the green price do not yet match.

The clean energy industry places most hope for the deployment of large solar, geothermal, marine and other technologies on the CEFC, which is due to be established in 2013 and to begin assessing investment choices in 2013/14.

A review panel headed by Reserve Bank of Australia board member Jillian Broadbent will recommend the type of financing instruments that could be used, along with governance measures and risk management, and will report to the government in the New Year.

Legislation is then expected to be presented by the middle of 2012, but this too is subject to the threat of repeal from the Opposition.

Bloomberg New Energy Finance estimates that the combination of the various packages could deliver more than 5 gigawatts of large scale solar PV and 2 gigawatts of solar thermal by 2020. “The Clean Energy Future package will supercharge solar,” CEO John Grimes said. “We are finally penalising pollution and rewarding clean energy. This will deliver substantial investment in solar power and position Australia as a solar nation.”

However, he said it was critical that the Opposition support the package, including the CEFC. That’s not likely, however, because the conservative parties in Australia hold the same antipathy to renewables as their counterparts in the US.

An Opposition Finance spokesman said the opposition would scrap the CEFC, which he described as a “slush fund” that would support “all sorts of wild and wacky proposals that the banks would not touch in a fit.” For clean energy investors, it seems that one form of uncertainty has been replaced by another.

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Rikki Stancich: rstancich@csptoday.com