Thursday, 28 August 2014
Australian Renewable Energy Agency (Repeal) Bill 2014; Second Reading
I am very pleased to rise to speak on the Australian Renewable Energy Agency (Repeal) Bill 2014—the bill which gives effect to the decision to close the Australian Renewable Energy Agency; a decision made as part of the 2014 budget. The bill also provides for the transfer of all of the existing contracts and commitments to the Department of Industry.
In the time available to me today I would like to make a couple of points. Firstly, this debate is not about whether or not renewable energy, and continued research and development and commercialisation in that field, is desirable and to be encouraged. Clearly, it is. Secondly, the key issue for debate is whether it makes sense to maintain the current structure for funding and government support of renewable energy and particularly whether a separate Australian renewable energy agency is necessary. I, thirdly, want to make the point that that would be an important question to ask at any time but it is a question that needs to be asked with even greater urgency given that, at the present time, we have the opportunity to capture significant savings out of the structural changes the government proposes under this bill at a time when there is a serious budget problem that needs to be dealt with on behalf of the entire community.
Let me turn to the first question, which is, 'Is this a debate about whether renewable energy is an important field of activity in which we need to engage in research, development and commercialisation?' and argue that, clearly, we do need to do all of those things, but that is not the question presently before the House this afternoon.
Why is it a good thing that renewable energy activities are vigorous and ongoing in Australia and around the world? One good reason is to have a diversity of supply. Electricity is key to modern life. If you are depending solely upon one particular source—whatever that might be; typically in Australia it is coal-fired generation to a lesser extent natural gas and then a range of other sources—or a narrow range of sources, then you have some exposures which you can mitigate if you have options to secure your energy from a broader range of sources. So the general proposition that it makes sense to explore as many alternative sources of energy as possible to mitigate the risk associated with an overreliance on any single source is clearly a sensible proposition.
The second question, which is one that attracts great intensity of opinion, is about the cost of delivering electricity through various means of generating it. The analysis of the relative cost of renewables as compared to more traditional energy sources is an extremely fraught topic. It is a question of economic models at 10 paces. It is a never-ending debate about whether you look at fully loaded cost, marginal cost or which cost of capital you assume and so on. But again, as a general principle, if you are thinking about the policy desirability of maintaining energy costs at the lowest possible level, for general economic reasons—and, equally importantly, for reasons of fairness so that those on low incomes are best able to consume the energy that they require—then you would tend to say, 'Let's have more supplies and more possible sources of supply than fewer, because that tends to improve the bargaining position of the consumer.'
One of the interesting questions here is: what is happening to price trends as between renewable energy and more conventional energy sources? As I have noted that is an extremely fraught debate with all kinds of methodological disputes that are running, it seems, on a never-ending basis. But certainly what can be observed is some encouraging trends in relation to the cost of some particular sources of renewable energy. I am looking here in a time series sense at what has happened to the cost of energy sourced from renewable sources. I am not looking at the question of the comparable cost at any one point in time between renewables on the one hand and the more conventional sources on the other.
According to the website solarchoice.net.au, the current cost of installing a full solar system in Australia is estimated to be around $1.40 per watt, down from around $4 in 2008. Further drops are expected as the cost of manufacturing panels continues to fall. It is also worth pointing out that a key driver of this is global developments, particularly the scale of manufacturers in China and other countries.
Another interesting consequence of an increasing use of photovoltaic cells in homes and businesses as a localised source of energy generation is that the electricity distribution network is increasingly changing its character. Historically, that network has been a one-way network. Energy is generated in large central generators and is then sent through the network to households and businesses. We have seen for some years now that households and businesses, generating their own energy locally, using solar panels, will—if they are generating energy at any one time, which is in excess of what they need—be able to sell that back to the electricity company using the feed-in tariff arrangements.
According to some pundits, in the future there will be markets for energy in which individual households can be buyers and sellers at different times. Again, the diversity and redundancy implications of this are significant and interesting. In other words, another reason why renewable energy is important and why the developments we are seeing now are of interest is that its capacity to make the supply of energy to any given customer is more resilient and flexible, and less vulnerable to disruption. It is interesting that this resilience to disruption reflects the same kinds of design principles that underpin the internet, which was originally designed specifically as a non-hierarchical network in part to make it more resilient if parts of the network are damaged.
One of the other very interesting trends which we are seeing globally in the renewable space is the increase in the storage capacity of batteries, at the same time as the cost of batteries and the cost therefore per-unit-of-storage capacity is coming down and is expected to continue to come down.
One of the key developments here is what is happening with electric cars. In particular, the US manufacturer Tesla has publicly announced plans for a so-called $5 billion gigafactory and their stated aim is to produce a mass-market electric car to leverage their projected demand for lithium-ion batteries to reduce the cost of those batteries more quickly than was previously thought possible. They have a stated plan of working with partners, including existing battery manufacturers, to build this so-called gigafactory to achieve economies of scale beyond those which have been previously achieved in the manufacture of batteries. Indeed, their stated aim is that, by the end of first year of volume production of the mass-market vehicle, the gigafactory would have driven down the per-kilowatt-hour cost of the battery pack used in the vehicle by more than 30 percent.
I simply make the point that it is uncontentious that the continued research development and commercialisation of renewable energy is very much to be encouraged, that there is an enormous amount of activity occurring around the world and that, despite some of the suggestions made by some speakers in this debate, the question before the House this afternoon is not whether renewable energy makes sense to pursue; the question is whether the specific agency, which presently exists, and the specific existing structural arrangements ought to be maintained or whether there are capacities for efficiencies.
Let me come to that question. What we saw under the previous government was a frenzy of spending in a whole range of areas, among them renewable energy and so-called green spending, resulting in a proliferation of initiatives with considerable overlap, duplication and internal inconsistency. Many of these initiatives, it pains me to say, were driven by base political calculation and the desire to get the support of the Greens during the minority years of the Gillard-Rudd government. Some would suggest that motivation was significantly more present to the minds of the then government than any genuine attempt to make efficient investments in clean energy sources for the future.
The relevance of that for present purposes is that, in considering whether it makes sense to maintain the present institutional structure of a stand-alone Australian Renewable Energy Agency with its own chief executive, its own chief financial officer, its own management team, a separate board and all of the apparatus that goes with a stand-alone organisation, it is important to bear in mind that this question is being determined against the backdrop of a chaotic and incoherent range of initiatives that were piled one after the other on top of each other. They have produced as a result a remarkably complex and inefficient set of arrangements. To mention just some of the torrent of initiatives we had under the previous government: there was the Clean Energy Finance Corporation, the Carbon Farming Initiative, the Carbon Farming Futures Program, the Indigenous Carbon Farming Fund, the Biodiversity Fund, the clean energy skill program, the Clean Technology Investment Program, the Clean Technology Food and Foundries Investment Program, the Clean Technology Innovation Program, the National Energy Savings Initiative, the Energy Efficiency Opportunities Program and the Clean Technology Focus for Supply Chain Program. There was a plethora of these measures. Only somebody who is grossly politically naive would accept the argument from the Labor Party that the only way to maintain and advance our national commitment to renewable energy is to retain the shambolic, duplicative and overlapping series of programs and bodies established by the Rudd-Gillard-Rudd government.
The third point I want to make is a related point. Thanks in large measure to the chaotic, incoherent and grossly ill-disciplined style of government perpetrated by the Rudd-Gillard-Rudd government, there is a very serious budgetary problem faced by the federal government on behalf of the Australian nation at this point. Any policy measure needs to be assessed against the backdrop of the urgent imperative to get the budget back on track. We are facing a situation in which the previous government racked up cumulative deficits of over $200 billion. We are on track to a gross debt of $667 billion if no corrective action is taken. The previous government left, over the forward estimates, $123 billion of planned cumulative deficits; therefore there is a measure of urgency as we consider various policy issues before this government. Are there opportunities to secure savings which can be put towards this critical imperative of getting back on track towards a sustainable fiscal position and, in due course, to a surplus?
That is the backdrop against which we need to continue to examine the question of whether the existing structure of the Australian Renewable Energy Agency can be justified or whether it makes sense to rationalise this agency—to merge it back into the Department of Industry—and also to assess the question of whether the current, unallocated expenditures ought to be allocated or whether it makes sense to pause and seize the opportunity to secure some savings.
The facts are that what the government proposes to do is maintain the existing portfolio of projects that the Australian Renewable Energy Agency has underway, but not proceed with uncommitted expenditure. By doing that, some $1.3 billion can be recovered and will contribute towards the very substantial savings task faced by the present government as a result of the incoherent, grossly ill-disciplined and fundamentally incompetent budgetary management that regrettably characterised the previous government.
I emphasise the point that, notwithstanding these measures, there remains some $1 billion in existing projects committed by this agency, so there is a continuing substantial ongoing forward program of activity when it comes to renewable energy projects. But at the same time this government is making the responsible decision to abolish the Australian Renewable Energy Agency as a stand-alone and separate agency; to merge it back into the department of industry; to capture the administrative savings that result; and, equally importantly, to remove the uncommitted expenditure and put that towards the compellingly important task of getting the budget balanced.