Ron Boswell (Queensland, National Party) Share this | Link to this | Hansard source

I rise to bring to the attention of the Senate the looming failure of yet another plank in the Rudd government’s climate policy. The Home Insulation Program is an ongoing debacle and a disgrace and the Green Loans Program is also battered and broken. Meanwhile, large-scale renewable energy projects are unravelling, damaging hundreds of millions of dollars of investment which was supposed to take Australia to 20 per cent renewable energy by 2020. These renewable energy projects are collapsing because of the Rudd government’s failure to understand the ramifications of changes to policy, changes such as those to domestic solar energy assistance and the solar credit multiplier which contributed to the renewable energy certificate market being flooded, devalued REC prices and pulled the rug out from under the large-scale energy projects.

Yesterday two of my colleagues, having given notice, moved a motion on the major flaws in the RET legislation that had led to a dramatic drop in the price of renewable energy certificates and stalled investment in the renewable energy sector. They noted that the delays had already caused a loss of jobs at the Musselroe Bay Wind Farm development in Tasmania and threatened the proposed expansion of the Hallett Wind Farm in South Australia. They called on the government to get cracking with the legislation and to ‘release any modelling or other analysis’ on which the government’s new proposal is based. They also called on the government to ‘provide assurances’ that the legislation will not result in unreasonable additional costs in power prices to end users.

The sad irony is that the government’s policies are actually hurting the very jobs and businesses that backed the government’s message on green power. Last week I asked Senator Wong what immediate action the government would take to keep the wolf from the door of the New South Wales sugar-milling cogeneration plants, which are due to call in the receivers. The New South Wales sugar cooperative and Sunshine Energy, in northern New South Wales, support over 600 farmers, 400 direct workers and more than 300 employees in the transport and field sectors. They built two major cogeneration plants with partner Delta at a cost of $220 million. The government has announced changes but these will come too late—in January—to save these plants. They need assistance today to stop them from going under; they cannot wait till January. With the flood of solar credit certificates, REC prices dropped from over $50 to under $24—but they have come up a bit—making it impossible for them to meet financial commitments without selling the plants’ RECs at very low prices, thereby reducing their ability to meet future commitments. The sugar cooperative is also at risk of being affected if receivers do not operate the cogeneration plants to supply steam and electricity to its mill in the crushing season, which starts in June.

This New South Wales project is Australia’s largest baseload renewable electricity generation project and results in an annual saving of 400,000 tonnes of greenhouse gases. Each cogeneration plant will generate enough renewable electricity for about 30,000 average sized North Coast homes. These plants use renewable fuel sources, help reduce greenhouse gases, decentralise the supply of baseload electricity and meet community expectations for cleaner energy. But, as the operators of the plants explained in their submission to the COAG review last year:

Both plants are under extreme financial pressure with the flood of solar RECs hitting the market and the impacts on prices. It has put the cogeneration projects at Broadwater and Condong in a precarious position. We are forced to sell RECs in a depressed market to cover operating cost and bank loan repayments.

With current REC prices the project is losing in excess of $10 million per year from its revenue streams.

We are extremely concerned with the other introduced incentive schemes and bonuses as part of their economic support package that effectively subsidised solar and photovoltaic pumps to almost 80% of their capital cost and made the schemes eligible for up to 5 times normal REC generation. The government in their new system have effectively replaced government subsidies with “bonus” RECs and transferred a cost back to other renewable energy generators.

This led to REC prices that were a long way short of the estimates used in the government’s own modelling work. The McLennan Magasanik Associates report to the Department of Climate Change suggested that in 2009 REC prices would be around $70 per megawatt hour. The government estimated $70. Business got as low as $24. The New South Wales sugar venture invested $220 million, following the government’s own recipe to go green. Now they are going bust. As they say:

It is a ridiculous situation where our co-operative, with our partners, Delta, have spent significant capital on a renewable energy project and it is being destroyed by ill-conceived and wrongly directed government funds. It puts this project under considerable pressure and it will see the investment in renewables brought to a grinding halt if there is not a major change quickly the government will have completely destroyed any chance of meeting its renewable energy targets and may have destroyed a number of projects already in place, like wind farms and major bagasse generation projects like ours.

They say the government’s policies have effectively transferred profits from the renewable energy sector into the solar hot water sector and transferred costs from government rebates into the renewable energy sector. In their words, the renewable energy sector was not afforded the same rebates as solar, nor are they being given the same level of REC support as solar.

The government has said it will bring in changes from next January to rectify the problem. That will not help the cases I have already talked about. The damage is irreparable unless the government is prepared to fund the costs of its own mistakes, as it should.

The long-term problem is that the government could be creating a whole new set of problems with its changes. The original RET included measures to manage the impact of the policy on emissions-intensive trade exposed, EITE, industry. The February announcement gave no indication as to how EITE industries will be treated under the changes. Some industry voices say that the government’s changes significantly increase the cost of the RET scheme to electricity users, particularly the electricity-intensive aluminium smelting industry. In particular, they say that the government has shifted the risk and impact to energy users. They have called on the government to (1) make an immediate statement that the competitiveness of Australia’s EITE industries will be maintained as part of the changes; (2) ensure the changes do not increase the complexity or uncertainty inherent in the RET scheme for large-scale electricity users; and (3) provide an ongoing true 90 per cent exemption from all RET (LRET and SRES) costs for the aluminium smelting activity, in recognition of its high electricity intensity.

The government may consider that this should apply to all electricity-intensive activities or all EITE activities. The government says that the LRET’s 41,000 gigawatt-hour target for 2020 has been set to achieve a level of large-scale renewable electricity generation above what was expected under the existing renewable energy target. But entities such as electricity retailers currently liable under the RET will be obliged to purchase RECs from both the LRET and the SRES. The government no longer knows what its renewable energy target is. For business, that is a scary thing because renewable energy is far more expensive than normal power. Under the changes, the 2020 target goes from 20 per cent to what? No one knows. This is because the LRET is capped but the SRES is not. The government must urgently release its modelling on the volume of SRES expected, because that is directly related to the power costs of liable entities—that is, the manufacturers and the job-creating industries.

The details of the new mechanism for obliging liable parties to purchase RECs created through the SRES will be finalised in consultation with stakeholders, says the government. However, concerns are being raised now by liable entities about the open-ended nature of the volume of the SRES. The high subsidies from federal and state governments will encourage a high take-up rate of the SRES. This means that energy users will have to buy an unknown but potentially increasing amount of SRES RECs at the $40 price. For example, if a liable entity is five per cent of the Australian market and there are 10,000 SRECs then they need to buy 500. But if 20,000 are created by small-scale generators then the liable entity would now have to buy 1,000. Liable entities—such as aluminium smelters and paper and cement manufacturers—would be responsible for buying their share of the volume regardless of how many are created. This is a big and costly risk to industry because renewable energy is a lot more costly than traditional forms of power. That cost comes off their bottom line.

Under the proposed small-scale renewable energy scheme, a 1.5 kilowatt solar photovoltaic installation in New South Wales, ACT or Queensland would receive an upfront subsidy of $6,200. The true cost is approximately $11,000.Under the ACT FiT scheme, that same installation would receive a premium tariff payment of 50.05 cents per kilowatt hour for a period of 20 years; therefore it would receive an annual subsidy of $1,034 for 20 years. Under the New South Wales FiT scheme, that same installation would receive a payment of 60 cents per kilowatt hour for a period of seven years; therefore it would receive an annual subsidy of $1,240. The government says:

Combined, the new LRET and SRES are expected to deliver more renewable energy than the existing 45,000 gigawatt-hour target in 2020. The degree to which the 20 per cent target is exceeded will depend on the uptake of small-scale technologies by households, small business and community groups.

And if state and federal governments make solar power attractive then potentially there is nothing to stop the target rising to say 25 per cent. This would represent a cost blow-out for high-energy users such as our paper, steel and cement industries. They cannot operate in a business environment where the cost of their major input, power, depends on an unknown number of households taking up massive government subsidies to install solar.

These subsidies are effectively being paid for by high-energy users, certainly not the solar householder. Ultimately the cost will be born by Australians in terms of lost jobs and industry if these added costs make our industries less competitive. This is a very serious issue. The government says they intend to bring in legislation to give effect to these changes to the RET in the winter sittings. They have a lot of work to do to get around the problems that I have outlined.

It seems that whenever this government tries to go green, it gets Australia into the red. I am raising these issues now so that the government has time to act on these warnings and avoid plunging industry into another round of capital losses. The end result is less renewable energy, not more. Unless the government is prepared to address these issues, we are going to face another disaster on the same scale as the insulation fiasco.