SPEECH TO THE AUSTRALIAN SOLAR CONFERENCE

Media Release

Mark Butler MP.

Shadow Minister for Environment

 Climate Change and Water

Date:  08 May 2014

I am very pleased to come and say a few words about our perspective as the Opposition on the debate at the moment around renewable energy policy- particularly the Renewable Energy Target, but also, as you would know if you follow this debate, the Clean Energy Finance Corporation and the budget for ARENA. I want to talk fairly broadly about those issues.
To date – and I emphasise to date – this has been one of the few areas of longstanding bipartisan agreement. For the last four elections, including the 2013 election, the two major parties both supported the renewable energy targets that were in place at that time, going back to John Howard's mandatory renewable energy target before the 2004 election.
The renewable energy targets were initially directed at moving to a cleaner energy system for Australia, particularly because we have relied so heavily on coal-fired energy. Electricity accounts for about one third of our carbon emissions, so bringing that down remains absolutely central to Australia being able to achieve its international commitments around carbon pollution reduction. As power prices have increased dramatically over the last several years – essentially because of big network investment in transmission and distribution systems – and solar panel prices have come down dramatically, there has also been a strong economic incentive for households to move to rooftop solar.
Labor came to Government with a very ambitious agenda to lift the level of Howard's renewable energy target. In our first term of Government under Prime Minister Rudd, we lifted that renewable energy target to comply with our commitment for at least 20 per cent of Australia's electricity to be produced from renewable energy sources by 2020. I emphasise the "at least" bit of that commitment.
We also did not legislate for a percentage target. You will not find "20 per cent" anywhere in the legislation.  We legislated consistently with previous policy in this area for a generation figure as the target. John Howard's RET also focused on a generation target. And when Grant Tambling reviewed Howard's RET, he accepted the need for a generation figure to provide investor certainty.
So we legislated a target based on what we projected to be 20 per cent of the demand in 2020. The experts projected that that would be about 300 terawatt hours by 2020, so the Renewable Energy Target was based on 60 terawatt hours being delivered from renewable energy sources by that year. Fifteen terawatt hours of that was already in the system -essentially hydro power in the Snowy and Tasmania – and we then split the remaining 45 terawatt hours into a four terawatt hour target for small scale renewables and a 41,000 gigawatt target for the large scale.
That was all going relatively smoothly until it became clear that the projection around demand of 300,000 gigawatt hours by 2020 was not going to be reached. For the first time in post-war history, electricity demand in Australia actually started to flatten and then turn down for a whole range of reasons – a much greater focus on energy efficiency, particularly as power prices started to rise, a decline in manufacturing in sectors like aluminium, and displacement of traditional generation as rooftop solar started to take off. So, instead of 300 terawatt hours, we're probably looking at something closer to 250 terawatt hours being the demand baseline in 2020. And that is when we started to get the pushback from traditional generators.
Assessed against all of the objectives we had when we put this policy in place, this has been a clear success. Over our period in government, wind power generation tripled. Over our period in government, the number of jobs in the renewable energy sector tripled to more than 24,000, much of it in rooftop solar but also very broadly across the renewable energy sector. Rooftop solar power undertook an extraordinary revolution, not just because of the RET obviously, but also because of the decline in prices. When we came to government, there were only 7,400 households in Australia that had rooftop solar. There are now almost 1.2 million houses that have rooftop solar panels, an absolute revolution. Last year alone we were able to launch the largest utility scale PV solar plant in the southern hemisphere, an AGL plant spread between Broken Hill and Nyngen in New South Wales, as well as the largest wind power plant in the southern hemisphere- all supported obviously by the RET, but also by the financing mechanisms available under the CEFC and ARENA.
This was huge investment being brought into this sector. About $18 billion has been invested to date. Under the RET, $8 billion of which is in the small scale sector. If all existing policy levers are kept in place, we think that investment between now and 2020 will be even a little bit more than that, probably closer to $19 billion. You don't have to take my word for that level of success; if you look at the quarterly Ernst and Young renewable energy country attractiveness index which is probably the best regular international study about what's happening in renewable energy investment across the world. By the middle of last year, Australia had reached number 4 in that index- the fourth most attractive country to invest in renewable energy after China, the US and Germany. In November, the quarterly index dropped us down to 6. In February, unfortunately, the index dropped us down to 8. And both of those indices have focused a lot of attention on role of the Abbott Government's policy shifts in the declining attractiveness of Australia as an investment market in renewable energy.
Those indices also emphasise that, as well as we have done, there is lots happening in other countries. Last year alone, China installed 12 gigawatts of solar capacity. This year, it is likely to install 14 gigawatts of solar capacity. Japan last year, dealing with its very significant energy challenges because of the Fukushima disaster, installed 7 gigawatts of solar, most of it at a commercial or large scale.
Obviously, a very important part of this success story is that renewable energy has started to bring Australia's carbon pollution levels down. Between 2008 and 2013 electricity demand dropped overall by about 7 per cent, but carbon pollution from electricity dropped by 16 per cent, significantly because of the rise of renewables. In my own state of South Australia, carbon pollution from electricity is down by 25 per cent in just five years because of a very big penetration of rooftop solar and significant wind capacity. Coal now accounts for only about 15 per cent of electricity generation in South Australia, down from a third in just five years.
The increase in renewables capacity has also had some very positive impacts upon energy security, and in the next few years will also have some very positive impacts, if the existing levers are left in place, on prices. Prices, in terms of the uncertainty in this area of policy, is the pressure point. Prices is the area where opponents of the RET are starting to mount a case against the RET. You might have heard Prime Minister Tony Abbott on Alan Jones some weeks ago say this: "The Renewable Energy Targets [plural] are significantly driving up power prices right now". Dick Warburton, the fellow who has been put in charge of the RET review, was on AM radio this morning saying pretty much the same thing. We all know that is simply not right.
You don't have to take my word for it; you can look at the independent reports from the Australian Electricity Market Commission and a range of other independent reports that say, at most, the gross impact on power prices of the RET is about 4 per cent. But that is the gross impact.
I want to make a couple of points about the impact on prices. The first is, that contrary to what the Prime Minister says that the RET is driving prices up, that gross impact, the price of renewable energy certificates, is actually coming down. If you look at the AEMC report, the impact on an average household bill of the small scale RET is about 1.9 per cent this year. It will be about 1.2 per cent next year, and it will be down to about 0.8 per cent the year after. So, yes, there is a gross impact but it’s coming down. It's not going up.
The other really important point which opponents of the RET don't make very often, though, is that that is the gross impact. There is a net impact. There is a price upside as well as the cost that everyone is paying for the RET in its gross sense. The first point about the net impact is that overall demand is down partly because people are putting solar panels on their rooftops and getting their own power rather than relying on the grid. And as demand goes down, the wholesale price pressure goes down with it. The addition of new capacity at the large scale is also putting downward pressure on wholesale prices. Now that's not good for traditional generators, but it is good for consumers. There is no question that there is that downward pressure on wholesale prices.
We also know that the large scale renewables like wind provide very low cost power, sometimes no cost power, at peak demand times, such as heat waves. At the same time, household solar is taking pressure off the grid. This is good both in terms of our energy security, avoiding brown outs and blackouts, but also for prices. I just want to refer quickly to a study that Rick Brazzale published in the Climate Spectator after the dramatic heatwaves we experienced in Adelaide and Melbourne in January. On the 16th of January, after a number of days over 40 degrees, both Melbourne and Adelaide hit about 44 degrees Celsius and Victoria experienced its largest demand for peak electricity in five years; about 10,500 megawatt hours. Five years ago, the spot price for power reached $4,600 per megawatt hour. This year, five years later, the highest spot price was 90 per cent lower than that, only $509 per megawatt hour, largely because household solar had taken pressure off the grid and the capacity of other renewables through the merit order effect to feed power into the system at a much cheaper price. In South Australia, the impact was probably even greater because we now have more than 25 per cent of our households with solar on their roof, and a much bigger wind capacity than Victoria.
The Clean Energy Council last week also released a report from ROAM consulting which examined the net price impact for households if the RET was closed to new entrants, which is one option being considered by the Review. The Report found that there would be a modest benefit in the next three years to households of around 20-40 cents per week if the RET was closed to new entrants; but that after that, because wholesale power prices will start to rise again, there will be a net cost to consumers. It will be about two per cent in 2019, and about 3 per cent extra on power bills in 2020, or about $50 per year.
The last thing I want to say about this policy success is that the distribution of rooftop solar is also a great story. Occasionally a myth is peddled that rooftop solar is a privilege enjoyed by the wealthy subsidised by everyone else. Groups like Solar Citizens, and a report released last month by Green Energy Trading, show that that’s simply a fallacy. The highest uptake across the country is in rural and regional areas and, in capital cities, it is in suburbs with below average incomes. This is a great democratisation of energy supply. Households across the country are taking up a unique opportunity to get cheaper and cleaner energy all at the same time.
There is clearly a significant challenge presented by the current RET review. This is a review that we would not have held this year. We went to the election saying that would have delayed the review until 2016 in line with the Climate Change Authority's recommendation. But the Prime Minister has decided to have a review this year- not conducted by the Climate Change Authority, but centred instead in his own office; a review that is much broader than asking how the existing system is working, but instead asking much more fundamental questions about whether we should retain the existing system at all.

The Liberal Party went to the last election, including during the campaign itself, promising a bipartisan commitment to the RET. Thank you for the opportunity to join you today and I look forward to continuing to work with the Solar Council as this Review unfolds.