Australia: Renewable energy investment at risk - Grattan Institute

AGORA moderator's picture

The lack of bipartisan support for clear policies to tackle climate change will make it difficult to justify further investment in renewable energy, a government panel has been told.

In a submission to the government panel that is reviewing the renewable energy target, the Grattan Institute called for existing investment in the sector to be ''grandfathered''.

But with the Abbott government favouring a direct action plan to reduce greenhouse gas emissions over the existing carbon tax, this has created ''unmanageable risk'' for investors in the renewable energy sector, it has told the government. ''A carefully crafted expansion of the renewable energy target to include non-renewable sources of energy could form the basis for a credible long-term climate change policy, with bipartisan support,'' it said.

Government policy is for renewable energy to supply one-fifth of the country's electricity by 2020, although declining demand may result in renewables exceeding this target.

This possibility along with the cost of renewable energy has prompted the federal government to review the existing policy.

''Regardless of the forward target, existing arrangements should be grandfathered or preserved to honour existing contractual and related investment decisions, to prevent unpredictable tampering'' with targets, the institute noted.

But given the lack of any ''underpinning policy rationale'' for the existing target, this complicates the outcome of the latest inquiry, it said. ''Investor certainty and consumer cost'' are the twin needs to be balanced by the review, it said.

Since the target was established, energy markets have changed dramatically, with a decline in energy usage, most notably electricity, while further change will emerge in the wake of the federal government's planned direct action plan to cut emissions.

The existing policy is aimed at reducing greenhouse gas emissions to 5 per cent below the 2000 level by 2020. But the lack of consensus about future policy settings, and in particular the federal government's direct action plan will be a constraint to future investment in renewables.

The ''manifest uncertainty'' in future policy settings, coupled with the reduction in electricity demand will mean that future investment in renewable energy will be ''inconceivable'', AGL noted in its submission.

It has already invested $3 billion in renewable energy, while other large electricity groups such as Origin Energy have slowed additional spending, as they wait for clearer policy settings to emerge from the federal government.

SOURCE: SMH, May 19th 2014: