August 18, 2011

Australia: $1.5bn cloud over renewables plan

CONSUMERS could be slugged with up to $1.5 billion in extra electricity costs next year as the high Australian dollar and a flood of cheap solar panels from China sabotage the Gillard government's push to take the heat out of its renewable energy scheme.

Installers of solar photovoltaic panels developed increasingly sophisticated marketing schemes for cheap rooftop models, and consumers rushed to install the panels before generous federal subsidies were wound back on July 1, causing an unprecedented spike in installations early this year.

This has forced the government's Office of the Renewable Energy Regulator to dramatically revise up its estimates of how many "small-scale technology certificates" the energy retailers will be required to buy next year to soak up the glut of about 20 million.

The certificates, which are created when households feed solar power from their rooftops back into the main grid, cost the retailers far more than electricity from the existing coal-fired power stations.

AGL Energy, Origin Energy and TRUenergy -- the nation's three biggest energy retailers -- have all suggested the costs of this scheme must be passed on to consumers, adding an estimated $1.5bn to power bills.

And the nation's biggest energy retailer, Origin, has warned that a key plank of Julia Gillard's carbon tax plan -- the creation of a $10bn clean energy fund -- could force power costs even higher by providing new subsidies to the solar industry.

The situation will add to the pressure on the government over its target of producing 20 per cent of electricity from renewable sources such as solar power by 2020, which the Productivity Commission has warned is wasting money and delaying cuts to carbon emissions.

It comes as Alinta Energy chief Jeff Dimery said yesterday Australia had no economically viable baseload renewable energy and warned that the Greens' attack on coal-seam gas added to sovereign risks for investors.

"If you don't have CSG on the east coast and you have the 20 per cent target on renewables and you have a carbon trading regime, then naturally enough you're going to have an exponential increase in costs for energy consumers," Mr Dimery said. "We're being encouraged to close down coal-fired power stations under a carbon regime, and the most economic way of replacing them is with gas. But if you don't know where your fuel supply is coming from, and at what cost, then you're not likely to want to invest in gas baseload."

The office of Climate Change Minister Greg Combet said the number of certificates created each week had slowed considerably since the solar credits multiplier subsidy was cut on July 1.

The multiplier, which inflates the number of certificates households can earn and the electricity retailers must buy, was cut from a factor of five to three on July 1. The rate falls by one point each year until the scheme expires in 2013.

Mr Combet's spokesman said the regulator's estimates suggested the cost of the small-scale scheme in 2013 would be 70 per cent less than next year, as a result of the reduced multiplier.

But the plunge has sparked criticism among renewables companies that a boom-bust cycle is already in full swing.

Clean Energy Council policy director Russell Marsh said government support and the falling cost of solar power systems had created a boom environment for the industry last year and this year, but a "significant market correction" was under way.

"Solar policy has been a moveable feast for the past two years as state and federal governments have tried to respond to the falling costs of systems by turning up or turning down the level of support," Mr Marsh said. "Depending on the policy environment, the price of electricity and the cost of systems, the market could behave very differently to what is predicted."

In NSW, he said, the industry was "now effectively at a stand-still" after the O'Farrell government announced plans to axe the solar bonus scheme in April.

On Wednesday, the operator of the nation's only solar panel manufacturing plant, Silex Solar, announced it would shut down, with the loss of 30 jobs.

Silex Solar has said Chinese imports flooded the market, driving down costs, and it was hard to compete with the lower wages and government assistance there.

New modelling by ACIL Tasman for the Office of the Renewable Energy Regulator has estimated retailers could have to buy 38.5 million small-scale technology certificates next year, equivalent to 20.9 per cent of their energy needs. This includes a glut of 20m certificates from solar panel installations done this year.

But the number of certificates is expected to plunge to 12.1 million in 2013 as moves by the states to cut back their solar feed-in tariffs take effect.

The NSW industry will shrink to about 20 per cent of its inflated levels early this year, while installation rates will fall to a sustainable 35-40 per cent of current levels in Queensland, the modelling found.

According to the ACIL Tasman modelling, prices for the STCs will rise from about $20 to $40 by April next year. Retailers have recently been buying certificates at the discounted market price, although they have told the Queensland authority to assume they would be required to pay $40 for every certificate as this is the set price. At $40, the 38.5 million certificates would cost $1.54bn.

Origin Energy this month told a Queensland Competition Authority review into electricity tariffs for households and small businesses the demand for solar panels had not cooled despite the cuts to the solar credits scheme. "This has been offset by the high Australian dollar and the oversupply of solar panels (specifically from China) causing the price of panels to fall," it told the QCA.

Origin said potential subsidies to support solar technology from the $10bn clean energy fund could further complicate the trade.

Energy Retailers Association of Australia director Cameron O'Reilly said "misdirected" green industry support schemes such as feed-in tariffs and the household renewable energy scheme had pushed up prices and reduced public support for the carbon tax.


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