Submission on Proposed Approach to Key Modelling Assumptions for 2014 Review of Renewable Energy Target Dear Sir/Madam Thank you for the opportunity to comment on the Consultation Paper on the Proposed Approach to Key Modelling Assumptions for the 2014 Review of the Renewable Energy Target (RET). The Australian Solar Council is the peak body for Australia’s solar industry. With more than 2,000 members, the Australian Solar Council is the largest renewable energy industry association by membership numbers. Our members include solar manufacturers, retailers and installers, academics and interested individuals. Our membership includes residential, commercial and large-scale solar PV, solar thermal and solar hot water companies. You can find more information on the Australian Solar Council at www.solar.org.au Context Under the Renewable Energy (Electricity) Act 2000 [the Act], there is a statutory obligation to review the Renewable Energy Target every two years, including 2014. The Climate Change Authority (CCA) has a statutory obligation to review the RET, and the Australian Solar Council believes the CCA should manage the 2014 RET Review and the modeling exercise as required by law. The RET was last reviewed in 2012, with a final report in December 2012, just 16 months ago. SKM MMA undertook extensive modeling for the 2012 RET Review, and that work should be the basis for the modeling assumptions for the 2014 Review. It is important to note the RET Review cannot make any recommendations that are inconsistent with the objects of the Act (s162 (11) of the Act). The modelling assumptions should reflect this fact. The objects of the Act are: (a) to encourage the additional generation of electricity from renewable sources; and (b) to reduce emissions of greenhouse gases in the electricity sector; and 1 (c) to ensure that renewable energy sources are ecologically sustainable. The RET is designed to ensure that at least 20 per cent of Australia’s electricity generation come from renewable energy sources in 2020. The Terms of Reference for the RET Review and the Consultation Paper on the Proposed Approach to Key Modelling Assumptions incorrectly state the “RET scheme is designed to ensure that 20 per cent of Australia’s electricity generation will come from renewable energy sources by 2020”. Modelling assumptions Any model that ignores the science of climate change and fails to incorporate any price on pollution is fatally flawed and any output from such a model can have no validity. The modelling must include a scenario where there is a price on carbon at varying rates at a minimum based on international carbon pricing schemes, e.g.: EU ETS1, or in the USA the RGGI2 and other countries3. The science on climate change is as robust as any other. It is simply not a rational or sustainable position to ignore such a large body of evidence, which if incorporated in modelling, would have a major and critical impact on the comparisons and assessments being made. A critical point in the context of the RET is the primary aim of emissions reductions. That means that any comparisons drawn should be to known best practice. Business and policy makers everywhere who undertake risk and financial assessments try to do so using world’s best practice. In this case world’s best practice is zero net lifetime emissions for renewable technologies – which is precisely why they are called renewable and sustainable. This means all comparisons must be between current known polluting high emissions technologies and zero or lowest emissions technologies that are deployable commercially now, such as solar PV, concentrated solar power (CSP or solar thermal generation) and wind and the range of mature and 1 2 http://ec.europa.eu/clima/policies/ets/index_en.htm http://www.rggi.org 3 http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/ pubs/BN/2012-2013/EmissionsTradingSchemes 2 emerging low temperature solar technologies for hot water and process heat applications. The established methodology in energy industries of comparing with the worst polluting technology for power generation, coal, is a false comparison. When comparing with the worst polluters and emitting technologies rather than the best we get a ranking of least worst rather than best to worst. That is a poor assessment process which inevitably gives skewed outcomes favouring least worst polluting technologies i.e.: cleaner rather than clean technologies. Technology Costs In recent years, Government agencies have consistently overestimated the cost of solar and underestimated community support for solar. Government reports have often been so conservative or simply outdated in a rapidly changing marketplace that they have been overtaken by real world results even at the date of the release of a report. The renewables sector, even mature areas like wind, are amongst the fastest growing and most innovative in the world with learning rates that bring rapid cost reductions flowing through to price reductions. The modelling on demand and in all other areas should cover ranges – not simply select a midpoint, median or average figures – and the ranges should include at least a low and high scenario that might be now thought unlikely or very unlikely. The assumptions can vary widely and the outcome on models will vary greatly when those assumptions change. The Australian Solar Council supports the use of data from the Bureau of Resource and Energy Economics, but this should be complemented by data from the Clean Energy Regulator, the REC Agents Association (and its individual members) and solar industry analysts Solar Business Services and SunWiz. The Australian Solar Council believes BREE has overestimated the cost of solar thermal, so these costings should be complemented by discussions with the solar thermal industry. Sensitivity analysis should include what might be thought outliers, but also should use recent international historical data on the rapid cost reduction side. Sensitivity analysis should also incorporate a wider range of fossil fuel input pricing than what might be thought ‘consistent with Treasury estimates’ – 3 e.g.: gas at $A20 GJ, $A25 GJ, $A30 GJ & $A40 GJ – all possible global price points for LNG out to 2020 and beyond to the extent of expected operational life of generators (at least 20-30 years). Treasury and other estimates have been found to have a wide margin of error, over 30%. Increases in coal, gas & oil prices have the effect of increasing the competitiveness of all renewables even absent the large price/ cost reductions which have been the history of renewables. An important implication of this is that the modelling should look at future gas prices, as well as electricity prices. Consumer focus The modelling approach appears to be internally focussed and highly technical which expresses a strong bias towards existing market participants and support for their business models. Whilst the consultation paper highlights changes in energy demand from the closure of emissions intensive industries, it does not highlight the growing trend towards the democratisation of energy, with householders protecting themselves from soaring electricity and gas prices. The assumptions do not mention the emerging trend towards energy storage at a household and larger-scale, and this omission should be corrected. The focus of the modelling should be amended to more adequately reflect the goals and objectives of the COAG/ SCER agreement on consumers http://www.scer.gov.au/workstreams/energy-market-reform/nationalenergy-customer-framework/ – i.e.: the residential and small business consumers who currently are greatly under-represented in the energy discourse. The changes to the energy market through distributed energy will follow the experiences in the EU and the USA and be of greatest advantage to residential and small business consumers. In assessing renewables market share, Australia’s total electricity generation needs to be considered. Total electricity generation must also incorporate the impact of: Non-scheduled generation. Generation that is sitting behind electricity customer’s meter - this should include fossil fuel generation (including cogeneration) that is used on a customer’s site as well as renewable generation (solar PV) that is installed at a customer’s premises 4 Where energy avoided by solar hot water is included as part of renewable generation then its contribution needs to also be included in measuring total Australian generation. All generation from any location and from any source should also be included, including Australia’s territories and protectorates, which include renewable generators supported by the RET. The modelling should examine the impact of the Large-scale Renewable Energy Target and the Small-scale Renewable Energy Scheme on wholesale electricity prices. The modelling should examine the extent to which the reduction in wholesale electricity prices caused by renewable energy is being passed through to residential and small-business electricity consumers. The modelling must also incorporate the Government’s commitment to deliver an additional million solar roofs by 2020 through its Million Solar Roofs program. Should you wish to discuss these matters further, please contact me on 0400 102 396. Yours sincerely John Grimes Chief Executive 17 April 2014 5