What the Renewable Energy Target review panel’s report means for those thinking about going solar

The panel tasked with reviewing the Renewable Energy Target has recommended that the scheme “should be substantially reformed” in its report on the topic released yesterday, confirming earlier reports to this effect. Among the more extreme suggested changes it contains are the dismantling of the Small-scale Renewable Energy Scheme (SRES) and the closure of the Large-scale Renewable Energy Target (LRET) to new entrants.

Although the release of the document does not necessarily spell the end of the RET, it is widely seen as having been composed to conform to the government’s intentions for the scheme. The report will also now serve as the cornerstone for the Coalition’s argument for doing away with or weakening the scheme–which was brought into being under the Howard government in 2001 with bipartisan support.

The government’s official response to the report will not come for another few weeks according to the Sydney Morning Herald. It is not clear yet which of the panel’s recommendations it will seek to implement, although at this point nothing seems off limits. Certain changes to the RET will only be possible with legislative approval in the senate (which is unlikely to be cooperative on the matter), but others could be implemented with a ministerial pen stroke.

Recommendations for the Small-scale Renewable Energy Scheme

The panel has recommended that the government take one of four courses of action with regard to the SRES, which provides up-front support for the installation of rooftop solar power and other renewable energy systems under 100kW. Currently, the SRES helps to reduce solar system prices by 30-40%, depending on location.

The long and short of the situation is that subsidies for small-scale solar systems are likely to fall, driving up solar system installation pricesJust how much prices will be affected will depend on which of the following is implemented and whether the Renewable Energy Target remains as-is at 41,000GWh by 2020, or if it is reduced (see next section).

Option 1–the most extreme of the options–is the immediate abolition of the SRES altogether (“should terminate upon announcement”), with only those who had already signed a contract to have a system installed eligible for the subsidy. This would not be possible without approval in the senate.

Option 2 would call for an early phase-out of the SRES, with the scheme winding up in 2020 instead of 2030, as currently legislated. The panel also recommends a gradual, annual reduction of the associated incentive for the duration of the scheme’s existence by reducing the ‘deeming period’ for Small-scale Technology Certificates (STCs) from the current 15 years to 10 years post-announcement and then dropping 1 year annually from 2016 (as per the table below). As the deeming period falls, so will the number of STCs created with a solar PV system installation and the associated subsidy. The reduction of the deeming period would be possible without senate approval and would effectively put an end to the SRES by 2021.

Installation year Deeming period
Before announcement (current) 15 years
After announcement (2014 or 2015) 10 years
2016 9 years
2017 8 years
2018 7 years
2019 6 years
2020 5 years
2021 Scheme closes


Option 3 would recombine the SRES and the LRET, which were separated in 2011 because of the popularity of small-scale systems in Australia, insulating the residential and small-scale commercial markets from the relative volatility of the large-scale renewables markets. The remerging of the two schemes could potentially drive down STC prices, especially if coupled with a reduction in the overall target. The recombination of the SRES and LRET would require senate approval.

Option 4 recommends reducing the 100kW threshold for the SRES to 10kW, a move which could put a significant damper on Australia’s commercial solar sector. The upper limit for a residential solar system is generally considered to be 10kW, so in this scenario the SRES would henceforth become a support scheme specifically for the residential market. Commercial solar system owners would face increased uncertainty as they are subjected to relying on variable, market LGC prices as opposed to a one-time, upfront STC subsidy, while at the same time seeing solar PV system prices increase. Unlike STCs, LGCs are produced on an ongoing basis once a renewable energy system is commissioned. On top of this switch, any changes to the LRET would heap further uncertainty on the owners and operators of systems over 10kW–this would include thousands of businesses across the nation who are considering going solar. The reduction of the 100kW threshold would not be possible without senate approval.

Recommendations for the Large-scale Renewable Energy Target (LRET)

The LRET comprises the main ‘target’ portion of the Renewable Energy Target: under the current RET, 41,000 gigawatt-hours (GWh) of electricity is mandated to come from large-scale renewable plants by the year 2020. With the future of the LRET in question since the last election, its efficacy in fostering large-scale renewable energy project investment and development in Australia has been severely hindered, as investors shy away from the unstable market.

The panel recommends 2 options for the future of the LRET, both of which would require senate approval to implement.

Option 1 is to close the scheme to new applicants, while grandfathering in projects that are already operating or which have reached financial close. The annual target would be set based on existing renewable generators from thereon out. The grandfathering aspect of this suggestion would appear to be a bone thrown to large-scale renewable project developers, who, as noted above, have been suffering from the atmosphere of uncertainty surrounding the RET review.

Option 2 would be to scrap the 41,000GWh target and replace it with a ‘floating target’ that will be adjusted annually and tied to short-range yearly electricity demand forecasts. When the RET was initially conceived, it was assumed that demand would increase steadily, but in recent years it has actually been falling, to the surprise of many. Proponents of changes to the RET say that the 41,000GWh 2020 target no longer represents a 20% target in light of this fact, and that changing the target would right this perceived wrong. Renewable energy advocates argue that the target should be kept as is.

Industry reactions

The Australian solar and renewables industries have reacted with dismay and disappointment at the report. The Australian Solar Council issued a statement strongly condemning the panel’s recommendations, calling it “the most dangerous and extreme attack on solar and renewable energy in Australia’s history.” It goes on:

If the Government accepts the recommendations of the Warburton Report, some 8,000 jobs will go and thousands of small businesses will shut down across the country.

Millions of Australians will find it harder to reduce their power bills.

It is extraordinary to think the Warburton inquiry ignored expert solar industry advice that axing the Renewable Energy Target would see demand for solar fall by 40-50%, with a similar reduction in jobs.

The Warburton inquiry has been a complete sham from start to finish. It is Tony Abbott’s love child. He set up the panel, chaired by a climate change skeptic and stacked with fossil fuel consultants and executives. The Prime Minister personally intervened to ensure the Warburton Report recommended the abolition of the Renewable Energy Target.

Solar campaigners Solar Citizens issued a media release in response to the report’s release, calling its conclusions ‘farcical’ and calling out the government on its connections to vested fossil fuel interests. The group is strongly urging its followers to email their MPs about the importance of maintaining the RET as it is.

“A Review Panel made up of individuals with strong links to the big energy companies was never going to deliver a reasonable report” Campaigns Director Claire O’Rourke said today.

“Tony Abbott hand picked an anti-solar panel and today they have delivered the anti-solar review he asked for.

“Solar Citizens supports industry calls for an inquiry into the handling of the review that has been flawed and compromised from the start.

“The Australian community has already made up its mind about wanting more solar, with 1.3 millions with solar on their rooftop. That equals at least 2 million voters who are now experiencing first-hand the cost savings of going solar delivered by the RET.

“Government-commissioned modelling for the review found that consumers would be an average $56 better off from 2021 if the Target is kept in place.

Pacific Hydro head Lane Crockett has suggested that an inquiry into the government’s handling of the RET review might be in order if the RET were wound back. “Frankly, if they do this, I would call for a Senate inquiry into what’s gone on,” he was quote as saying in the Sydney Morning Herald. “There’s certainly the numbers in the Senate to get an inquiry up.” Labour, the Palmer United Party, the Greens and the Motoring Enthusiaists Party have come together and have promised to block any changes to the RET.

Meanwhile, Greens senator Christine Milne has said that any move to change the target would amount to ‘economic vandalism’.

“They have caused such investment uncertainty and sovereign risk for the renewable energy industry that it is absolutely outrageous that they are sitting on this report,” Senator Milne said.

“This is incredible that we have a government that says Australia is open for business and does everything it can to destroy an industry and the jobs associated with it.”

And Bloomberg New Energy Finance has warned that changes to the RET could set back the Australian renewables industry by a decade.

© 2014 Solar Choice Pty Ltd