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GIGA-WHAT? EXPLAINING AUSTRALIA’S RENEWABLE ENERGY TARGET The Climate Council is an independent, crowd-funded organisation providing quality information on climate change to the Australian public. CLIMATECOUNCIL.ORG.AU Authorship: Petra Stock Published by the Climate Council of Australia Limited ISBN: 978-0-9942453-4-2 (web) © Climate Council of Australia Ltd 2015 This work is copyright the Climate Council of Australia Ltd. All material contained in this work is copyright the Climate Council of Australia Ltd except where a third party source is indicated. Climate Council of Australia Ltd copyright material is licensed under the Creative Commons Attribution 3.0 Australia License. To view a copy of this license visit http://creativecommons.org.au You are free to copy, communicate and adapt the Climate Council of Australia Ltd copyright material so long as you attribute the Climate Council of Australia Ltd and the authors in the following manner: Giga-What? A guide to the Renewable Energy Target by Petra Stock (Climate Council of Australia). © Climate Council of Australia Limited 2015. Permission to use third party copyright content in this publication can be sought from the relevant third party copyright owner/s. This report is printed on 100% recycled paper. Petra Stock KEY FINDINGS Key Findings 1. Renewable energy is a crucial way to reduce carbon emissions from electricity supply and combat climate change. ›› Burning fossil fuels for electricity production is the largest source of greenhouse gas emissions driving climate change. ›› Australia’s renewable energy resources are capable of producing 500 times the amount of electricity we currently use. ›› A Productivity Commission review of more than 1,000 emissions reduction policies found that policies encouraging additional large-scale renewable electricity power plants were the secondmost cost-effective set of policies after emissions trading schemes. 3. The Renewable Energy Target has reduced greenhouse gas emissions in Australia. ›› To date, the Renewable Energy Target has reduced greenhouse gas emissions by 22.5 million tonnes carbon dioxide- equivalent to 10 per cent of Australia’s annual electricity emissions. ›› In future, if the current policy continues, the RET will reduce emissions by 58 million tonnes carbon dioxide (2015–2020) – equivalent to annual emissions from all of Australia’s passenger cars and light commercial vehicles. 2. While renewable energy is booming globally, policy uncertainty around the Renewable Energy Target means investment has fallen in Australia. ›› Investment in large-scale renewable energy projects fell 88 percent in Australia in 2014, while global investment in renewable energy grew. CLIMATECOUNCIL.ORG.AU Page 1 GIGA-WHAT? EXPLAINING AUSTRALIA’S RENEWABLE ENERGY TARGET 1. Introduction Over the past year, there has been plenty of wrangling over the future of Australia’s renewable energy target (RET). The RET debate tends to get caught up in technical terms and specialised arguments – like how many gigawatthours (GWh) the target should be – making it difficult for anyone not in the renewable energy industry to follow. Renewable energy is an important solution to climate change given the energy sector is responsible for both the largest proportion and biggest growth of greenhouse gas emissions created by people (IPCC 2014). Page 2 The Climate Council is consistently asked questions from the public and the media about renewable energy and the RET. This report aims to provide a simple guide to how this policy works, explaining key terms and concepts, and answering common misconceptions. Given the majority – over 70% - of Australians support retaining or increasing the RET (Climate Institute 2014), it’s important for all of us to understand what changes, if any, are proposed following the recent Warburton (Commonwealth of Australia 2014) and Climate Change Authority (2014) reviews. We hope this report helps you to unscramble the technical jargon and get to the bottom of any announcements, reports or proposals on the RET. CLIMATECOUNCIL.ORG.AU 02 BACK TO BASICS: WHAT IS A RENEWABLE ENERGY TARGET? 2. Back to basics: What is a renewable energy target? A renewable energy target is a policy to encourage more renewable energy, that is energy produced from naturally replenished sources such as sunlight, wind, rain, tides and heat from the Earth (ARENA 2014). abundant and free fuel source with limited reliance on scarce resources like water; health and environmental benefits; energy access and security; and to provide an economic boost to regional economies (Box 1). There are many reasons countries, like Australia, adopt renewable energy targets: action on climate change; an Australia’s renewable energy resources are capable of providing 500 times the amount of electricity we currently use. CLIMATECOUNCIL.ORG.AU Page 3 GIGA-WHAT? EXPLAINING AUSTRALIA’S RENEWABLE ENERGY TARGET BE PREPARED: CLIMATE CHANGE AND THE AUSTRALIAN BUSHFIRE THREAT majority of the nt should stay n the confines main margins, while the grey ound and box push outside. IN IN DETAIL DETAIL11 Box 1: Reasons for having a Forest Fire Danger Index renewable energy target Note the switch from a 7 column grid to one with 6. This makes increasing to as be the“severe”—a season progresses. In fire ignited The Forest FireFire Danger hasIndex been(FFDI) a feature was of the 50 are considered the most of what moresothan mm on suchareas a daythat willreceive likely burn hot 1000 and fast developed in the 1960s by CSIRO scientist A.G. Australian environment for at least of rainfall per year, about 35% of the land that suppression becomes difficult. For forests, a MacArthur to measure the degree of risk of 65 million years (Cary et al., 2012). ACTION ON CLIMATE CHANGE LIMITED RELIANCE ON SCARCE is essentially can be burnt in a typical year (Russellrating over 75 is categorised as “Extreme”. fire in Australian forests (Luke and Macarthur, Human management of fires also an information RESOURCES, LIKE WATER Renewable energy aim reduce Smith et al., 2007). 1978). The Bureau ofaMeteorology andstarting fire to with has longtargets history, heavy page, and The FFDI on 7th February 2009 in Victoria, management agencies the FFDI to assess fire useuse by indigenous Australians Renewable energy technologies emissions in the electricity sector, breaks up the southeast andranged southwest, known In as the “Black Saturday”, fromfires 120 to fire risk and issue warnings.farming”) up to 60,000 (“fire-stick (other than hydroelectricity) do not main section which is “pivotal” for limiting global 190, theare common the heathlands dry highest FFDIin values on record and (Karoly, years ago. European settlement require large of water for content further sclerophyll forests, typically occurring 2009). Following these fires thequantities FFDI in Victoria The index is calculated inchanges real time by brought in2°C fire activity warming to no more than (Climate aboutand every to 30 years, with springor and was revised the5category “Catastrophic” combining a number of meteorological with flow-on effects to Australian cooling unlike coal and nuclear (US by providing Change Authority 2014). This is because summer being peak fire season (Clarke variables: preceding rainfall and evaporation; “Code Red” was added (FFDI>100). Consistent landscapes. visual variety. Environmental Protection et al., 2011; Bradstock etof al.,hot 2012a). with the increasing incidence and Fires Agency 2014). current wind speed; temperature; and humidity. globally and in Australia, electricity 3% andFire 10%Danger of Australia’s land in the southeast arebeen oftenaassociated dry conditions, there have number of A related index,Between the Grassland shown here): o the specific of the content phs and tables more detailed se pages than ed data in the he document. produced using fossil fuels is the largest every year (Western with periods of El Niño drought (Murphy declarations of Catastrophic conditions around Index (GFDI), isarea alsoburns used in some regions andAustralian HEALTH AND ENVIRONMENTAL source of greenhouse gas emissions Land Authority, 2013) (Figs. et al., 2013) and may be extremely southern Australia since Black Saturday. States, calibrated for Information more flammable grassland BENEFITS 1 and 2). In the north of the continent, (El Niño is the phase of the conditions. (Department of the Environment 2014; intense extensive areas of the tropical savanna El Niño-Southern (ENSO) The FFDI is not only usedOscillation by management IPCC 2014). In Australia, around 90%agencies of phenomenon operation, electricity emits woodlands and grasslands are burnt characterised warm dry toIn calculate risk, it hasrenewable alsoby become The FFDI was originally designed on a scale every winter during the dry season. conditions, while LaFor Niña phase is an important tool for research. example, from 0 to 100. MacArthur used the conditions of High electricity is generated by fossil fuels, little or nothe toxic waste. In contrast, each rainfall the summer followed characterised by cool, wet conditions). the probability of destruction of property in the catastrophic Black during Friday fires of 1939 to set with 75% coming from coal (Australian ofsclerophyll coal’s lifecycle toxic and by a dry winter, together with the Sydney Firespart in wethas forests, suchemits as basin been found to increase the maximum value of warm 100. These fires burned the and presence of a highly combustible the mountain ash forests in(Bradstock Victoria, significantly with increasing FFDI 5 million hectares constituted, at the time, Energy Market Operator 2013a). carcinogenic substances with severe grass creates a very flammable and Gill, are less frequent of very 2001). The FFDIbut hascan alsobe been used one of the largest firelayer, events known globally. Australia’s coal fired power stations health impacts forinminers, workers and incidence peaks highin intensity when do occur projections ofthey fire risk the(Gill, An index of 12 environment. to 25 describesFire conditions with a inextensively are highly polluting, units using the late winter dry season, with 1975). Fires are in the future (see section 7). rare in rainforests “high” degree of danger. Daysageing with ratings overintensity local communities (Climate Council absence of disturbances less efficient technology (Climate 2014b). In China, reducing air pollution such as logging cyclones * In Tasmania, the or “Catastrophic” Forest Fire Grasslandis Fire Council 2014a). a major driver its renewable category is indicated by the because of the behind moist shaded Category colour black Danger Index Danger Index local climate (Little et al., energy (Sources: targets (Climate Council 2014c). CFA, 2009, Bureau 2012). Arid central Australia 150 + of Meteorology http://www. AN ABUNDANT AND FREE 100 + CATASTROPHIC (CODE RED)* experiences intermittent bom.gov.au/weather-services/ FUEL SOURCE EXTREME 75–99 bushfire/) fires, typically following ENERGY ACCESS AND SECURITY 100–149 periods of extremely high 50–99 Renewable energy resources 50–74 are SEVERE Renewable provide an rainfall energy associatedcan with La Niña events because these readily available and free once capital 25–49 25–49 affordable and reliable source of energy VERY HIGH events lead to increased fuel isHIGH invested to harvest them. In Australia, 12–24withinload country 12–24 (Murphyborders, et al., 2013) thereby limiting (Fig. 3). our renewable energy resources are 0–11 0–11reliance on imported fuels such as LOW TO MODERATE among the best in the world; potentially oil andThe gas (IEAof2007). concept “fire regimes” is important for understanding capable of providing 500 times the amount of electricity we currently AN ECONOMIC BOOST TO REGIONAL ECONOMIES Page 1 CLIMATECOUNCIL.ORG.AU use (Geoscience Australia and ABARE 2010; AEMO 2013b). On the other hand, Renewable energy can attract investment fossil fuels are never free, and most, and create jobs in regional areas. Farmers like oil, gas and black coal, are now and landowners in regional areas can priced through international trading benefit from annual lease payments mechanisms. “drought-proofing” farms by providing a reliable, alternative source of income (Climate Council 2014d; REN21 2014). Page 4 CLIMATECOUNCIL.ORG.AU Page 16 03 RENEWABLE ENERGY TARGETS AROUND THE WORLD 3. Renewable energy targets around the world Australia was one of the first countries in the world to introduce a national renewable energy target (Clean Energy Regulator 2013). Now, renewable energy targets are common worldwide. At the beginning of 2014, 144 countries (as well as thousands of states, cities and towns) had renewable energy targets in place (REN21 2014; Figure 1). Figure 1: The number of countries with renewable energy targets is growing Countries with Renewable Energy Targets 144 T I L A U Q W O L 127 COUNTRIES WITH RENEWABLE ENERGY TARGETS IN 2012 138 E G A Y IM COUNTRIES WITH RENEWABLE ENERGY TARGETS IN 2014 COUNTRIES WITH RENEWABLE ENERGY TARGETS IN 2013 Source: REN21 2014 CLIMATECOUNCIL.ORG.AU Page 5 GIGA-WHAT? EXPLAINING AUSTRALIA’S RENEWABLE ENERGY TARGET Table 1: Renewable energy target examples around the world Area Target Denmark 50% renewable electricity by 2020 100% by 2050 Indonesia 26% renewable electricity by 2025 New Zealand 90% renewable electricity by 2025 California 50% renewable electricity by 2030 Australia 41,000 GWh large-scale renewable electricity annually by 2020 plus uncapped support for eligible small-scale solar and wind South Australia 50% renewable electricity by 2025 Targets for all energy consumed (includes electricity, transport, heating...) European Union (28 countries) 20% renewables of all energy consumed by 2020 Targets for heating and cooling United Kingdom 12% renewables in total heating and cooling supply by 2020 Targets for transport Germany 20% renewables of transport energy consumed by 2020 Targets for installing specific renewable energy technologies (capacity targets) China Overall target of 20% zero emissions energy for all energy by 2030 Technology specific targets: 420 GW hydropower by 2020 200 GW wind power by 2020 50 GW solar photovoltaic power by 2020 200 GW concentrating solar power by 2020 30 GW biomass power by 2020 India Overall target of 15% renewable electricity (not including hydroelectricity) by 2020 Capacity targets: 100 GW solar power by 2022 60 GW wind power by 2022 Note: To gain a sense of the scale of capacity targets – the capacity of Australia’s total electricity supply is 56 GW, and installed renewable electricity capacity is 15.7 GW Sources: REN21 2014; RenewEconomy 2014a and b; Governor of the State of California 2015; Institute for Energy Economics and Financial Analysis 2015 Page 6 CLIMATECOUNCIL.ORG.AU 03 RENEWABLE ENERGY TARGETS AROUND THE WORLD China aims to increase wind power by 200 GW in the next 5 years, that’s more than three times Australia’s entire electricity supply. BE PREPARED: CLIMATE CHANGE AND THE AUSTRALIAN BUSHFIRE THREAT ty of the ould stay confines margins, the grey and box outside. wn here): specific content nd tables detailed ges than ta in the cument. IN IN DETAIL DETAIL12 Box 2: What’s a watt? Key Forest Fire Danger Index technical terms explained. Note the switch from a 7 column grid to one with 6. This makes increasing to as be the“severe”—a season progresses. In fire ignited The Forest FireFire Danger hasIndex been(FFDI) a feature was of the 50 are considered the most of what moresothan mm on suchareas a daythat willreceive likely burn hot 1000 and fast developed in the 1960s by CSIRO scientist A.G. Australian environment for at least Gigawatts (GW) and megawatts (MW) are measures of capacity. Capacity is the is essentially of rainfall becomes per year, about 35%For of forests, the landa that suppression difficult. MacArthur to measure the degree of risk of 65 million years (Cary et al., 2012). can be burnt in a typical year (Russellrating over 75station, is categorised “Extreme”. fire in Australian forests (Luke Macarthur, Human management of fires also maximum amount ofand electricity that a power or as multiple power stations are an information Smith et al., 2007). 1978). The Bureau andstarting fire hasofaMeteorology long history, with heavy page, and capable of producing (Climate Council 2014a). The FFDI on 7th February 2009 in Victoria, management agencies FFDI to assess fire useuse by the indigenous Australians breaks up the southeast andranged southwest, known In as the “Black Saturday”, fromfires 120 to fire risk and issue warnings.farming”) up to 60,000 (“fire-stick For example, a typical wind settlement turbine has a are capacity of between –dry3 MW, and themain section common the heathlands and 190, the highest FFDIin values on record1.5 (Karoly, years ago. European sclerophyll forests, typically occurring Following fires the in Victoria The index is calculated inchanges real time by brought in electricity fire activity2009). total capacity of Australia’s supply wasthese 56 GW (orFFDI 56,000 MW) in 2012–13 content further aboutand every to 30 years, with springor and was revised the5category “Catastrophic” combining a number of meteorological with flow-on effects to Australian (BREE 2014b). by providing summer being peak fire season (Clarke “Code Red” was added (FFDI>100). Consistent variables: preceding rainfall and evaporation; landscapes. visual variety. etincreasing al., 2011; Bradstock etof al.,hot 2012a). with the incidence and Fires current wind speed; temperature; and humidity. 3% andFire 10% of Australia’s land in the southeast arebeen oftenby conditions, there have aassociated number of A related index,Between the Grassland Gigawatthour (GWh) is aDanger measure ofdry electricity generated a power station/s over a every year (Western with periods of El Niño drought (Murphy declarations of Catastrophic conditions around Index (GFDI), isarea alsoburns used in some regions andAustralian period of time. For example, the totalsouthern amount of electricity generated in Australia in Land Authority, 2013) (Figs. et al., 2013) and may be extremely Australia since Black Saturday. States, calibrated for Information more flammable grassland 1 and 2). In the north of the continent, conditions. was 2012–13 249,000 GWh (BREE 2014b). intense (El Niño is the phase of the extensive areas of the tropical savanna El Niño-Southern (ENSO) The FFDI is not only usedOscillation by management woodlands and grasslands are burnt agencies phenomenon characterised warm dry to calculate risk, it has alsoby become The FFDI was originally designed on a scale Renewable energyused certificates are a an kind of tradable currency representing every winter during the dry season. conditions, while the LaFor Niña phase is important tool for research. example, from 0 to 100. MacArthur the conditions of High rainfall the summer followed characterised by cool, wet conditions). the probability of = destruction of property in the catastrophic Black during Friday fires of 1939 to set(one renewable electricity generation certificate one MWh). Renewable energy a dry winter, together Firesbasin in wethas sclerophyll forests, such as been found to increase the maximum by value of warm 100. These fires burnedwith the Sydney certificates are created by large-scale renewable energy power plants or small-scale the and presence of a highly combustible the mountain ash forests in(Bradstock Victoria, significantly with increasing FFDI 5 million hectares constituted, at the time, (household) renewable energy systems. Certificates can be bought grass creates a very flammable are less frequent but of very and Gill, 2001). The FFDI hascan alsobe been used and sold, before one of the largest firelayer, events known globally. environment. Fire incidence peaks in high intensity when they do occur An index of 12 to 25 describes conditions with a extensively in projections of fire risk in the(Gill, they are eventually handed in to the Clean Energy Regulator, a Commonwealth the late winter season, 1975). Fires are “high” degree of danger. Daysdry with ratingswith overintensity future (see section 7). rare in rainforests in the Government department (Clean Energy Regulator absence 2014a).of disturbances such as logging cyclones * In Tasmania, the or “Catastrophic” Forest Fire Grassland Fire category of is indicated by the because the moist shaded Category colour black Danger Index Danger Index local climate (Little et al., (Sources: CFA, 2009, Bureau 2012). Arid central Australia 100 + 150 + of Meteorology http://www. CATASTROPHIC (CODE RED)* experiences intermittent bom.gov.au/weather-services/ bushfire/) fires, typically following 75–99 100–149 EXTREME periods of extremely high 50–74 50–99 SEVERE rainfall associated with La Niña events because these 25–49 25–49 VERY HIGH events lead to increased fuel 12–24 12–24 load (Murphy et al., 2013) HIGH (Fig. 3). 0–11 0–11 LOW TO MODERATE The concept of “fire regimes” is important for understanding Page 1 CLIMATECOUNCIL.ORG.AU Page 16 CLIMATECOUNCIL.ORG.AU Page 7 GIGA-WHAT? EXPLAINING AUSTRALIA’S RENEWABLE ENERGY TARGET 4. About Australia’s Renewable Energy Target The RET aims to: a)encourage additional renewable electricity b)reduce emissions of greenhouse gases in the electricity sector c)ensure that renewable energy sources are ecologically sustainable. The RET target is made up of: ›› A Large-scale Renewable Energy Target (41,000 GWh annually by 2020) – a capped target to encourage new major renewable energy power plants, like wind farms, large solar plants and hydroelectric power stations (Figure 2a). ›› A Small-scale Renewable Energy Scheme – an uncapped scheme to encourage small-scale renewables, such as household solar photovoltaic panels and solar hot water heating (Figure 2b). Page 8 In 2009, the RET was expanded with the aim to generate at least 20 percent of Australia’s electricity from renewable sources by 2020 (Climate Change Authority 2012). The Large-Scale Renewable Energy Target steadily increases up to a 2020 target of 41,000 GWh, requiring electricity retailers to source more and more renewable electricity every year (Clean Energy Regulator 2014a and 2014b). To meet the increasing targets, new renewable power stations need to be built. And, to finance these power stations, renewable power generators usually need long-term contracts with electricity retailers (sometimes called off-take agreements) to sell their electricity and renewable energy certificates (ESAA 2014). CLIMATECOUNCIL.ORG.AU 04 ABOUT AUSTRALIA’S RENEWABLE ENERGY TARGET Figure 2: (from top to bottom) (a) Large-scale renewable energy and (b) Small-scale renewable energy CLIMATECOUNCIL.ORG.AU Page 9 1998 8.7* 1999 8.5* CLIMATECOUNCIL.ORG.AU 2002 ›› Target be increased and extended. ›› Broad community support for MRET 2003-04 Tambling Inquiry 2001 7.7* 8.5* 2004 8.9* 2005 9.3* ›› Transition statebased renewable energy targets to the national scheme. ›› Introduce incentives for household renewables 2007 8.2* ›› RET be split into large and small scale renewables targets. 2009 8.6* ›› Reduce frequency of RET reviews ›› Retain RET as GWh targets 2012 Climate Change Authority review 2008 7.5* Legislated target – 45,000 GWh of additional renewable electricity by 2020 (above 1997 baseline) RET increased requiring at least 20 percent renewable electricity by 2020. 7 September 2009 2010 Review 2006 8.7* Both major parties commit to expand the RET to 15-20 percent. 2007 Federal election 2009 Consultation on increasing MRET: 2003 8.2* ›› New South Wales: 10 percent of electricity consumption by 2010 (planned). ›› South Australia: 20 percent of electricity generation by 2020 ›› Victoria: 10 percent of electricity generation by 2016 MRET achieved – Commonwealth Government decides not to increase the MRET. In response, States introduce renewable energy targets: 2006 – 07 2010 10.4* ›› Wind back or abolish key elements ›› RET meeting its objectives 2014 Warburton review 2011 10.3* ›› An uncapped scheme for additional smallscale renewable electricity by 2020 ›› 41,000 GWh of additional largescale renewable electricity by 2020 2012 13.1* RET split into large-scale and smallscale renewable energy targets: 1 January 2011 Sources: Department of the Prime Minister and Cabinet 1997; Climate Change Authority 2012; BREE 2014b and 2014c*; Parliament of Australia 2014; Pitt&Sherry 2014 and 2015** 2000 8.0* Legislated target – 9,500 GWh of additional renewable electricity by 2010 (above 1997 baseline) MRET introduced– requiring two percent additional renewable electricity by 2010 1 April 2001 ›› Recommendations and findings Inquiries and Reviews 1997 8.6* 1997 is set as renewable electricity baseline. Australia’s renewable energy target announced - Prime Minister John Howard announces the Mandatory Renewable Energy Target (MRET) in Safeguarding the Future: Australia’s Response to Climate Change. 20 November 1997 Key Events SHORT HISTORY OF THE RET Percentage Renewable Electricity Generation (%) Page 10 2014 12.2** (data not including WA and NT) ›› Defer largescale target by up to 3 years ›› Retain the RET as is 2014 Climate Change Authority review 2013 14.3** (data not including WA and NT) Both major parties commit to retaining the RET. 2013 Federal election 04 ABOUT AUSTRALIA’S RENEWABLE ENERGY TARGET Table 2: RET Report Card How is the RET performing against its objectives? Objective Comments Encourage additional renewable electricity Large-scale renewables ›› More than 400 additional large-scale renewable power stations built (Climate Change Authority 2014). ›› Increased renewable electricity from 8% (2001) to 13.1% (2013) (BREE 2014c). Small-scale renewables ›› Nearly 1.4 million rooftop solar photovoltaic systems installed (Clean Energy Regulator 2015) Reduce greenhouse gas emissions in the electricity sector Australia’s RET was originally designed as a policy response to climate change (Department of Prime Minister and Cabinet 1997). To date the RET has reduced greenhouse gas emissions by: ›› 22.5 million tonnes carbon dioxide (2001–2014) – equivalent to 10% of Australia’s annual electricity emissions In future the RET will reduce emissions by: ›› 58 million tonnes carbon dioxide (2015–2020) – equivalent to annual emissions from all of Australia’s passenger cars and light commercial vehicles ›› 299 million tonnes carbon dioxide (2015–2030) – equivalent to half of Australia’s current total annual emissions (Climate Change Authority 2014). Ensure renewable energy sources are ecologically sustainable CLIMATECOUNCIL.ORG.AU All renewable power stations accredited under the Act comply with all federal, state and local planning and environmental laws (Commonwealth of Australia 2014). Page 11 GIGA-WHAT? EXPLAINING AUSTRALIA’S RENEWABLE ENERGY TARGET Page 12 CLIMATECOUNCIL.ORG.AU 05 HOW POLICY UNCERTAINTY AFFECTS INVESTMENT 5. How policy uncertainty affects investment To invest in renewable energy projects, financiers, like banks, need certainty in government policy and legislation to be able to forecast future electricity prices and revenue (ESAA 2014). When governments change existing policies and laws, or create concern about possible future changes, this heightens the sense of risk for investors. This risk is called “sovereign risk” and is one of the most damaging sorts of risks to investors as it undermines the legal basis on which past investments have been made, and increases perceptions of future investment risk. International investors tend to look for countries with low sovereign risk in which to invest. Uncertainty about government policy raises the cost of capital, and damages investment, jobs and growth (Global Commission on the Economy and Climate 2014). The Climate Change Authority (2012, 2014) argues frequent reviews of the RET are contributing to uncertainty and discouraging investment. There have been six reviews of the RET since 2001, two of which were in 2014 (Clean Energy Council 2014; ESAA 2014; Infographic – ‘Short History of the RET’). CLIMATECOUNCIL.ORG.AU In Australia, policy uncertainty caused by two reviews of the RET together with the repeal of the Carbon Price has effectively frozen new investment in renewable energy since late 2013 (ESAA 2014; Sydney Morning Herald 2014). “Banks stated that in the period from 2002 to 2013, there was growing interest in renewables and strong lending liquidity… In 2014, however there have been very few (if any) renewable energy transactions” (ESAA 2014) Bloomberg New Energy Finance reported an 88% drop in large-scale renewable energy investment in Australia compared with 2013 – the lowest investment in large-scale renewables since 2002 (Sydney Morning Herald 2015). All renewable energy investment in Australia fell 35 percent in 2014 to $3.7 billion even though globally, investment in renewables grew by 16 percent. Bloomberg New Energy Finance (2015) reported renewable energy investment increased to $310 billion worldwide in 2014, led by China, investing $89.5 billion, and Japan $41.3 billion. Page 13 GIGA-WHAT? EXPLAINING AUSTRALIA’S RENEWABLE ENERGY TARGET Policy uncertainty also led to a “hiatus” in mergers and acquisitions in renewable energy assets in Australia last year, despite the global value of such deals in renewables rising 13 percent (PwC 2015). “A reduction in renewable targets is likely to adversely affect the industry, given investments already made in achieving the existing targets. It is difficult to foresee any pick-up in Australian renewables deal flow until there is a more positive and certain policy outlook for renewable power projects.” (PwC 2015) Even if a political deal is reached on the future of the RET, the key challenge will be to shift the sense of uncertainty and return investor confidence to ensure the targets set out in the Act can be met. Investment in large-scale renewable energy projects fell 88 percent in Australia in 2014, as global investment in renewable energy grew. Page 14 CLIMATECOUNCIL.ORG.AU CONCLUSION Conclusion Renewable energy targets are a “pivotal” Australia is blessed with abundant policy tool for reducing carbon emissions renewable energy resources, more than from electricity supply. After emissions 500 times our current electricity needs. trading schemes, policies like the RET Meanwhile our power plants are ageing which encourage large-scale renewable and will need to be closed or replaced energy are the next most cost-effective in coming decades. way to reduce carbon emissions. Globally, Over more than a decade, the RET the number of countries with renewable has increased the supply of renewable energy targets is increasing over time, energy thereby reducing greenhouse gas as are the targets themselves. emissions from electricity generation. CLIMATECOUNCIL.ORG.AU Page 15 GIGA-WHAT? EXPLAINING AUSTRALIA’S RENEWABLE ENERGY TARGET References ACIL Allen Consulting (2014) RET Review Modelling. Market Modelling of Various RET Policy Options, Report to RET Review Expert Panel. Accessed at https://retreview.dpmc.gov.au/sites/ default/files/files/ACIL_Report.pdf. Climate Change Authority (2012) Renewable Energy Target Review Final Report. Accessed at http://www.climatechangeauthority.gov.au/ files/20121210%20Renewable%20Energy%20 Target%20Review_MASTER.pdf. AEMO (Australian Energy Market Operator) (2013a) NEM Historical Market Information Report. Accessed at http://www.aemo.com.au/Electricity/ Planning/Related-Information/Historical-MarketInformation-Report. Climate Change Authority (2014) Renewable energy target review report. Accessed at http://www. climatechangeauthority.gov.au/files/files/reviews/ ret/2014/review.pdf. AEMO (2013b) 100 per cent renewables study modeling outcomes. 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EXPLAINING AUSTRALIA’S RENEWABLE ENERGY TARGET Image Credits Cover photo: “Brown Hill Range wind turbines at sunrise” by Flickr user David Clarke licensed under CC BY-NC-ND 2.0 Page 9: Figure 2a Large Scale Renewables: “Albany Wind Farm” by Flickr user Bentley Smith licensed under CC by –NC-ND 2.0, accessed at https://www. flickr.com/photos/superciliousness/29624786 Page 9: Figure 2b Small Scale Renewables: “Solar panels on old home” by Flickr user Michael Coghlan licensed under CC by –NC-ND 2.0, accessed at https://www.flickr.com/photos/ mikecogh/9223731920 Page 18 CLIMATECOUNCIL.ORG.AU