Renewable energy: Policy, regulation, and institutions
This section provides a description of the key policy, regulatory, and
institutional settings of renewable energy in Australia, with the view
to assess the efficacy of these settings.
Policy
The review of policy setting for renewable energy in Australia is
divided in this section into four time-periods, according to the
changing position taken by the Australian government towards climate
change policy in general, and renewable energy policy in particular.
These time periods are:
1980-1996: The debate of climate change in Australia traces
back to the 1980s. For example, in 1980, a conference was held by the
Australian Academy of Science to discuss 20 years of measurements that
show an increase in the levels of GHG emissions (Burgmann and Baer,
2012). Later, the Commonwealth Scientific and Industrial Research
Organisation (CSIRO) held two conferences (in 1987 and 1988), focusing
on the biological and social impacts of climate change. These two
conferences attracted considerable public attention (Staples, 2009).
Besides, Australian scientists also played active role in the
international conference on climate change held in Toronto in 1988,
which called for a 20 per cent reduction of global emissions from
current levels by 2005, known as the Toronto target (Staples, 2009).
The early debate of climate change in Australia had raised extensive
public concerns about dangerous effects of GHG emissions, yet political
will to act was limited. For example, in 1989, a proposal was made by
the Environment Minister to adopt an Interim Planning Target of reducing
emissions to 20 per cent below 1988 levels by 2005. The proposal was
however rejected due to strong opposition from ministers with economic
and resource portfolios. It was later accepted with the proviso that
measures for achieving the interim target would not be introduced at the
expense of the economy – the so called no-regrets measures (Burgmann
and Baer, 2012).
In 1992, the Council of Australian Government (COAG) endorsed the
National Greenhouse Response Strategy (NGRS), which called for the
pursuit of no-regrets measures that ‘meet equity objectives by causing
minimal disruption to the wider community, and single industry sector,
or any geographical region’ (National Greenhouse Advisory Panel, 1996,
pp 12-13). Accordingly, measures recommended by the NGRS mainly focused
on voluntary actions for emissions reduction. In the context of
electricity industry, market reforms were recommended based on the
argument that these reforms could establish the primacy of pricing
mechanism in the industry, which could foster competition, and hence
provide appropriate signals for attracting new investment, especially in
renewable energy and co-generation (Commonwealth of Australia, 1997).
The emerging evidence however suggests that the NGRS had failed to meet
the interim target (Wilkenfeld et al., 1995). For example, in the
electricity industry, market reforms had failed to encourage generators
to take voluntary actions (e.g., investment in renewable
generation) for reducing their emissions. Rather, the market reforms had
tended to encourage them to use low-quality high-GHG-emitting coal for
power generation, and to rehabilitate some old less-efficient coal power
plants, with the view to minimise short-run marginal costs of
electricity (Sharma, 2003). According to Findlay (2000),
‘…introduction of electricity markets has increased Greenhouse
gas emissions by 6 million tonnes of CO2 equivalents per
year above the predictions, yet the restructuring of the electricity
industry was the centrepiece of the 1992 National Greenhouse Response
Strategy!’.
1997-2006: In response to the failure of the NGRS and growing
public pressure for Australian government to act on climate change, the
federal Coalition government announced in 1997 a $180 million, 5-year
package of measures – Safeguarding the Future: Australia’s
Response to Climate Change – that constituted the National Greenhouse
Strategy (NGS). The NGS was targeted to deliver a ‘reduction of a third
in our expected net emissions growth from 1990-2010…from 28 to 18
per cent in that period’ (Commonwealth of Australia, 2000). There was
one measure in the NGS specifically identified as going beyond
no-regrets measures – the Mandatory Renewable Energy Target (MRET). The
MRET provided financial incentives to renewable generators in the form
of tradeable certificates (Renewable Energy Certificates, RECs). The
RECs were created for every megawatt hour of electricity renewable
generators produce. Electricity retailers were obligated to purchase the
RECs to meet their annual renewable energy obligations. The obligations
were to have 2% of electricity sales from renewable sources by 2010,
equivalent to 9,500 GWh of electricity generation in that year (Moran
and Sood, 2013).
Despite some progress in promoting renewable generation, overall the NGS
was seen by many commentators as insufficient because it mainly
reinstated the previously cancelled measures (Taplin and Yu, 2000). This
view was also supported by some speculation that the NGS was largely
introduced as an attempt to convince the international community that
Australia should be given special consideration in the Kyoto
negotiations, as the country has already made significant efforts to
reduce its emissions (Hamilton, 2000; Taplin and Yu, 2000). This
speculation may get substantiated by the strong position taken by the
Australian government during the Kyoto negotiations, particularly the
threat to withdraw from the negotiations, and refusal to ratify the
Protocol, even with the inclusion of the controversial land-clearing
clause (i.e., the Australia Clause).
In contrast to the federal government, Australian state governments
appeared to have taken more active actions for emissions reduction. For
example, the New South Wales government introduced the Greenhouse Gas
Reduction Scheme (GGAS) in 2003. It was one of the world’s first
mandatory emissions trading scheme for the power sector. This scheme had
provided significant support for renewable generation, leading to
emissions reduction of 90 million tonnes (Burgmann and Baer, 2012).
Besides, feed-in tariffs (FiTs) were also provided in various states,
mainly focusing on the promotion of residential rooftop solar PVs
(Nielson, 2010). In addition, in 2004, a working groups was established
by the First Ministers of all Australian State and Territory governments
to discuss the development of a national emissions trading scheme (ETS)
(Warren et al., 2016).
2007-2012: Australia’s environmental stance had drastically
changed after the 2007 federal election. Immediately after the election,
the Labour government ratified the Kyoto Protocol with unconditional
emissions reduction target of 5 per cent below 2000 levels by 2020, and
conditional target of 15-25% subject to international commitment
(Cheung and Davies, 2017). In 2010, the Labour government also expanded
the MRET to 45,000 GWh by 2020 (equivalent to 20% of electricity sales
in that year) (MacGill and Healy, 2013). In the following year, the MRET
was further separated into two components. They are: 1) the Small-scale
Renewable Energy Scheme (SRES) that covers small-scale renewable
installations (for example, rooftop solar PVs, and solar water heaters);
and 2) the Large-scale Renewable Energy Scheme (LRET) that covers
utility-scale renewable power stations (such as, wind farms, and solar
PVs). This separation was made due to concerns about excessive supply of
RECs created by a large number of small-scale installations (for
example, rooftop PVs) fuelled by state-based FiTs and its crippling
impacts on REC prices (Nielson, 2010).
In addition, the Labour government had also made some attempts to
introduce a national carbon pricing scheme – the Carbon Pollution
Reduction Scheme (CPRS), which is likely to benefit renewable energy,
because it will improve the cost-competitiveness of renewable generation
by increasing the cost of fossil fuel generation. These attempts had
however failed, due mainly to the lack of bipartisan support for the
CPRS and growing public concerns in regard to the cost of climate change
policies following the 2007-08 financial crisis (McDonald, 2015). Later,
a modified carbon pricing scheme was introduced (in 2011), which
commenced with a fixed price of $23/t CO2 in 2012-13,
and $24.15/t CO2 in 2013-14 (Clean Energy Regulator,
2015).
2013-2018: The carbon pricing scheme was however repealed in
2014 by the Coalition government as a fulfilment of their campaign
commitment (Crowley, 2017). The Coalition government also called for a
review of the prevailing renewable energy policies. This has resulted in
a significant roll-back of policy support for renewable energy, most
notably, a reduction in the 2020 targets for renewable generation from
41,000 MWh to 33,000 MWh (Cox, 2015), reduced investments by the Clean
Energy Finance Corporation (CEFC) in renewable projects
(McKenzie-Murray, 2015), and abolishment of Climate Commission (Arup,
2013). These led to a sharp reduction in renewable investment since
2014, which only began to recover recently (Ludlow, 2018).
In 2017, a new policy scheme – National Energy Guarantee (NEG) – was
proposed by the Coalition government to attract investment in
low-emission generation technologies while ensuring the reliability and
affordability of electricity. The proposed NEG is made up of two
components, namely, the reliability guarantee, and the emissions
guarantee. The reliability guarantee requires electricity retailers to
have certain amounts of their peak demand covered by dispatchable
capacity (e.g., coal, gas, hydro and battery storage). The
emissions guarantee requires electricity retailers to purchase
electricity from the wholesale market to meet a defined emission
intensity level for that electricity. The reliability component of the
NEG is planned to start in 2019 and the emissions component to succeed
the RET in 2020 (Energy Security Board, 2017). Details of the NEG are
yet to be determined. It is expected that a high target for emissions
guarantee will be required to provide additional incentives for
renewable investment, because about 4,300 MW of renewable projects are
already committed or under construction – more than sufficient to meet
a low target for emissions guarantee (equivalent to 28% of electricity
generated from renewable sources) currently under discussion (CEC,
2018).
Regulation
The responsibility of renewable energy regulation is shared between
federal and state governments. Table 1 provides a summarised overview of
key federal and state legislations for regulating renewable energy.
Details are discussed below.
The key federal legislations that regulate the renewable energy sector
include the following.
The Renewable Energy (Electricity) Act was enacted in 2000 with
specific objectives to promote renewable generation. In particular, the
Act establishes a scheme – the Mandatory Renewable Energy Target (MRET)
– that mandates electricity retailers to purchase certain amounts of
their electricity from renewable sources. To provide certainty, the
target for renewable generation is expressed in the Act as a fixed
amount of electricity that must be sourced from renewable generators
each year; the initial target is 9,500 GWh of electricity by 2010, which
represents about 2 per cent of electricity supply in that year
(Parliament of Australia, 2014b).
The Act was amended in 2009, as the Renewable Energy (Electricity)
Amendment Act 2009. Major changes brought about by this amendment are:
1) expansion of the target for electricity generation to 45,000 GWh by
2020 (equivalent to about 20 per cent of electricity supply in that
year); 2) introduction of a Solar Credits multiplier, to provide an
additional incentive for the installation of solar PV systems; and 3)
provision of exemptions for emissions-intensive trade-exposed industries
(Parliament of Australia, 2014b). In the following year, the Act was
amended to split the scheme into two separate schemes: the LRET for
utility-scale renewable generators, and the SRES for small renewable
installations (such as, rooftop PVs and solar water heaters) (Parliament
of Australia, 2014b). Another major amendment was made in 2015, as the
Renewable Energy (Electricity) Amendment Bill 2015. As part of the
amendment, the LRET was reduced from 41,000 GWh to 33,000 GWh by 2020
(Cox, 2015).