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).