Energy policy needs a jump-start

Business Spectator
Tuesday 4/5/2010 Page: 1

If there is a sense of deja-vu in the clean energy industry it is because many feel they have been here before: the year 2010 is starting to bear an unsettling resemblance to 2004. That was the year the Howard government decided not to expand the extraordinary successful renewable energy target. It was a decision that brought the industry to a crashing halt, emptied factories and drove Australian and international companies back overseas in search of greener pastures. Which they readily found.

Six years later, the industry has reconvened - a host of local and international developers, manufacturers, financiers and project managers - and is ready to party like its 1999, when the impact of the initial MRET was in full swing. It is, in the words of AGL Energy CEO Michael Fraser, the potential dawn of a new era of energy investment, with billions of dollars of investment and thousands of jobs, and a pathway to a clean energy future.

What's more, he said. It's a global phenomenon. Even Kuwait has a 5% renewable energy target. It's inconceivable that Australia would not follow. But can Australia get its act together to properly legislate its 20% target, the last leg standing of the Rudd government's climate election package? No-one's prepared to spend much until they know for sure. Senator Penny Wong made her first appearance since her three year campaign to establish a carbon price was sequestered indefinitely by a PM possibly fearful that the issues are far too complex for a twitter election campaign. She managed to talk for 20 minutes without mentioning the ETS. Indeed, her speech might have been a compilation of Energy Minister Martin Ferguson's cleanest press releases, a succession of grant initiatives that are long on promises but so far short on delivery.

But her rhetoric was eerily similar to that in the lead-up to the CPRS debacle. The opposition is divided, the government will negotiate, but only what is fair and reasonable, it is a test of the opposition's commitment to climate change, etc, etc. But its capitulation on the CPRS means the government is not in a position of strength. In an election year it needs runs on the board, and projects to announce. The opposition might not be of a mind to help.

That would be devastating for the local clean energy industry. Little wonder than the local market is taking an each-way bet on the legislation getting passed, with the price for renewable energy certificates currently at $45, halfway between the $60 peak when the Labor government first declared its 2020 target, and the $30 nadir reached when the market suddenly realised how poorly conceived the initial legislation had been.

Other nations won't wait In the light of this uncertainty, the first day of Clean Energy Council's annual conference followed the course of most such gatherings in Australia, it marvelled at the policy initiatives and the massive progress in clean energy development elsewhere in the world, which took off in 2004 just as Australia's was shutting down, rising from around $US46 billion to $US180 billion in 2008. In 2010, after a blip caused by the GFC, it will be more than $US200 billion.

The extra incentive for nations in Europe, along with China and the US, to act with such purpose is not so much concern about climate change, as the threat to energy security, and the fears of energy poverty. In Europe, governments do not want to rely on unstable neighbours to guarantee supply, and would spend some €1.8 trillion over the next two decades.

In the US, the combination of two issues - a carbon constrained world and energy security - was creating a "sweet spot" in energy policy, according to Todd Glass, an energy specialist from the US legal firm Wilson Sonsini. Although he noted that one of the perverse outcomes of the disastrous oil spill in the Gulf of Mexico could be the end of bipartisan support for the new clean energy bill. The carrot to buy enough Republicans had been Obama's concession on increased offshore oil drilling. That, though, is now a political hot potato.

In China, said Philip Hirschhorn, the head of Boston Consulting's sustainable development practice in the Asia Pacific, energy policy was being targeted to drive industrial policy, and to provide for a looming energy deficit. The scale of the development is enormous, and in just 5 years Chinese companies had displaced Japanese rivals and now accounted for 5 of the top 6 rankings in solar module manufacturing. "We all need to sit up and take notice," Hirschhorn said.