The federal government is moving towards abolishing the Renewable Energy Target rather than scaling it back in a move that will cost almost $11 billion in proposed investment and which is at odds with the views of its own Environment Minister.
The Australian Financial Review understands Prime Minister Tony Abbott has asked businessman Dick Warburton, whom he handpicked after the election to review the RET, to do more work on the option of terminating the target altogether. This was after Mr Warburton’s review leant towards scaling back the RET.
Sources said Environment Minister Greg Hunt, who advocated scaling back the RET as a compromise, has been sidelined from the process and is understood to be unhappy. They said Mr Abbott, Treasurer Joe Hockey and Finance Minister Mathias Cormann are pushing the issue now.
A government source said when the government announced its decision, possibly before the end of this month, it was now “more likely’’ the RET will be abolished under a so-called “closed to new entrants scenario’’ in which existing contracts only would be honoured.
Given Clive Palmer has vowed to block any change to the RET until after the 2016 election, it remains unclear when the government could declare the RET terminated.
Independent modelling commissioned by the Climate Institute and other environmental groups, and which will be released Monday, found that under the termination scenario, coal-fired power generators would reap an extra $25 billion in profits between 2015 and 2030.
There would be no reduction to household power prices and carbon emissions would climb by 15 million tonnes a year on the back of a 9 percent increase in coal-fired power.
Abolishing the RET would diminish investment in renewable energy by $10.6 billion, said the modelling, conducted by consulting firm Jacobs.
Conceived under the Howard government, the RET mandated that 20 per cent of Australia’s electricity be generated from renewable sources by 2020. The Abbott government has been lobbied heavily by the business and energy sectors to abolish or water it down as renewable energy gained a larger than expected share of the electricity market.
When the RET was first conceived, it was envisaged 20 per cent of total power production by 2020 would equate to 41,000 gigawatt/hours of renewable energy produced each year.
The abolition proposal would reduce renewable energy production in 2020 to 16,000GWh.
It is understood Mr Abbott’s office was briefed on the recommendations of the Warburton review in late July. The review found the RET did not add significantly to household and commercial power bills, as its critics, including Mr Abbott, had argued, and that it should be scaled back to the real 20 per cent model as advocated by Mr Hunt.
With the government favouring termination, Mr Warburton was asked to give the option more consideration and his report is expected this week.
The government source said the market was oversupplied with energy and there was no longer any cause for a mandated use of any specific type of power. The source said while there would be investment losses if the RET was abolished, or even scaled back, investors “would have to have been blind to know this wasn’t coming’’.
Miles George, managing director of renewable company Infigen Energy, said either scaling back or terminating the RET “would be devastating”.
He said the creation of sovereign risk would be significant and the very issue had been raised by prospective foreign investors, including Canadian pension funds which Mr Abbott sought to woo when abroad in June.
“Infigen’s shareholder base of over 20,000 investors has invested in renewable energy in Australia on the basis of a fixed target of 41,000 GWh by 2020,’’ Mr George said. “This is no different to investors in private public partnerships acquiring a toll road concession, or a port lease.
“If the Government pulls the rug from under institutional investors in renewable energy we shouldn’t expect those investors to come back to buy other infrastructure assets here, including the electricity networks and generation assets that the governments of NSW and Queensland are proposing to sell or lease.”