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Tuesday, 18 August 2009
Page: 5240


Senator XENOPHON (5:39 PM) —I can indicate my support for the second reading of the Renewable Energy (Electricity) Amendment Bill 2009 and the Renewable Energy (Electricity) (Charge) Amendment Bill 2009. For the last week the Senate has debated a package of climate change and renewable energy related bills. It cannot be overstated that these are some of the most important pieces of legislation that the Rudd government will be dealing with, and some of the most important pieces of legislation that we will be dealing with as a parliament, for many years—particularly in the context of their potential economic and environmental impact.

These bills go beyond politics; they go beyond the terms of governments. It is vital to get our climate change and renewable energy policies right for the future of our nation, for the future of our children. Our environment needs urgent action. The community demands that the government acts responsibly so that we can have a package of measures that work to reduce greenhouse gases, that work to deliver the maximum environmental benefit, but do so in the context of being economically responsible. Our economy, especially our growing renewable energy sector, needs investor certainty; and each is vital to our future sustainability. That is why it was pleasing to see that both the government and the opposition have come together in recent days, after the decoupling of the CPRS legislation from the renewable energy target legislation, to have constructive talks in relation to getting this legislation through. But let us make it clear that that should not be about the lowest common denominator; it is also important that we have the best possible policies in relation to renewable energy targets.

The Senate has an important role to play in improving this legislation. I believe the legislation needs to be improved. There are loopholes—indeed, rorts—with respect to renewable energy that need to be addressed, and they need to be addressed in the context of these bills. So I strongly support the intent of these bills. But, as a member of the Senate Economics Legislation Committee, which held an inquiry into these bills, I became aware of a number of anomalies. I will set out those concerns primarily in the committee stage, but I will touch on them briefly in my second reading contribution.

What I propose to do now is provide a background by outlining the outcomes of the consultations that my office had between the submission of my minority report and the circulation of these amendments. Those discussions centred around these broad themes: firstly, ensuring the short- to medium-term viability of the solar industry; secondly, supporting the long-term development of emerging renewable energy technologies; and, thirdly, ending the rorting of RECs, renewable energy certificates, within the water heat pump sector.

In relation to the solar industry, my office was contacted by a number of leading solar water heating and installation services from around Australia, including Think Water in Colac and Summerland in Tweed Heads. These businesses reported a drop of around $10 in REC prices between June and July with the delay of these bills. They also expressed concern about the future viability of their businesses and the possibility of job losses. These concerns were shared by installers of photovoltaic electricity panels, who have also called for the swift passage of this legislation to ensure the short-term viability and long-term certainty of their industry. Through discussions my office has had with Adrian Ferraretto and Liam Hunt from Solar Shop, which has operations nationwide and is based in Adelaide, the impact of the delay of the RET becomes patently clear. In May this year the Solar Shop had $25 million of panels ordered; however, after the announcement of the delay of the RET orders, this dropped to $20,000. They both outlined the history of the solar panel rebate, which has been the subject of constant change, delay and at times cancellation since its introduction in January 2000. This has done little to provide for certainty for that investment confidence in the industry. They pointed to modelling in the German renewable energy sector that indicates that the number of jobs created per megawatt of solar energy installed is between three and seven times more than by other renewable energy technologies.

In my conversations today with representatives from the Clean Energy Council and associated organisations, the need for PV solar to provide renewable energy generation in the short to medium term was stressed yet again. I must say that, while I think the Clean Energy Council has taken an active interest in this debate, as is entirely appropriate, they will do themselves a favour if they come out and speak out against the rorts that we have seen in relation to the heat pump sector. I think they should do that sooner rather than later if they want to enhance their credibility. It is already a credible organisation but I think it is important that the Clean Energy Council speak out in relation to what is clearly rorting in the heat pump sector. That is something that must be attended to.

This industry is vital in the transition to reliable renewable energy in the longer term, and it is trying to prepare itself for future energy grid parity in terms of PV solar. It must be provided with greater certainty and confidence. While the industry may be able to sustain these sorts of adjustments in the short term, should they continue and become long-term losses businesses will close and jobs will be lost. That is why we need this legislation.

In relation to emerging renewable energy, one of the big issues has been how to better support emerging renewable energy technologies such as geothermal, wave energy, solar and solar thermal. If we want to reduce our reliance on coal, the best way to do it is to have reliable alternatives to baseload electricity generation. Geothermal is clearly the best of the best in relation to that. It is still an emerging technology, as is wave energy, as is solar thermal—which may not provide power 24/7 but could provide power for those peak times. These are exciting technologies that need support, and that is why I think it is important that there be a particular emphasis in relation to them. I am concerned, in relation to this current legislation, that there simply are not the clear signals to give that support to this particular sector.

I am concerned that we are putting too many of our eggs in the wind energy basket and that we have a massive increase in wind energy and wind farms, which do not provide that baseload power certainty that you need if you want to wean an economy off coal. I think that more needs to be done. To give an example, in South Australia during a heatwave in February this year, the reliability of the wind farms dropped to three per cent. The wind was not blowing and the farms were not providing regular power. I am not against wind energy at all. I think that it has an important role to play in renewable energy technology, but it is important to combine it with, for instance, gas as an interim measure. It is not a renewable but it is certainly much, much cleaner than coal and it gives you that baseload certainty.

More importantly, I think we should encourage geothermal and other emerging technologies. As Senator Bernardi pointed out, geothermal energy is something that South Australia has an abundant supply of. It is a matter of tapping it and tapping it as soon as possible so that we can wean ourselves off coal. Yesterday I met with Susan Jeanes, from the Australian Geothermal Energy Association, John Grimes, from the Australian and New Zealand Solar Energy Society, and Kellie Caught, from WWF; to discuss ways forward to support emerging technologies. Their input was most helpful, as have been the conversations with bodies such as Vast Solar and Oceanlinx, as well as organisations such as the Clean Energy Council and the Australian Industry Greenhouse Network. I believe that strategic support should be provided for emerging technologies, and I foreshadow that I will be moving an amendment to this purpose in the committee stage.

As a South Australian senator, I would like to make special mention of the significance of geothermal hot-rock energy generation. I was recently up in Innamincka, not in relation to geothermal, and there is a real excitement in that community in the far north of South Australia about the potential of geothermal in terms of powering local communities and being a mainstream source of power. I have raised these issues with the minister’s office and I am looking forward to some positive outcomes. I think that is the way forward, and we need to deal with that as a matter of urgency.

In relation to what I call the ‘heat pump rort’, this is a real concern, and there are two areas that have emerged through my discussions and my office’s discussions in relation to this. The first is that a multiplier effect is operating on commercial heat pump installation that results in a flooding of RECs, which devalues their value. The second is that air-source heat pump technology does not actually generate any energy and hence should not qualify for RECs. Let me address each of these issues in turn. The issue of multiplier effect was first brought to my attention during the Senate Economics Legislation Committee inquiry into these bills on 5 August 2009. I quote from the Hansard of that day, when Mr Warring Nielsen, of the Gas Industry Alliance, reported:

The abuse has come through the fact that in the MRET calculations of calculating RECs there is a loophole that exists in the quantity area in excess of 700 litres when you can put three heat pumps together in parallel and you get a multiplying effect. That means you can put anything up to 30, 40 or 50 heat pumps into an installation for no cost whatsoever. In just one audit we have taken on our own customer base, we have had 30 customers where we have had gas installations in place and they have put in heat pumps to the tune of around $2.6 million and they have generated RECs of around $6.2 million. They have been overcapitalised completely and they have just been rorting it to develop RECs. And even tonight I have had a phone call from a plumber in Victoria telling me that the rorting is going on in Victoria where people are pulling out continuous gas flow units and sticking in heat pumps and saying they are replacing electric.

That sort of rort should not be allowed to go on. It is an abuse of the scheme, it is an abuse of the system, and I will be moving an amendment so that we put an end to that. At the very least, where that abuse has occurred and where it has been manifestly occurring around the country, we should immediately put an end to the 700 litres or more capacity and we should also phase out those heat pumps. They are quite different from those that require solar panels.

It beggars belief that this should be part of this scheme, and it is a rort that must be addressed. I think that many senators on both sides would privately acknowledge that this is a real problem. I will discuss further how that rort operates, but once a unit exceeds 700 litres it is deemed a commercial installation and a consumption standard no longer applies as it does for the domestic usage, and the total RECs are then calculated by the total tank volumes multiplied by the maximum level of energy saving of the unit, not the actual consumption. In practice, this means that while two units will receive 60 RECs a third unit can receive over 570 RECs. This provides the opportunity for a company to oversupply the needs of its business and then use the resulting maximum RECs to subsidise the installation to a level that is attractively cheap to the purchaser. Clearly, using this loophole to secure more RECs and to line the pockets of a company, while currently legal, is a rort. While this avenue is open to all heat pump installers, the vast majority of the industry in Australia is not choosing to participate in it, because it believes that it is unethical. However, one operator has been brought to my attention who is exploiting this loophole. The amendment that I am proposing will close that loophole.

My second amendment in relation to heat pumps will, as I indicated, phase out air sourced heat pumps over the next six months. In the conversations that my office has had with Nick Smith from Elgas and Warring Nielsen from the Gas Industry Alliance, it became clear that the industry could accept the removal of air source heat pumps as long as solar source heat pumps remained eligible for RECs. To put it another way: if a heater or a heat pump has a solar panel, then it should qualify as being energy efficient, but if it relies on a refrigeration unit and electricity it should not be eligible for RECs.

My other concerns are in relation to the waste coal gas sector but I understand that that has been the subject of negotiations with the opposition. It is something that I will refer to during the committee stage.

There are two other points that I should also mention before concluding. Firstly, I have consistently advocated the decoupling of the CPRS and the RET bills, and I commend the government for agreeing to decouple these bills. In terms of the politics of it, the government really could not do anything else. It was quite right for the government to maintain its position until the CPRS bill was defeated but the government understands that the only way forward now is to decouple the bills. I commend them for going down that path.

Secondly, there ought to be a more rigorous review of the RET. I foreshadow an amendment that will introduce clearer guidelines and a biennial review. I note that Senator Milne has put up an amendment to that effect and, subject to discussions with Senator Milne, it may be that I will support that amendment rather than introduce the amendment that I have drafted. But I think it is important to look at the environmental and economic impact of this scheme.

It is important to note that we need to get this right. We need to get rid of these loopholes in particular and make sure that those who are involved in renewable energy are given the investment certainty they need and that we do not have a crowding-out of this market of renewable energy certificates by wind power so that the emerging technologies miss out. We need to make sure that other technologies in terms of waste dumps, that have been very effective in abating emissions, are not crowded out of the market.

To that degree, I pay tribute to the work that LMS, a South Australian operator, has done nationally in relation to this. My fear is that while a company such as LMS may not put its investments on hold, it may not expand as much as it could have because the market has been crowded out. But that will be less of a problem if we get rid of some of these rorts, particularly in relation to air heat pumps. I look forward to both the opposition’s and the government’s arguments in relation to those, because I do not believe they can be justified at all under a scheme such as this, which is about renewable energy. I look forward to the committee stages of this bill.