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Solar subsidy pours cold water on wind power. -

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ELEANOR HALL: To the downside of the Federal Government's energy efficiency subsidies.

A Victorian engineering company has warned its staff that it will have to cut 150 jobs next month
if it can't sign up more wind power projects.

And it's blaming the Federal Government's support for solar hot water systems, saying this is
undermining commercial renewable energy projects.

Energy analysts say demand for the Government's solar hot water subsidy has effectively halved the
price paid for renewable energy.

Bronwyn Herbert has more.

BRONWYN HERBERT: Installing a solar hot water system is seen as one small way to help the
environment.

It reduces a household's reliance on electricity while having a shower.

There's been a strong response to the Federal Government's $1,600 subsidy as part of its economic
stimulus package.

But analysts say the renewable energy market has been flooded by credits generated from solar hot
water systems.

And instead of the Government's promise to have 20 per cent of electricity generated through
renewable sources, it won't happen by its promised date of 2020.

HUGH SADDLER: Instead of having electricity generation capacity sufficient to generate 20 per cent
of our electricity from renewable sources, it may be only 15 per cent because they haven't been
built, because the certificates have been taken by water heaters instead.

BRONWYN HERBERT: Hugh Saddler is an energy policy consultant with Pitt & Sherry.

He says it's predictable that other sources of renewable electricity are losing out because of the
solar hot water rebate.

HUGH SADDLER: Those who are following the market could see that there was this surge uptake with
solar water heating and heat pump water heaters, which by the way, don't use solar energy at all.

I might add that one of the other reasons that there has been this boom is that most of the States
give very generous rebates on top of the assistance that comes through the renewable energy target
for these water heaters, and so does the Commonwealth. So it's actually quite financially
attractive.

BRONWYN HERBERT: So what's the problem with it, because most people would think that if they
installed a solar hot water system they are doing something right by the environment?

HUGH SADDLER: They are doing something right by the environment, but they shouldn't be ... the
assistance, if any assistance is required from governments, it shouldn't be provided through a
scheme which is meant to establish a move to the electricity grid towards being renewable and build
up these very important renewable electricity generation technologies.

BRONWYN HERBERT: Andrew Richards is with the renewable energy company, Pacific Hydro. He says the
renewable energy certificate system is already over-subscribed.

ANDREW RICHARDS: Currently the market is about 12 million certificates in oversupply, so that's a
substantial quantity, that's more than double what's required this year and next year alone.

BRONWYN HERBERT: Andrew Richards says the price of a renewable certificate has halved in the past
six weeks.

ANDREW RICHARDS: The price falling from around $50 to as low as $26 in recent weeks. Now at $26 all
large-scale renewable energy projects like wind and large-scale solar and geothermal and wave
power, simply can't get their projects away. There's not the revenue stream to justify banks coming
in and providing debt to projects and it doesn't even justify putting equity into projects because
you don't get a sufficient rate of return.

BRONWYN HERBERT: Steve Garner is the general manager of Keppel Prince Engineering, which supplies
about 40 per cent of wind turbine towers built in Australia.

STEVE GARNER: There's been a real stall in construction and projects getting underway and what
we're finding now is it's due to the imbalance in the renewable energy certificate in that the
solar hot water services are probably receiving a lot more certificates than was possibly envisaged
in the first place.

BRONWYN HERBERT: Steve Garner says workers have been warned of imminent job losses.

STEVE GARNER: We're trying very much as a company to secure projects but realistically, the
potential is if there's no project forthcoming by the end of November, then during January we will
be certainly facing potential losses of up to 150 jobs.

BRONWYN HERBERT: Mark Diesendorf is from the Institute of Environment Studies at the University of
New South Wales. He says including solar hot water in the renewable energy target means that it's
wasting space that could be taken up by other legitimate ways of creating electricity.

Dr Diesendorf says there's another significant problem with the way incentives have been created
for solar hot water. He says they are known as phantom credits.

DR MARK DIESENDORF: For each solar electricity system that a householder installs, the householder
actually gets credit for installing the equivalent of five systems. Now that's okay, it's a way of
subsidising the householder because they receive certificates for each system.

But the diabolical part is that the four systems that do not represent any new renewable energy are
counted towards as contributing towards the renewable energy target. So more than half the target
could be taken up with these phantom solar systems that don't actually exist.

BRONWYN HERBERT: The Climate Change Minister Penny Wong was not available to speak with The World
Today, but a department spokeswoman said the price of renewable energy credits is set by the
market.

ELEANOR HALL: Bronwyn Herbert there.