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Speech to the Community Energy Congress, Canberra



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Speech - Community Energy Congress, National Library Canberra

Monday, 16 June 2014

Thank you for inviting me to address the Community Energy Congress today.

I pay my respects to the traditional custodians of the land on which we meet, the Ngunawal People, and to their elders past and present.

Renewable energy generation is an exciting area to be working in and I am very pleased be here today to be part of your discussions.

I want to start by reassuring you that the Labor Party is committed to Renewable Energy.

We are not committed to the policy simply because we know renewable energy is better for the environment, and it will help us lower carbon emissions.

We are committed to the policy because it makes economic sense to shift our focus to the vast solar, wind, wave and thermal resources we have at our disposal and to be open to whatever is next.

This is an industry that given appropriate initial support to build a foundation will prove to be both environmentally and economically sustainable.

As the RET modelling undertaken for the Clean Energy Council by ROAM Consulting has demonstrated, the current RET will essentially shift from being - in the jargon of economics - a ‘positive cost’ (cost impost) to consumers, and will we hope be a ‘negative cost’ (something that avoids even higher costs in future).

As Bass Straight and Moomba fields mature and gas increases in price, the internationalisation of gas prices through LNG has set up a scenario where the RET can act as a hedge against the rising wholesale price of gas translating into higher wholesale prices in the electricity market.

That’s a welcome, although unintended, consequence of the RET.

I would also like to point out that for around about 10 years a Renewable Energy Target has been bipartisan.

A target mandating the purchase of new renewable energy generation by retailers has been in operation in some form or another since 2001.

The RET scheme began with the Howard Government's Mandatory Renewable Energy Target (MRET), which aimed to generate 9,500 GWh of extra renewable electricity per year by 2010.

The MRET commenced on 1 April 2001 with the enactment of the Renewable Energy (Electricity) Act 2000 (the Act).

In 2009, Labor’s Renewable Energy (Electricity) Bill 2009 amended the Act and replaced the MRET with the RET. This altered the target from 9500 GWh by 2010 to 45 000 GWh by 2020 and introduced the Solar Credits scheme.

The Review currently being undertaken has been controversial, in large part due to the composition of the review panel.

I have known Dick Warburton for around 25 years and have a lot of respect for him and his contribution to Australian business, including his outstanding ethics and integrity.

That being said, I believe, and the Labor Party believe, that the Review of the RET should have been undertaken by the appropriate Government body.

As I have said, I know Dick, and I do not think that he would want to squander the enduring bipartisanship that has underpinned the RET for nearly 15 years, and the business certainty that has been created by that bipartisan position.

I am personally open to changes in the RET framework, provided they are in the national interest.

As with most programmes, there is probably room for refinement and balance.

But any proposed changes cannot and should not be at the expense of the objective of the program - and that objective is to provide our renewable energy industry with an appropriate level of certainty to help it reach a sustainable commercial threshold, and to contribute to reduction in national greenhouse gas emissions.

I, like the rest of you will await the report, which is due to be presented to the Government in the coming months. My position on the recommendations made in that Report will be crystallised once I see the detail.

Let us now turn our minds to the community energy sector.

My starting position is that power generation is about cost - the cost to the environment and the cost to consumers both household and industry.

A project like the Hepburn Wind Farm in Victoria or Denmark wind generator in Western Australia inspire the community they are testament to an astonishing amount of hard work that was put in by a relatively small group of people who shared a vision.

But it not always a sustainable model, and it’s not a growth model. Notwithstanding Hepburn’s success, that organisational model has too many pinch points which can derail a project, and that level of vulnerability isn’t sustainable in an operational sense.

Moreover, the economic model that underpins it is weak, and the community energy sector should want more than a model of charity and goodwill.

They should strive for a model which combines the best elements of commercial model of renewable energy development, married to the values of the community sector.

In March I had the great pleasure to visit the Denmark Community Wind Farm in Western Australia.

For those of you unfamiliar with the location, Denmark is a small community of around 2,500 people just west of Albany on the WA south coast.

The push to build the two turbine wind farm began ten years ago. The intention of the project was to reduce this remote community’s reliance on fossil fuels, secure their energy future, and deliver tangible social and environmental benefits.

The wind farm commenced commercial-scale production in March 2013, and in its first year the two turbines generated 5.4 MW of electricity, equal to about 55% of annual domestic consumption.

The capital set up for the wind farm was half funded by a Commonwealth Government grant under the Remote & Regional Power Generation Program (RRPGP), and the balance was funded by private investors and commercial loans.

Like Hepburn, this wind farm would not have got off the ground without substantial government assistance. Whilst the continued operation of Denmark is less reliant on the RET, that is due in large part to the sizable upfront grant they received. A grant that is no longer available for new projects.

That said - I would argue that Denmark has better underlying economics than Hepburn because Denmark is remote and on the fringe of the WA grid, therefore the delivered cost of energy in that part of WA is higher than in Hepburn.

But what projects such as Demark have demonstrated is that there is an investor appetite out there once they reach a commerciality threshold - that is, once is evidence of their commercial viability.

Ultimately - the community energy sector needs to look to a wider range of business models if it wants to achieve scale and speed of deployment.

In practice this means scale matters.

You can have a great renewable resource, a good site to build on and a supportive community, but the cost of importing components like wind towers and turbines can kill project economics.

Fundamentally this is a fact of scale. Importing towers and turbines in twos and threes is absurdly expensive. That’s why the commercial wind industry never does it that way. But a 100 turbine community wind farm seems farfetched, so how to bridge the divide?

Collaboration.

The Flyer’s Creek wind farm (being developed by Infigen) is exciting because it offers an example of a hybrid commercially focused community model.

In this example the community sector partners with the commercial sector - essentially financing a few of the turbines that make up the greater wind farm. This radically improves the economic efficiency of the community element of the project and gives the community access to the expertise and efficiency of the private sector.

It’s not as romantic as doing it all yourself, but we aren’t talking about hobbies here, this is about cleaning up our energy supply, tackling climate change, empowering communities financially and socially - expertise is to be embraced.

The commercial sector benefits too, it gets a real link to the local community which eases public concerns, eases the project’s journey through the approvals process (which would otherwise be a substantial cost) and it gets an alternative source of financing for part of its investment which lowers their borrowing costs.

Even if the two projects - community and private - aren’t co-located like with Flyer’s Creek, working with commercial wind farm developers to bundle the tower and turbine purchase into a larger purchase just makes sense. But it requires forward planning and a degree of professionalism that a tiny group of enthusiastic locals might not have.

The other element is being creative in your definition of ‘community’.

We live in a local community, we choose to be part of a community that supports a particular sporting team, we can even be a part of an international community - a diaspora, or the community of environmentalists, Labor, Green, Liberal .etc.

Shared values are more important than shared postcodes.

The desire for every location to have their own project is understandable but unhelpful.

It disperses limited resources and funds, time and effort. Concentrating on a slightly fewer projects at any given moment, but pushing even harder on that smaller number, will help to deliver better results.

Getting wins on the board early is critical; it shows the banks and financiers that this is a real and replicate-able model. That will help to lower the risk premiums for investments, improve familiarity with the new model, improving the economics of projects and accelerating the process of deployment.

But it’s still early days and traditional financiers are not yet convinced that this is a viable model at scale and that’s a barrier to be addressed as quickly as possible.

That is where the RET is important. It is the manifestation of our nation’s broad support for the renewable energy industry.

It says that whilst this industry will need an initial mechanism to draw focus to the industry’s value and its potential and likely benefits to our nation - we believe that that mechanism will set the foundation for an industry that will create low environmental cost, low economic cost power from diverse sources, adapted to different physical and virtual communities.

I do have a word of warning about ensuring that our policy focus and public investment is not swayed by sectional interests and rent seeking behaviour. In this debate self-interest is all around us.

I have used examples of wind power throughout my speech today but no particular branch of the industry is intrinsically more important than any other. Our objective is to achieve the best outcome for the nation, and for families and industry, not kowtow to the sector with the best funded lobbyists.

The RET is a mechanism that must be retained for the foreseeable future to ensure we are able to take advantage of the gift of renewable resources. we have been given.