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Thursday, 12 December 2002
Page: 8046

Senator ALLISON (12:06 AM) —The Renewable Energy (Electricity) Amendment Bill 2002 amends the Renewable Energy (Electricity) Act 2000 and the Renewable Energy (Electricity) (Charge) Act 2000 and seeks a number of administrative changes to the act, including clarification of definitions, such as what constitutes an eligible renewable energy source; the ability of the renewable energy regulator to vary decisions; the introduction of information gathering powers for monitoring, auditing and compliance purposes; and the inclusion of administrative review provisions covering the decisions of the renewable energy regulator. The Renewable Energy (Electricity) Act 2000 and the Renewable Energy (Electricity) (Charge) Act 2000 established the Mandatory Renewable Energy Target scheme, which requires the generation of an additional 9,500 gigawatt hours of electricity from renewable sources by 2010. The scheme operates by requiring wholesale purchasers of electricity to purchase renewable energy certificates, or RECs, equivalent to one megawatt hour each from accredited renewable generators that are sufficient to meet their yearly liability.

The Democrats opposed the original bills because of our concerns with a number of aspects of the scheme, including the inclusion of native forest timber as an eligible source of power generation. We are, of course, strongly supportive of establishing targets to increase the amount of electricity generated from renewable sources, and we said then that two per cent was not enough to make a real difference and that the industry could respond to a much higher figure without difficulty. However, it has become clear to us that this legislation is not worth even two per cent; we say that it is not even worth the paper it is written on. It is, or should be, about fostering new renewable energy and the renewable energy industry. In recent days, analysis from the Business Council for Sustainable Energy, or BCSE, has indicated that, far from increasing the amount of electricity generated from renewable sources by two per cent by 2010, the MRET scheme will only just maintain the 1996-97 level of market share. In other words, there will be no increase at all from 1996-97 levels. This is a farcical situation, and the government should be deeply embarrassed that its flagship renewable energy program has turned out to be such a dud.

Of course, this is not the only problem with this legislation. Our other big concern is that existing large hydrogenerators are able to earn a substantial number of renewable energy certificates from existing capacity, meaning that no investment in new generation is needed to create them. This is because of the artificially low baseline, set at averages over a 14-year period and stuck at the 1997 level, that delivers a windfall gain for generating electricity with water already in the dam and using old infrastructure. Old hydroschemes benefit when they generate more than this artificially low baseline. It is artificial because hydroschemes in Tasmania generate as much or as little as necessary to meet the demand. In the future, Hydro Tasmania will be able to sell all of the electricity it can generate because it can be sent to Victoria via the Basslink cable.

Of course, in the unlikely event that electricity is generated at a level that is beneath the baseline, the generators are not required to hand back the renewable energy certificates. People involved in the industry refer to this as the issue of unders and overs. Hydro Tasmania is handsomely rewarded for the overs and does not have to pay any of them back when it generates less than the baseline. Firstly, this situation means that the MRET scheme will not lead to anywhere near the level of greenhouse gas abatement that was originally forecast. This is simply because, whenever RECs are created from generation that would have occurred anyway, there is no real additional abatement. Secondly, it means that consumers will pay more than $1 billion and possibly $1.5 billion extra on their electricity bills for no real additional generation. The Democrats believe that, at the very least, electricity consumers should be made aware of this situation. Thirdly, it means that MRET will not deliver the level of new investment in renewable energy that was anticipated. The key problem is that the windfall gain to existing hydrogenerators is creating a barrier to competition for other generators. According to the Business Council for Sustainable Energy:

If all the RECs that could be produced from pre-existing projects were produced, no new renewable power projects would be required until 2008.

From our perspective, there is no sound public policy reason for advantaging existing hydro over other forms of renewable energy and in doing so advantaging Hydro Tasmania's renewable energy projects in particular over projects in other states. So, unlike its competitors, Hydro Tasmania's generation of RECs costs them nothing in investment and the RECs are generated from day one of the measure. While we accept and welcome Hydro Tasmania's decision to invest additional income earned from the sale of existing hydro RECs in new renewable projects, there is nothing in the legislation that obliges them to do so and there is no obligation on their part to report that they have done so.

The Democrats are also concerned about the market power that Hydro Tasmania can exercise in relation to the price of the RECs. Hydro Tasmania provided evidence to the committee that the electricity it produced above its baseline in 2001 was more than sufficient to register enough RECs to meet the entire first-year quota of 300,000 RECs. However, it has chosen to register only 118,000 or so RECs to date. Hydro Tasmania claims that the price of its RECs is similar to the price of other RECs in the market and rejects the idea that it is controlling the price. However, the key point is not whether or not Hydro Tasmania chooses to manipulate the price, but the fact that it is able to do so by virtue of its domination of the market in no-cost RECs for at least the first three years of the operation of MRET.

The Democrats note that the windfall gain to existing hydro generators is at odds with the government's assertion at the time the legislation was introduced that MRET was a market based economic model that ensured a level playing field for renewable energy providers. The minister, in his second reading speech, stated:

The market based mechanism adopted to meet the target should send strong signals regarding the most cost-effective renewable energy options ...

This was not understood to mean that the design of the scheme would be used to create the most cost-effective option. The fact that Hydro Tasmania is able to generate RECs for no new investment is also at odds with the minister's statement, which said:

The government has been clear that this measure is one of those beyond no regret policies.

In other words, you need to spend more in order to be part of this measure. In addition, it conflicts with the AGO's submission, which states:

Economic costs arise from this measure because additional capital is required to generate 9,500 gigawatt hours using renewable energy as compared to using fossil fuels.

Again, it is made quite clear that money is expected to be spent and capital is expected to be invested in order to generate that 9,500 gigawatt hours. The Democrats disagree with the chair's recommendation in the Senate report of the inquiry that further consideration of this issue should be left to the review. We argue that there is a danger in not moving to fix this problem now, since the review is not likely to be completed until 2004, with any potential changes to the legislation possibly delayed until a year or so later. By this time, enough no-cost RECs will have been produced to substantially undermine the objectives of the legislation.

It is difficult to escape the conclusion that this government is not committed to renewable energy and instead is wedded to `no regrets' policies in order to ensure the continuing dominance of the fossil fuel industry. On Tuesday we learned in this place that the government has decided not to renew funding for the Australian CRC for Renewable Energy. That is a centre whose laudable aims are to cooperatively research, develop and demonstrate sustainable energy systems in market conditions; implement education and training to develop competencies for commercialisation and technology transfer; provide policy input to facilitate the take-up of sustainable energy strategies; build a growing business for the benefit of members; and improve the market access of members through ACRE's research, development, demonstration and education activities. That CRC has proved to be a great success. I will talk briefly about two of the centre's achievements.

The first achievement is the development of ACRELab, a national multimillion dollar renewable energy testing laboratory. ACRELab can test stand-alone and grid-connected renewable energy systems up to 50 kilowatts and it offers great assistance to the Australian renewable energy industry to compete overseas. The second achievement is that ACRE, in conjunction with the Centre for Alternative Energy, is in the process of delivering a coordinated infrastructure installation and support program for renewable energy in Indigenous communities. Groundbreaking ACRE research highlighted the need for the program. When the fifth-year review of the Australian CRC for Renewable Energy was conducted in late 2002, the panel assessing that work wrote:

The panel sees that the main strategic issue confronting the centre is the need to manage rapid conversion of research outcomes to commercial applications and increase the centre's capacity to support the renewable action agenda program jointly developed by industry and the government in 2000. The panel considers that discussion with government should be initiated to ensure that ACRE capability is enhanced in the immediate future and beyond year seven of the centre program.

However, between November 2001 and December 2002, something has drastically changed. In 12 months the decision was made not to fund the centre. One would have thought that, given the need to shift from dirty fossil fuels to clean, renewable fuels, the funding of such a centre would be essential for any government that is committed to renewable energy. But it is apparent that this government does not accept that such a shift is needed; in fact, the government is ideologically opposed to such a shift. It appears to be of the view that as a country we can spew out as much carbon dioxide and other greenhouse gas emissions as we like and that, by developing sinks and injecting carbon dioxide into the ground, we can go on the way we always have. If that is not the government's view, it is hard to explain why we now have three coal CRCs—that is, the CRC for coal and sustainable development, the CRC for clean power from lignite, and the new CRC for greenhouse gas technologies, with a total funding of $50.4 million. The government has also given $35 million to Rio Tinto for the establishment of a sustainable minerals industry foundation which will focus on carbon sequestration—obviously, the government's preferred approach to reducing greenhouse emissions.

At the same time, we have a zero federal dollar contribution for research into renewables. That is worth repeating: zero dollars. The coal industry does not need more government handouts. As an industry it is already heavily subsidised and it should be paying for its own efforts to reduce emissions from its operations. But our renewables industry is a fledgling industry and it needs financial support. It is an industry that will lead to substantial job creation. If the government does not assist this industry with research and development, we basically will commit ourselves to imported renewable technologies, even though we have expertise here in the country and we could be a world leader. We could certainly carve out a very significant market for ourselves in this region alone.

In the committee stage the Democrats will be moving amendments to fix some of the key problems with this legislation that I have already mentioned. There has been a huge windfall gain to existing hydro generators. We will also seek to increase the target to 10 per cent because, in our view, in addition to fixing the loopholes in the scheme, that is the best way to ensure that new and existing renewable energy projects continue to be developed and achieve the high level of job creation that was anticipated. We hope that other honourable senators in this chamber will be persuaded by our amendments.