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Environment and Communications Legislation Committee
04/04/2019
Estimates
ENVIRONMENT AND ENERGY PORTFOLIO
Clean Energy Regulator

Clean Energy Regulator

[17:35]

CHAIR: Welcome back to the Clean Energy Regulator and Mr Parker and team. Is there an opening statement that you'd like to make to kick things off?

Mr Parker : Thank you, Chair. No; there is no opening statement. We're at your disposal.

CHAIR: Excellent. We'll go straight to questions then. Senator Waters.

Senator WATERS: Thanks for coming back again today. Can you give us an update since we last quizzed you on what's new in your space and, in particular, obviously what the relevance of Tuesday night's announcements will have to your scope to deliver?

Mr Parker : In the Tuesday announcements insofar as we were concerned was the announcement for the funding of the Climate Solutions Package and fund, which puts money into the program which has been called the Emissions Reduction Fund for some time. That money substantively starts to flow after 2020 to continue what is now a standard business-as-usual process for us to run auctions to acquire abatement from the market. That's on the demand side, if you like. Our functions on the supply side for accrediting abatement under the various methods continues as well. That was the main element for us in that.

Senator WATERS: Could you just speak up a little bit for me?

Mr Parker : Sure.

Senator WATERS: What was that second element, please? I didn't quite catch it, I'm sorry.

Mr Parker : The funding under the Climate Solutions Fund will allow us to continue the process of purchasing abatement. That's the first element. That ties in with the second element, which is also a continuation of business as usual, which is the more regulatory side, which is the crediting of an abatement under the various methods under the Emissions Reduction Fund.

Senator WATERS: I'm afraid you're going to challenge my memory a little, because this area isn't under my purview anymore—and here we are! So, forgive my questions if they are a little out of date. And I did have that short break, but I'm very happy to be back. From my recollection, ERF was going to be wound down and abandoned. And there wasn't much money left in the pot the last time I was looking at the detail. Now, all of a sudden, it is back. It has got a new shiny name. Has anything actually changed from ERF mark 2 to how we previously did ERF?

Mr Parker : I'm not sure I would agree with the premise of the question that it was going to be wound down and abandoned.

Senator WATERS: Please correct me.

Mr Parker : It was effectively ongoing business as usual. If you like, the phase has changed. In the early years of the Emissions Reduction Fund, there were large auctions and the building up of a substantial portfolio of abatement. Over the last couple of years, the size of auctions has trended down. I've said before to this committee, in part, that it's consistent with the story of meeting our 2020 targets. The emissions reduction process for 2030 is a long time away, so the additional funding under the Climate Solutions Fund is effectively to continue the process out from 2020 for a number of years to purchase additional abatement to hit the 2030 targets.

Senator WATERS: At the same level as it was previously funded?

Mr Parker : The initial funding—and I'll use round figures—was about $2½ billion, and the new funding tranche is around $2 billion.

Senator WATERS: The first program was for how long and this program is for how long? I'm just trying to compare whether there has been an increase or a decrease in money allocated.

Mr Parker : I'm not sure of the precise timing of the first one. I'm not sure that it had a specific end date.

Senator WATERS: How long did it take to spend the $2½ billion under the original ERF? Was it four years or three years? I genuinely can't remember. I'm not trying to trap anyone; I'm just trying to work out what the government has done.

Ms Thompson : I think you're quite right; the original goal of the Emissions Reduction Fund was to help Australia meets its 2020 target. There are a couple of points about that. One is that the original quantum of funding was always intended to be able to be available to the regulator if we actually spent or committed more than the actual yearly appropriation in the forward estimates. So, in a way, it was a pool of funding that we could draw forward, and there's a similar arrangement for the Climate Solutions Fund now. Maybe that helps.

Senator WATERS: Had all of the previous iteration been expended?

Ms Thompson : No, Senator. We have $226 million remaining for future purchasing events.

Senator WATERS: So you've now got $226 million plus an extra $2 billion, or is that $226 million folded into the new money?

Ms Thompson : No, it is $226 million plus the $2 billion.

Senator WATERS: Are any of the parameters altered in terms of who can apply and the types of sectors you're seeking abatement from and the methodologies—all of the historical stuff that we've gone over previously?

Ms Thompson : No. The approach is similar to the previous Emissions Reduction Fund approach, inasmuch as all sectors of the economy are covered, provided there actually is what we call the method that the legislative instruments set out—the rules for the individual project types. Provided you have a method, you can register a project, and if you meet the requirements of the method and our internal requirements and you can deliver abatement then you can apply to bid into an auction.

Senator WATERS: Have the methods changed?

Mr Parker : It probably is worth mentioning that the methods haven't changed as yet, but the method process is an ongoing, rolling process. This falls under the department, and the department has been, or would be, appropriated with some moneys under this process to continue the method development process.

Senator WATERS: Okay. I remember there was some complexity with the land sector method—and, particularly, with avoided clearing and all of the debacle with Queensland's changing land clearing laws. You're saying that you're anticipating that those methods will continue to be ongoingly revised? I don't want a massive amount of detail but are we expecting the ground rules to change or not?

Ms Evans : There's a standard program for review. The methods get reviewed regularly, and that will continue.

Senator WATERS: You alluded to the diminishing returns in the first phase and, if I recall rightly, much of the first few years was dominated by land sector avoided emissions, and then the mix started to change a little as the amounts granted dropped off. What sort of shape are you anticipating for the proposals in this new, rebadged, whatever you've called it climate solutions package—ERF mark 2?

Mr Parker : It's a little bit difficult to be definitive because there's a chicken-and-egg process. If there were new methods, then that could change the shape of the portfolio that was bid into the auction process. In terms of where we're at right now, the predominance of land sector abatement projects has continued, broadly speaking, and that is in part because that is, in a sense, a sweet spot of large, relatively low-cost abatement opportunities. What we have seen in the last year or so is a broadening of the geographic spread of those projects, including with substantial new bids coming in from Western Australia. In the last couple of auctions about 50 per cent of the winning bids were from Western Australia, and this has been tied with Western Australian government policy to look at providing consent to the projects. They have a hook in the process because a lot of these projects are on Crown land.

Senator WATERS: Are there any Queensland projects ongoing from the last time or that you know are coming up for the new version that I need to be across?

Mr Parker : There are always new projects. We can give you a bit of a rundown of the portfolio, if you like.

Senator WATERS: Just the Queensland ones would be of particular interest, as a parochial Queenslander.

Ms Thompson : Sorry, Senator, did you ask about which projects would be coming forward under the new Climate Solutions Fund?

Senator WATERS: Were any hung over from last time that are from Queensland and might be reconsidered or are there any that you know of that have flagged that they will be submitting, so that you have a sense of the nature of the proposals from Queensland?

Ms Thompson : I can tell you how many projects we have in Queensland at the moment. The extent to which we get new projects wanting to come into the fund will depend a bit on, as we say, the methods that are available and also some other developments in the scheme. One of the things that we've noticed is that we do see a fair bit of innovation with some of the projects and the methods. We had a very good example with soil carbon quite recently, when the first ACCUs were issued for soil carbon projects. That was assisted by the development of some new sampling technology that considerably lowered costs. Part of what I think we might see with the Climate Solutions Fund is the market responding to the new incentive in ways that are perhaps a little bit difficult to predict at the moment.

Senator WATERS: Yes, that makes sense. Could you run me through any other main key pipeline proposals that are coming forward in the clean energy space? Some good news for a change would be lovely in this space. It's always very welcome.

Mr Parker : There's lots of good news in this space. In terms of specific projects in specific places, it's a little bit tricky for us to talk about specific—

Senator WATERS: I understand. I know, you can't prejudge. I get it.

Mr Parker : They feed into a competitive bidding process. That leads us to some constraints. On the Queensland story, we can enrich that a little bit for you, because the Queensland government has a program which hooks into this space. They have a process where they intend to acquire a substantial body of ACCUs to meet some of their emissions processes. They have a fund which has been around for a little while. Mark Williamson can give you a bit of a story.

Mr Williamson : The Queensland's Land Restoration Fund is seeking to develop more Emissions Reduction Fund projects in Queensland to provide a pool that the Queensland government could purchase for its own off-setting needs. They've certainly been active on the Cape trying to encourage savanna-burning projects. The Queensland government did work closely on a large reef project and some others a little bit further up north on the reef. I think it was more the Babinda area. So the Queensland government's been trying to develop the market, but, as Mr Parker and Ms Thompson said, what we have found in the past is that the conducting of an auction with a lot more money tends to bring on more projects and it's hard to know for certain, until we conduct an auction, who'll actually win. Calling the auction leads to people coming in and registering projects, and there are commercial reasons people try to keep what they're doing a little bit quiet.

Senator WATERS: I understand, and it's iterative, too, as you say, with the innovation that's revealed. Back to the good news, though: you mentioned some of the Queensland good-news stories. What are some of the other big-ticket items in terms of clean energy development? Then I have just a couple of questions about your forecasts of how much saturation we'll have of renewables in the market based on the pipeline of what's coming through.

Mr Parker : Let's start talking about the pipeline, then. Minister Taylor, in fact, tabled a statement in parliament today about the pipeline of renewable investment and exactly where we're at. We are effectively on the cusp, if you like, of the point in time when the generator begins generating—that that one will meet the Renewable Energy Target.

Senator WATERS: Sorry, what was the last bit?

Mr Parker : We are on the cusp, at the moment, when we will have enough renewable energy generation in place to meet the Renewable Energy Target. Around mid-2019, we expect that to happen. It's a bit hard to say precisely when. Minister Taylor has put a statement into parliament today. We ordinarily report to parliament each year on developments. We've done that now, effectively, to do the courtesy to parliament of telling parliament before it becomes perhaps old news after the election.

Senator WATERS: Sure. I don't suppose he lifted that target now that we're about to meet it? I haven't seen his statement. It's not my area of responsibility normally any more.

Mr Parker : No. There is a very large pipeline of renewable energy investment. It does bring with it some issues about managing the stability of the grid and so forth. It's one of these good news stories, but there are issues. We don't get directly involved in the grid stability issues, but we do what we can in terms of providing information and collaboration and working with the department to help on that space where we can. Let me just give the floor to Mr Williamson for a moment to give you the story in terms of the amount of the pipeline that's there.

Mr Williamson : To provide some context, we said that around 6.4 gigawatts of new large scale build needed to be commissioned between 2017 and 2019 to meet the 2020 target. To put that number into context, the first 16 years of the scheme added about six gigawatts of wind and solar. A similar amount had to be built in two years. As of today, the numbers show that we have 5,132 megawatts, or 5.1 gigawatts, already commissioned and generating.

Under construction we have another 5,523 megawatts, or 5.5 gigawatts. As Mr Parker said, we do expect that 5.1 gigawatts to pass that 6.4 gigawatts by around the middle of the year. On top of that we still have another 1,366 megawatts, or 1.4 gigawatts, under power purchase agreements, which we think will go on to financial close and under construction this year. That gives a total pipeline of 12 gigawatts against the 6.4 gigawatts that was needed.

Senator WATERS: So that's doubling what we need?

Mr Williamson : Yes.

Senator WATERS: That's great news.

Mr Williamson : We are still seeing a very strong pace of announcements, so we're not really seeing that slow down. At the small scale, last year was a record in the roof top solar in Small-scale Renewable Energy Scheme, with 1.6 gigawatts added. To put that in context: the year before was a record, in 2017, at 1.1 gigawatts.

Senator WATERS: What are we at in total for rooftop solar now?

Mr Williamson : It's around about 8.5 gigawatts in total in Australia. For this year it's still very early, because there's a 12-month creation rule for the certificates, though companies are getting good at doing that faster. We've still recently been issuing certificates for installations that happened last year. The early signs are that this year could go to around two or just over two gigawatts in the Small-scale Renewable Energy Scheme. We are expecting, in the large scale renewable energy scheme, to accredit, which is a point of first generation, about four gigawatts of capacity.

Mr Parker : I just want to clarify one thing. When Mark was talking about the pipeline of 12 gigawatts in the large scale stuff, that's projects which we're pretty darn certain—to use the technical term—will actually happen. They're right at the cusp of being built; they've got everything ready and in place. Beyond that, of course, there's a very, very substantial pipeline of stuff which is being considered by the industry. It's a very active industry. That's stuff which could very well happen. We do see a number of projects jump from that 'maybe' category into being built straightaway.

Senator WATERS: That's great news. Green Energy Markets has apparently done analysis that says on that current construction level trajectory, if we continued, we'd get to 78 per cent renewables by 2030. Is that an analysis that you think is borne out? Do you agree with that?

Mr Williamson : Senator Hanson-Young did ask a question on notice, and we confirmed that that's not an unreasonable proposition.

Senator WATERS: Great. I'll take that as a yes.

Mr Williamson : We do think it's going to be somewhere between six and 6½ gigawatts total added in 2019, if it continues at that rate. They haven't forecast that it will. The Australian National University did a similar analysis of it continuing at that rate.

Senator WATERS: So, at the present rate, we'll be three-quarters clean renewable by 2030. If we increase the trajectory, could we do even better?

Mr Parker : Just to be really clear about this, those studies that you've pointed to, the arithmetic, if you like, is right—that is, if build continued at the present rate and you ran it through the calculator and pulled the handle on it then, yes, you'd get that number.

Senator WATERS: I understand.

Mr Parker : Whether it does continue at that rate is, of course, an entirely different question.

Senator WATERS: Hence my follow-up question: if it continues at a faster rate, could we do even better?

Mr Parker : Let's just be clear—and I did allude to this earlier. There are issues about how fast the build can come in while we are in a position of transition from what used to be a system where you'd had large thermal generators at one end of the transmission system—

Senator WATERS: So, as fast as the grid can cope, yes?

Mr Parker : That transition to a world where you have much more diffuse and dispersed generation and lots of batteries and big dams and so forth can't happen overnight. So there is a question about whether that rate could continue, irrespective of the policy framework.

Senator WATERS: So you're saying there are grid constraints?

Mr Parker : Yes.

Senator WATERS: Okay. I think we can deal with those constraints though, yes? We've got the ability to. Do you think we could surmount the grid constraints?

Mr Parker : I suppose you could say we have the technology, if you like.

Senator WATERS: Yes.

Mr Parker : The question about whether it can all be built in time and whether, in terms of the regulatory arrangements, they will approve all the processes in time for that is another question. It's outside of our responsibility.

Senator WATERS: Okay. Thank you so much for all your fabulous work and for all of the positivity and clean energy projects that you're presiding over and regulating. Keep it up.

CHAIR: Thank you, Senator Waters. Thank you, Mr Parker. Are there any other questions for the—you do, Senator Storer?

Senator STORER: My apologies. Forgive me if we go over some information that's already been discussed. The government's centrepiece mitigation policy, the Climate Solutions Fund, doesn't begin spending until 2020-21. Is that correct?

Mr Parker : Yes.

Senator STORER: When do you expect to fully exhaust funding from the current Emissions Reduction Fund allocation?

Mr Parker : It's not possible to be absolutely definitive about this. We are presently running two auction processes each year. I mentioned earlier that we stepped down from the bid to what you might call the ongoing maintenance process. At the last couple of auctions, we were spending between $50 million and $100 million at each auction. But there are a number of contracts which were contracted at an earlier stage.

To give you a little bit of context, when we contract at auction it doesn't necessarily mean that the project will definitely go ahead. There can be conditions precedent in the contract and so forth. A number of projects are actually cancelled, and the monies associated with the contracts then flow back into the fund. We can give you all sorts of details on that, if you like. If you roughly did the arithmetic of a little over $200 million and spending of around $50 million per auction, two a year, with some money flowing back, you're talking about a couple of years, which would basically take you out to 2020-21.

Senator STORER: So there won't be a gap in funding for the CER to purchase abatement?

Mr Parker : I'm not expecting there to be a substantial gap. In fact—

Senator STORER: A gap, or a substantial gap?

Mr Parker : My preference is to continue to approach the market with relatively small auctions. We have made it very clear to the market that we don't necessarily have to take all carbon abatement that is coming from particular projects. We have innovated the way we have done auctions to the point where we have said we are in effect happy to take the foundation customer risk and, in fact, we'll enter into a contract with you which has a condition precedent that says you want to sell most of your abatement to somebody else, and the contract will only be enlivened at the point that you actually do that second transaction. That's intended to meet the growing private market or, as Mark Williamson mentioned earlier, the market from state governments who are purchasing ACCUs and that's an emerging market, so we have been the biggest player on the demand side. We don't have to be the biggest player on the demand side.

Senator STORER: So there won't be a gap?

Mr Parker : I'm not expecting there to be a gap.

Senator STORER: So that neither says you don't expect there will be and you don't expect there won't be because you will be adjusting if it looks like there would be; is that correct?

Mr Parker : That's basically right.

Senator STORER: Over how many years is the Climate Solutions Fund $2 billion to be spent?

Mr Parker : There are two elements to that. There is going through an auction process when you would actually contract for the abatement. Those contracts often run for a number of years, sometimes up to 10 years. The actual funding under the Climate Solutions Fund before expenditure—you only expend moneys when the abatement is delivered—goes out for 15 years.

Senator STORER: The funding is for 15 years. How long will the contracts go for?

Mr Parker : How long will we be contracting for?

Senator STORER: How long will the contracts go for?

Mr Parker : It is a little difficult to be precise about that. It depends a little bit on market conditions, it depends a bit on the emergence of new methods, it depends a bit on how the private market develops and so forth. But, implicitly, the fund would have us stepping up to a higher pace of contracting than we're presently doing.

Senator STORER: Was the CER consulted on the level of abatement that should be purchased through the Climate Solutions Fund? Were you consulted on the level of abatement that should be purchased?

Mr Parker : This was a joint process of policy development between ourselves and the department.

Senator STORER: Was the CER consulted on the design of the underwriting new generation investment program?

Mr Parker : No, that's not in our business.

Senator STORER: Nor the selection of the shortlist? You weren't consulted on that?

Mr Parker : No.

Senator STORER: That is all I have, Chair.

CHAIR: That is it for the Clean Energy Regulator. We will go to the Great Barrier Reef Marine Park Authority.