Tony Abbott’s fight against solar and wind power in Australia

In the not too distant past Tony Abbott hopped on his bike and set off for a ride around Rottnest Island. His path took him right under the West Australian island’s sole wind turbine, and according to the prime minister this helped him form the view that windfarms were visually awful, noisy and potentially a health risk.

It must have been a particularly offensive turbine. Because in recent times Abbott has launched a number of verbal and policy assaults on wind energy.

But to his detractors this is only part of the picture. His government, they argue, has sought to undermine the entire AUS$20bn (£9.4bn) Australian renewable energy industry.

“It is quite extraordinary to see a government deliberately and systematically attacking a particular industry,” says Kobad Bhavnagri, the Australian head of Bloomberg New Energy Finance.

There is a broad national architecture to encourage more renewable energy in Australia. On its back, alongside numerous state-based schemes, the industry had grown at a steady rate from modest beginnings.

Under the Gillard government the US$2.5bn Australian Renewable Energy Agency (Arena) was established, as was the US$7bn Clean Energy Finance Corporation (CEFC).

The national renewable energy target was set-up by the Howard government in 2001 and later expanded by the Rudd government, with bipartisan support, to ensure at least 20% of Australia’s power comes from renewable sources by 2020.

Australia now has more than 1,800 wind turbines installed. 1.4m rooftop solar systems are on homes and businesses. And 12,590 people are employed in the industry full-time.

But the overall share of renewable energy in Australia’s electricity mix remains modest. In 2014 it was just 13.5% of the total power supply, with almost half of that coming from decades-old hydro electricity schemes.

Australia is still largely powered by coal. “We have a clapped out old energy fleet that belongs in the Eastern Bloc, not in a sophisticated and clever country such as ours,” Kane Thornton, chief executive of the Clean Energy Council, said last week in a speech.

“With over half of our existing coal fleet beyond its operating life, and with one of the most carbon-intensive energy systems in the world, it is time to clean-up and modernise our power system,” he declared.

Since coming to power the Abbott government has cut the renewable energy target.

It tried, so far unsuccessfully, to axe both Arena and the CEFC.

It scrapped an election commitment to rollout out another one million rooftop solar systems.

It has launched a parliamentary inquiry into wind turbines and agreed to establish a windfarm commissioner.

The government has arguments for each decision, some reasonable. But for the industry the collective upheaval has crippled it for close to two years.

“Frustrating, is the word that comes to mind,” said Danny Nielsen, managing director of the Asia-Pacific arm of wind energy giant Vestas.

“We have a little internal joke at the moment that there is less sovereign risk in Pakistan than there is in Australia.”

(Before you scoff, Nielsen says energy-hungry Pakistan is increasingly looking at renewables to meet its growing power demand).

In Sydney last week an air of gloom hung over the annual Clean Energy Summit. Attendee numbers were down 20% on last year, but one senior industry figure pointed to a more glaring omission among the empty seats and vacant tables near the back of the summit’s gala awards dinner.

“Where are the bankers?” he said.

If the bankers aren’t out in force to schmooze potential clients it indicates their appetite for deals will be satiated elsewhere – despite almost US$14bn in new investments still needed to meet Australia’s renewable energy target.

In the year up to the end of March 2015 investment in large-scale renewables had collapsed to US$259m, according to data from Bloomberg New Energy Finance. In the corresponding 12 months previous it had been US$2.5bn. And over the last two years more than 2,000 jobs have been shed in the industry on Australian Bureau of Statistics estimates.

Thornton told the summit that in the last 18 months Australian renewables investment has fallen behind countries like Honduras and Myanmar.

Meanwhile global renewable energy investment has boomed. It reached US$310bn last year, up 16 % on 2013. China, the United States and Japan led the way.

The local industry lays the blame for the Australian drought on the uncertainty created by the government. Renewable energy is an industry hostage to politics.

The latest salvo was a directive last week from treasurer Joe Hockey and finance minister Mathias Cormann that the Clean Energy Finance Corporation not invest in windfarms and rooftop solar.

The CEFC was established to increase the flow of funds into clean energy and energy efficiency projects. It is effectively a green investment bank, there to help finance clean technology projects where commercial lenders are hesitant.

Solar panels are being installed on the roof of a house in Sydney, Australia. Facebook Twitter Pinterest
Solar panels are being installed on the roof of a house in Sydney, Australia. Photograph: Tim Wimborne/Reuters
Since its inception it has made US$1.4bn in commitments to 89 projects. That has sparked a further US$2.2bn in investments from private lenders, including the big four banks.

Its expected rate of return is 6%, almost double the average the government gets from bonds. It is making a profit and paying dividends.

When SunEdison, the world’s largest renewable energy developer, was first looking to come to Australia it struggled to find the finance it needed among commercial investors.

The US-based company is aiming to claim a slice of the Australia’s rooftop solar market by installing panels for free on homes and then selling the generated power at a reduced rate to residents. It is a common model overseas, but not yet in Australia.

The Clean Energy Finance Corporation provided the US$70m in financing it needed. Jeremy Rich, managing director of SunEdison Australia, said without the CEFC the company would not be here, nor would its equity and jobs.

“The constant bombardment of changes, and what appears to be an attack against the industry, creates a lot of confusion for the Australian community and consumers as well as people employed in the industry,” Rich said.

The Coalition’s broad argument for axing the CEFC is that it is an unnecessary government intervention in private finance markets. Ministers point to the corporation’s deals to refinancing already built windfarms to emphasise this point.

With its attempts to close the CEFC frustrated by the Senate, the government has tinkered in other ways.

Earlier this year Hockey and Cormann sent an investment mandate to the corporation insisting it had to achieve higher returns from its investment but without taking on more risk in the projects it backs.

This sparked alarm inside the green bank. CEFC chair and senior businesswoman, Jillian Broadbent, wrote back saying: “achieving such increased returns without increasing risk is highly challenging, and in my experience, outside the scope of normal market practice.”

The second order for a halt to wind and rooftop solar investments – a result of a deal with anti-wind crossbench Senators – has left the CEFC seeking legal advice about whether this directive complies with its act and what exact technologies it would not be allowed to back.

The government’s view was that the renewable energy target would support new windfarms and rooftop solar and the corporation’s focus should instead be on “emerging technologies” in particular large-scale solar.

Or as Abbott explained it last week: “As long as it exists, it might as well be as useful as possible and … invest in new and emerging technologies, the things that might not otherwise get finance.”

Those wanting the corporation left untouched say this is counter to the objectives set out in the CEFC’s legislation. And they point to Arena – a separate agency that provides conditional grants to renewable energy projects – as the body best placed to back emerging technologies.

In opposition the Coalition vowed to retain Arena. But in power it first cut its budget, then moved to axe the body altogether. Again it has been blocked by the Senate.

Ivor Frischknecht, Arena’s chief executive, said uncertainty about the agency’s future had left some potential industry partners unclear about its priorities and even its existence. Arena is working hard to let people know it is still around.

“We have been in the same state, the state in which the government has a policy to abolish us but is not actually doing so, for over a year,” Frischknecht said.

“Strange as that sounds I think confidence is now increasing.”

To date Arena has invested US$1.1bn in 230 projects across the country. Last week it released a blueprint for its future priorities, including helping build 200 megawatts of new large-scale solar.

While rooftop solar has boomed, Frischknecht pointed out that Australia is lagging well behind even countries like Romania and Chile on utility scale. Frischknect puts this down to a lack of strong policy support and low wholesale electricity prices.

Some large solar projects are now under construction and Frischknect said it was critical the momentum continued to keep building the supply chain and drive costs down. But if Arena and the CEFC did not exist, he said, then the next wave of projects would have to hope for state government support.

While the battle over Arena and the CEFC plays out, the biggest scars for the renewable energy industry came during the protracted battle over the renewable energy target.

In opposition the Coalition gave bipartisan support for the target, but also flagged it would launch a review. In government Abbott hand-picked businessman and climate sceptic Dick Warburton to lead it.

The review pleased few. It recommended closing the target to new entrants or cutting it back significantly on the basis of yearly reviews.

Bhavnagri said the Warburton review was perhaps the most damaging hit to investor confidence. In recommending the scheme be closed, while ultimately not accepted, Bhavnagri said it went to areas western governments were normally hesitant to tread – retrospective policy making. It was a devastating signal to the market.

The government instead sought to negotiate a deal with the opposition. Set to achieve 41,000 gigawatt-hours of renewable energy by 2020, the Coalition wanted that brought back to 26,000, while Labor and the industry wanted little change.

Over an agonising 16 months – during which investment continued to dry up – the two parties agreed on a new goal of 33,000 gigawatt-hours.

The government’s case for cutting the target was that as demand for power had fallen sharply the 20% goal would be overshot significantly. It also doubted the industry could build enough projects to meet the target.

If it is reached, the cut back target will still see about 23% share for renewables by 2020 on current forecasts. It is understood it took a hard internal push from environment minister Greg Hunt and a number of backbenchers to get a workable compromise through.

But the prime minister would later tell radio broadcaster Alan Jones he had sought to cut the target to stop the spread of windfarms.

“Now I would frankly have liked to have reduced the number a lot more,” Mr Abbott said.

Mr Abbott also hinted he did not really want the target at all. While the Howard government had introduced the scheme, on reflection Abbott said “I don’t think we would have gone down this path in this way.”

Going so hard at renewable energy is not without political risk for Abbott. While the “carbon tax” was toxic in the broader electorate, and a vote winner for the Coalition, support for renewable energy has remained consistently high in opinion polling.

For instance polling by the Liberal party’s pollsters Crosby Textor – commissioned by wind company Pacific Hydro during the debate of the target – found 82% of people viewed solar favourably, while 67% viewed wind in the same good light.

The fossil fuel industry on the other hand was seen favourably by only 24% of respondents. And the carbon tax just 21%.

Another looming issue for the Abbott government is that it is about to establish a new target to reduce greenhouse gases for next decade, which will have to be larger than the current promised cut to emissions of five % from 2000 levels by 2020.

It is highly unlikely Australia can meet this new goal without further transition in the power mix towards cleaner sources. But much of the current renewable energy support – even if it survives the chop – is geared to run out around 2020.

Of course the government also axed the carbon price. And there remains scepticism its replacement scheme, Direct Action, will be able to meet any deeper goal for 2030 as currently designed.

What comes next is still unclear.

Energy policy manager at the Grattan Institute, Tony Wood, said whatever was adopted it should be broad and have as much bipartisan support as possible, whether it is a reworking of Direct Action or a carbon price of some sort.

Nielsen said whatever is put in place must be a long-term platform because investments in the energy industry are taken with a multi-decade view.

“You can’t turn it on and off every 18 months,” he said.

In the meantime the renewable energy industry is trying to get off the mat.

Since the target was bedded down two new windfarms have reached financial close, but only on the back of extra ACT government support.

Nielsen said there were about 8000 megawatts worth of Australian wind energy sites ready to be developed. But he believed companies would likely wait out the year before again looking to sign contracts to build.

There remains a wariness of prevailing conditions.

“We all know next year is an election year again,” Nielsen said. – The Guardian