A 2020 vision of a feed in tariff for Australia

As an Australian who relocated to California
to take advantage of the sunny outlook for the solar power business over here,
I watch for movement in the Australian climate debate with an eye to coming
home when it finally makes sense to do so.

Sadly, the superficial rhetoric coming from both major parties makes me
fear that the kinds of policies that could trigger my return, along with that
of other ‘ecopreneurs’, are a long way off. Howard and Rudd are both toying with
climate protection policies but failing to really sink their teeth in. Instead
of working out how to stop the pollution causing climate change, they are both
busy working out how to trade it. A price on carbon would help but it is no
silver bullet, and it will take a suite of solutions to address a problem of
this scale.

With the community consistently clamouring for solar in poll after poll,
any party that delivers a policy for building the renewable energy industry to
supplant fossil fuel-based electricity sources should win widespread support. This
policy would need to go far beyond the pathetic mandatory renewable energy
target that the Howard government has overseen. Clearly it must not be an
excuse for further corporate welfare to the so-called ‘clean coal’ industry (a
dream nearly as fantastic as nuclear power being ‘too cheap to meter’) or the nuclear
industry, which has hopefully suffered its final credibility blow with recent
near misses in Australia and
Japan.
Renewable energy policy is 07’s election litmus test.

What should they
do?

The best market-based policy to put Australia back in the race to
develop a clean energy industry, especially for key technologies like wind and
solar, would be a ‘Feed In Tariff’, also known as a ‘renewables premium’ or ‘standard
offer contract’.

Where a feed in tariff is in place, electricity produced from solar,
wind, minihydro or any other renewable energy technology, receives a premium
price. In Germany,
for example, solar PV gets four times the market rate for 20 years, guaranteed.
Germany
has spearheaded the uptake of solar and wind technologies with this scheme. The
feed in tariff is becoming the preferred policy for increasing solar uptake,
with 30+ countries using programs similar to the German model.

A premium price is obviously a huge incentive to install renewable
energy technologies, but it is not a subsidy. The cost is spread around
electricity users by mandating that generating companies charge all of them a
little extra. In Germany
it has added about 1 cent per kilowatt hour or an extra $1 – $2 per user per
month. It reduces the payback on the technologies to less than 10 years and
offers a Return on Investment of 8 – 9%. Moreover it creates the scale required
for industries to learn how to become more efficient and less expensive, and
therefore more accessible across the board. This policy has made Germany
the centre of excellence in solar businesses.

The results are incredible: Germany – a geographically small,
northern European nation – has more than half the world’s installed solar
electric systems. It gets 2.5 gigawatts of electricity from photovoltaics (PV)
– a fact that contradicts Prime Minister Howard’s oft-repeated lie that solar
won’t contribute significantly to our needs in the future. In actual fact, the
12% of Germany’s electricity
already coming from a variety of clean energy sources would power much of Australia. Germany
has created a quarter of a million new jobs in clean tech this decade (and a
capital base financing people like myself) largely through the use of a feed in
tariff.

I asked an experienced economist at a solar consulting company in Sydney to explain how a feed
in tariff might work in the Australian national energy market:

The regulatory agencies would establish a central renewable generator
fund. The generators would charge a tariff of less than 1% of the average bill
(less than in Germany), which would be collected in the fund before being
dispensed to solar and other renewable energy generators at 50 cents per kilowatt-hour
that they produce. This would save ratepayers and taxpayers money because it would
reduce the cost of upgrading grid infrastructure (since renewables are more
decentralized), and builds new generation capacity to meet peak demand (since
PV produces best when demand is highest, when the suburbs switch aircon to
high).

To ensure that the tariff helps build a self-sufficient industry rather
than one under permanent protection, the premium paid to solar producers would
be reduced over time, as in Germany.
A 5% reduction per annum, for example, would track the learning curve and really
make investors want to get in sooner rather than later.

Here are the sorts of benefits we could garner by 2020 with a properly
run policy:

• A feed in tariff for solar alone (a broad-scale,
  multi-technology policy would deliver far more) would deliver over 3,000
  megawatts of clean peaking electrical generating capacity.
• This would provide electricity to over 750,000
  Australian homes and reduce CO2 emissions by 4 million tons per annum.
• It would create 9,000 jobs across Australia in a
  high tech industry with enormous export potential, whereas right now we are a
  losing the last of our clean technology experts.
• It would immediately attract private investment –
  provided that there was enough faith that the policy would survive the slings
  and arrows of Australia’s
  outrageous politicians.

But therein lies the rub. The coal-loving leadership of both Labor and the
Coalition continue to play out scripts from the 19th century steam engine
economies. The one simple policy outlined above could have a very positive net
economic impact on the Australian economy. It would reduce reliance on outmoded
and brittle electricity grids. It would have economic benefits including jobs
and technology investment nationwide. It would green our growing electricity
system and diversify our supply in a low-cost way, as a hedge against the growing
scarcity and cost of fossil fuels. It would give us an ‘in’ to an expanding
global market – the solar industry grew 70% in 2005 and is expected to be a $40
billion business by 2010. Last but not least it would significantly reduce our
CO2 emissions.

A feed in tariff would cost Australians only about the price of a cup of
coffee each year that it remains in place. It would ensure a new globally
competitive industry in little more than a decade, after which it will no
longer need the support of such a scheme. Yet it need not affect energy
intensive industries if the powers-that-be want to continue to protect their pet
aluminium and other producers (as in Germany, key sectors of the
Australian economy can be exempted from the tariff). And it would engender
energy security and price stability and lead the way into a low-carbon,
climate-safe economy.

So for the market faithful on both sides of the Parliament it should be
the perfect solution. But I note on Hansard that when Greens Senator Christine
Milne asked a series of questions about such a policy in the Senate, it was
clear the Government had no idea and the Opposition was little better informed.
It seems that the world’s preferred policy for supporting renewable energy has
barely registered for Australia’s
major parties. Nonetheless I am still hoping someone introduces it before the
election. I’d vote for it!