This report argues that a 40% renewable energy target would provide an earlier tipping point to trigger major solar investment.
Since its introduction in 2001, the Renewable Energy Target has provided a policy foundation that has supported the emergence of a growing clean energy sector in Australia. In less than a decade the renewable energy in Australia has evolved into an industry supporting thousands of jobs and over $20 billion dollars in infrastructure investment.
Australia’s growth in renewable energy is reflective of a wider global trend. OECD countries are now producing over 600,000 Gigawatt-hours of renewable energy from non-hydro sources each year, meeting 5.5% of the electricity supply. Recently, growth in Australia has stalled due to uncertainty around the RET, with an 88 per cent decline in investment for large-scale projects in 2014.
In recent years much growth in OECD renewable generation has come from solar photovoltaic (PV) generation, which is experiencing rapidly falling costs. The cost of installing large-scale solar PV fell from approximately $4,500 per kilowatt in 2008 to around $800 per kilowatt in 2013. While wind power is already cost-competitive with fossil fuels on a levelised cost basis, solar PV is forecast to reach similar prices in the coming decade.
The RET provides a boost for renewable energy as retailers are required to purchase a proscribed amount of renewable energy each year, certified through Renewable Energy Certificates (RECs). The money renewable generators make by trading RECs to retailers provides a second revenue stream in addition to the sale of wholesale electricity.
Forecasts for wholesale electricity prices are flat due to lower than expected growth in electricity demand in Australia. Even with forecast cost reductions, the most cost effective solar projects are not forecast to be viable receiving wholesale prices alone until after 2030. With the current RET maintained, the lowest cost solar projects could be viable as early as 2018 based on forecasts from the Bureau of Resource and Energy Economics. If large-scale solar is to be built in Australia, the RET is integral.
An extension to a 40 per cent by 2030 target would likely see considerable roll out of largescale solar generation. Even under a 30 per cent by 2030 scenario, solar increases its profitability, while that of most other energy sources falls, including wind, according to modelling for the Government’s RET review.
Complementary policies such as those administered by the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC), also aid the entry of solar into the Australian market. ARENA has already assisted the commissioning of four major solar projects since its establishment.
Significant increases in investment in large-scale solar PV projects, in addition to continued growth in wind generation are anticipated in coming years.