Govt concedes on commercial solar, but games continue

Yesterday I asked why the government was so cryptic about what it intends to do about policy support for rooftop solar systems. Late in the day Environment Minister Hunt’s office gave us some slightly better clarity likely to cheer both large-scale renewable energy power project developers and also those in the solar sector. But questions still remain to be answered.

As some background, the government has stated publicly on repeated occasions that support for “household solar” will not be touched. However, the scheme which supports household solar also happens to support solar systems up to a size that could only fit on at least a dozen home rooftops. This scheme, known as the Small-Scale Renewable Energy Scheme, or SRES, provides an upfront rebate on installation of a solar system up to 100 kilowatts in scale (the average household system is under 4 kilowatts). If the system is larger than this then financial support is not provided upfront on installation, but rather progressively as each megawatt-hour of electricity is generated under a scheme known as the Large-scale Renewable Energy Target (LRET).

The government’s statement that ‘household solar’ is safe, has been widely interpreted to mean ‘everything else is up for the chop’.

In particular Climate Spectator had been informed that the government intended to make systems larger than 10 kilowatts ineligible for upfront support under the SRES and shift them into the LRET.

But late yesterday a spokesperson for Minister Hunt’s office, while still sticking with the terminology surrounding household solar, provided some further clarity:

"Household solar will continue unchanged, as part of the Coalition’s commitment to renewable energy.

"Solar up to 100kw is proposed to stay in the SRES due to the red tape that would be involved if it moved into the LRET."

This will come as welcome news to both businesses involved in rooftop solar and developers of utility-scale wind and solar farms.

Reducing the eligibility threshold for SRES caused problems for solar businesses because, as a general rule, rooftop systems are bought by customers based on a relatively unsophisticated evaluation focused on payback time that heavily discounts any revenue beyond five years or revenue perceived to be uncertain. Also a shift into the LRET would have created a greater administrative burden in having to progressively claim renewable energy certificate revenue on an ongoing basis, rather than one upfront claim.

In addition it caused problems for large-scale wind and solar farm developers because any significant growth of commercial-scale rooftop solar – if it were to occur – would come at their expense (at present growth in capacity supported by SRES comes at the expense of coal and gas, not the LRET). In addition, while the move away from upfront rebates is expected to hurt commercial solar sales, no one really has a good grip on how the market for commercial solar will develop in the future because it is still very immature. This adds another element of uncertainty and nervousness for potential financiers of utility-scale power projects.

Nonetheless, serious question marks remain.

Hunt’s office was specifically asked whether the government was looking to make any changes to the SRES including, but not limited to, system size eligibility. While they ruled out changes to system size eligibility and also reducing support to ‘household solar’ they threw in the following peculiar qualifier at the end:

"In regards to larger size schemes from 10kw to 100kw, Labor has raised whether the current upfront deeming remains the most efficient and effective system."

For those unfamiliar with the terminology, upfront deeming is where the government subsidy is given upfront on installation of a system rather than incrementally as the power is generated, as per the LRET.

Labor’s Mark Butler told Climate Spectator, “I reject any claim that Labor’s position has ever been to change the SRES”. As evidence he pointed to a letter he sent on November 1, 2014 to Ian Macfarlane setting out Labor’s five negotiating conditions, which stated, “We see no justification for any change to the existing SRES arrangements.”

Yet irrespective of whether this was or wasn’t Labor’s idea, one has to wonder why the government would flag this in response to a question about whether they themselves planned on making changes to the SRES.

Minister Hunt has just said he is about to negotiate with the crossbench senators. So whether or not Labor came up with an idea of removing upfront rebates is immaterial, it’s the government who initiates and is in control of the negotiations with crossbench senators, not Labor.

Reading between the lines this all seems to say:

‘We originally wanted to place everything above 10kW into the large-scale scheme but decided this was too difficult to negotiate. So we’re now looking at making it more difficult to access the subsidy for non-household solar systems instead, but please blame this on Labor.’

What this latest exchange of fire boils down to is that is seems highly unlikely a deal will be struck on the RET before Christmas.

The latest RET negotiating letter from Minister Hunt seems to be more an attack on the RET (it hurts manufacturing workers) and Labor (who want to hurt solar and manufacturing workers) designed for public consumption, rather than a genuine attempt to make Labor feel as if the government is willing to compromise on its desire to cut the LRET by 40%.