Jess Hill: Never has it been more expensive to turn on your appliances. In the last few years, our power bills have doubled, making Australia's electricity prices some of the highest in the developed world.

Prime Minister Tony Abbott blames two things; the carbon tax and the renewable energy target. He says that's why the government is reviewing the target again.

Tony Abbott: One of the things that we'll be looking at is the impact of renewable energy on power prices, because not only is the carbon tax adding about 9% to everyone's power bills (and we are going to get rid of that as quickly as we can), renewable energy targets are also significantly driving up power prices right now.

Jess Hill: The Australian Energy Markets Commission says the renewable energy target adds 4% to the average electricity bill. For an average household, that's about a dollar a week. If you take the 9% increase due to the carbon price, and add 4% from the renewable energy target, you get 13%. That doesn't explain why our bills have risen by around 100%. So why have prices become so high?

Bruce Robertson: I just always got my bill and thought, wow, that's gone up a lot, but that's life. I really hadn't looked into it too closely until I started digging away.

Jess Hill: One man who's helped expose the true story behind the price hikes is Bruce Robertson, a financial analyst turned farmer who lives on the mid-north coast of New South Wales.

Bruce Robertson: Once you dug away, what you found was that much of the rhetoric out there from politicians and people in the industry simply wasn't adding up to what the numbers were showing. So while many of the politicians out there are going on about carbon tax and green schemes…look, they're all factors in the rise of electricity prices, but they're not the main game. The main game is the network.

Jess Hill: The network Bruce Robertson is talking about is the system of poles and wires that brings electricity to our homes. Since 2009, network companies have spent $45 billion upgrading and extending those poles and wires. And every dollar is being passed on to consumers via their power bills. And that's biting deep into the budgets of many Australian households.

Bruce Robertson: What people have got to realise in Australia now is we have reached energy poverty, and energy poverty is defined as when it's 10% of your disposable income goes on energy. And an awful lot of our community where I live is at that point, due to the egregious greed that's occurred within the electricity industry.

Jess Hill: This is Background Briefing, I'm Jess Hill. Today we look at the real story behind what led to the staggering rise in Australia's electricity prices, and how the coal-fired power industry and the government are using that price rise to undermine the growth of renewable energy.

In 2009, the network companies made a dire warning: unless the power grid was radically updated, the poles and wires would not be able to cope with Australia's growing energy demand. They said that unless tens of billions of dollars were spent on the grid, Australia's east coast could begin to see rolling blackouts. Their investment request was granted. But as soon as the upgrades began, something unprecedented happened. Demand for electricity didn't go up, it went down. At first, people blamed the global financial crisis. But it was the beginning of a long-term trend.

John Grimes: In 2009, demand fell for the first time in Australia's history by 2.5%, and the experts scratched their heads and said, well, it's a blip, you know, let's see what next year brings. And what happened is that electricity demand fell again by around 2.5%. And it's fallen every year since 2009.

Jess Hill: John Grimes is executive director of the Australian Solar Council.

John Grimes: For more than 100 years in Australia, the business model of the utilities was the same; build more infrastructure, sell more power. It was a paradigm of ever-increasing demand.

Jess Hill: But a new paradigm was emerging. Despite the clear reality of falling demand, the network companies continued to say demand was rising, and they carried on investing billions of dollars into the grid. We're paying for that investment through our power bills.

Bruce Robertson:

Bruce Robertson: And our bills have basically doubled in the last six years to over $2,000 for the average consumer. And $580 of that $1,000 increase, so over half the increase, has been from network charges.

Jess Hill: Bruce Robertson is quoting data from the Independent Pricing and Regulatory Tribunal. We'll tell the full story behind these network charges later in the program.

While renewables are not having a significant impact on the size of our electricity bills, the size of our bills is having a significant impact on the way that we consume power.

David Leitch is a utilities analyst for the investment bank UBS.

David Leitch: Because the price got so high, it made solar even more competitive from the customer's point of view, because when you use the solar in your house, you don't use the wires and poles in the system, so you're eliminating half the final price.

Jess Hill: The fact that solar panels can slash electricity bills by more than half means they are now an economic choice, not just an ethical one.

The Australian Solar Council's John Grimes:

John Grimes: There are now over two million households with solar PV or solar hot water, and in some cases both. And the projections really are that between now and 2020, about half that number again are scheduled to install solar. So we're talking about a very large number of houses.

Jess Hill: How much is an average household paying to actually install rooftop solar?

John Grimes: So you know, as with anything in life, you get what you pay for, but a reasonable system, an average-sized system being installed around Australia is around $6,500 to $7,000. Now, for a lot of people on fixed incomes that's a big lump to get over, and that's why the support of the Renewable Energy Target is so important. What it does is it recognises the carbon reduction of that system over its lifetime of 15 years, recognises that upfront, into what is essentially a point-of-sale discount. So that support is worth about $1,000 to $1,200, depending on where you are around Australia.

Jess Hill: So the Renewable Energy Target essentially is paying householders to stop polluting?

John Grimes: Absolutely.

Jess Hill: Until recently, people were also being paid handsomely for the extra solar energy they fed back into the grid. This is what's known as a feed-in tariff. But in most states, those feed-in tariffs have been cut and are now only a fraction of what they used to be.

But that hasn't stopped people installing solar. Today, one in ten Australian households get their daytime power from solar panels. David Leitch from UBS says that means households are now competing with the big electricity companies.

David Leitch: Because all of a sudden the households are producing electricity and they're deciding what to do with it, as opposed to just having a choice of take it or leave it from your friendly electricity retailer.

Jess Hill: Although wind power provides the majority of Australia's renewable energy, it's rooftop solar that's wreaking havoc on the traditional power industry. And this is why: when the sun is shining, solar panels feed power directly from the roof into the premises. That means it bypasses the electricity system entirely; it doesn't use the network's poles and wires, it replaces power that would have otherwise come from coal or gas-fired power plants, and it's power the consumer doesn't need to buy from the retailers.

Solar doesn't actually produce much of Australia's energy, but it's the particular time of day when solar is at its peak that's causing the power industry the most grief.

Richard Denniss: Solar panels have got this great trick, they make lots of electricity when the sun is shining, and that's when we like to turn our air-conditioners on.

Jess Hill: The Australia Institute's Richard Denniss.

Richard Denniss: When everybody turns their air-conditioners on at 4 o'clock on a hot Thursday afternoon, we've got people coming home from school turning the air-conditioners on, the factories are still open, people are starting to cook dinner, the kids are in the bath, we have enormous demand for electricity for these short periods of peak demand. And that's when solar panels are at their best. So, solar panels are actually pumping quite a large amount of energy in during these periods of peak demand, and that's pushing down the peak price. Now, that's great for everybody, except the so-called baseload power stations, because the baseload power stations used to be able to sell their electricity for a much higher price at 4 o'clock on that hot Thursday afternoon.

Jess Hill: How did those peak demand days usually work for the power generators in terms of their overall earnings for the year?

Richard Denniss: Look, those peak demand days are fantastically profitable for the big coal-fired power stations. In fact it's been estimated that they make around 25% of their annual profit from around 36 hours of electricity supply. And now there's a new kid on the block and that is solar, and from the coal-fired power station point of view you couldn't have a worse competitor, because solar is at its best when the market is at its most profitable.

Jess Hill: Electricity demand peaks twice a day; in the afternoon and in the evening. Solar panels are stealing the afternoon peak, but in the evening, once the sun has gone down, the coal and gas-fired power plants are getting whipped by the wind.

UBS analyst, David Leitch:

David Leitch: And then in the evening the thermal generators have also been hit a lot by wind power. At its peak, wind can now produce, on rare occasions, as much as 12%, 13% of the electricity actually used in the whole national electricity market.

Richard Denniss: The coal-fired generators are saying this is no fair, we've got these new solar and wind people showing up, the renewable energy target is dragging them into the market, and our customers aren't buying more electricity than they were last year, so from their point of view, they're getting cut by both arms of the scissors.

Jess Hill: Richard Denniss.

All of this extra wind and solar, combined with the fall in energy demand, has driven down the wholesale cost of coal-fired power. But that hasn't made any difference to the retail price of electricity, the price that we all pay. We'll explain why later in the program.

What this all means is that the big coal-fired power plants are earning less for the energy that they produce. That's because Australia now has more energy than it needs. And that's a big problem, says federal industry minister, Ian Macfarlane.

Ian Macfarlane: We're facing an enormous challenge in terms of an excess generating capacity in electricity in Australia. To be adding large quantities of generation into that situation has to be questioned. The review process will go through those things.

Giles Parkinson: Well, pretty much for every kilowatt you've installed of renewable energy you're taking out a kilowatt of coal-fired power stations.

Jess Hill: Giles Parkinson is the editor of Renew Economy, a specialist website that covers the clean energy sector.

Giles Parkinson: And these guys are panicking and they're angry and they're resentful because their profits are being eroded. The Queensland government-owned Stanwell Corp, which has more than 4,000 megawatts of coal and gas generation, they did not make any money from their generation last year, and they blame it entirely on solar, because solar has basically stolen the peak, stolen the profit from them.

Jess Hill: With energy demand going down, and renewable energy supply going up, Australia simply doesn't need as much power from fossil fuels anymore. In the last few years, several large coal and gas-fired power stations have been shut down or mothballed.

UBS analyst David Leitch:

David Leitch: Australia doesn't need any more generation. If we have more wind at the moment, it will displace some other form of generation. So no-one wants to be displaced in this world, and we can all understand that.

Jess Hill: Isn't that the point of the renewable energy target though, is to displace coal-fired generation with renewable generation?

David Leitch: The original point of the target was that wind would be the new generation source. We imagined a world where electricity demand continued to grow every year, and that's the part that's changed. So at the moment, electricity demand is not growing, it's declining. So any new generation has to displace someone else.

Jess Hill: The renewable energy target, known as the RET, mandates that 41,000 gigawatt hours of renewable energy must be in place by 2020. Now that energy demand is going down, the conventional power industry is lobbying the government to reduce the target.

The Energy Supply Association of Australia represents Australia's stationary energy sector. That includes network companies, generators and electricity retailers. The association's CEO is Matthew Warren.

Matthew Warren: When the RET legislation was passed, it was expected that 41,000 gigawatt hours would be about 20% by 2020, because it was anticipated that with the continued growth in the market, that's what you would need to get to 20%. So now we've seen the market go south, and the 41,000 gigawatt hours, depending on your modelling and your forecasting forwards, could be as high as 30%, so it's notionally a much bigger target.

So what that meant is that the conditions under which the RET was designed no longer exist, and we think the RET is broken and can't work under the current conditions of an oversupplied market.

Jess Hill: Now, what the traditional power industry calls oversupply, the renewable energy industry would call competition. So what's wrong with there being oversupply in the market? Doesn't that just mean that as supply goes up and demand goes down, then prices go down and it's a better deal all over for consumers?

Matthew Warren: Well, I don't really think it's competition. The reason that we have renewable energy entering the market is because it's being regulated in, it's at a higher price. So if you want competition, that's fine, but then you don't need a renewable energy target, and then renewables can bat on by themselves.

Jess Hill: Matthew Warren says it's not just the target that needs to be wound back, the entire scheme needs to be reconsidered.

But there has already been a review. At the end of 2012, the Climate Change Authority reviewed the target and recommended that it be maintained. Their review was supposed to provide certainty to the renewable energy industry.

The chair of the Climate Change Authority is Bernie Fraser, a former Reserve Bank governor. He says that just by holding another review, the government has ensured that the 41,000 gigawatt-target won't be met.

Bernie Fraser: Investment is actually being cut back and delayed, and I think because of that, I think it's apparent that the 41,000 gigawatts for large renewable energy power plants is not going to happen. And I think that's what the opponents, the critics of renewable energy want to see.

Jess Hill: How do you feel when you listen to some of the political rhetoric around renewable energy at the moment, how does that make you feel?

Bernie Fraser: Sick, and disappointed. Policymakers need to look beyond short-term economic considerations in the interests of some of the big companies to longer-term community interests. And that's what governments are supposed to do, but unfortunately it's not happening at the present time. So it's a bit…well, it's more than a bit, it's very disappointing that we're falling behind, and we are falling behind what many other countries are doing.

Jess Hill: The Australian Solar Council says Australia is about to take another step backwards. It's predicting that the rebate for rooftop solar panels will be removed entirely by the federal government.

John Grimes:

John Grimes: We know that the government is going to side with big business. They want to cut power bills for big industry, and they want to protect the big utilities. And the way they'll do that is to eliminate support, all support, government support, for rooftop solar. And we think that that's outrageous, and it's outrageous because solar saves people money. The only way that pensioners, people on fixed incomes, single parents, community groups, can make a meaningful difference to their power bills is to install solar.

Jess Hill: Background Briefing sought interviews with the federal industry minister Ian Macfarlane, and the federal environment minister Greg Hunt. Both requests were declined. The findings of the government's review into the target will be delivered later this year.

For the moment, the industry is trying to find ways to get more money from solar households that are using less of its product. All electricity users pay a fixed network charge just to be connected to the grid. But the network also adds an extra charge onto each kilowatt that you use. The more you use the grid, the more you pay for it. But it also means that when people use less energy from the grid, network companies earn less money. Now those companies, many of which are owned by state governments, are lobbying to increase the fixed charge, so that households that don't use as much energy will have to pay more. They say that's because as more people install solar and use less of the grid, network companies are being forced to recoup their costs from a smaller number of customers.

Matthew Warren from the Energy Supply Association of Australia:

Matthew Warren: What we do want to see is the way in which we charge for the connection to the electricity grid is cost neutral, so that whether you have solar panels, or whether you have an air-conditioner or any other technology, you're paying the appropriate share of the network that you're using, so that we don't have this gradual but quite expensive transfer of costs between those who have and those who don't.

Jess Hill: This could force an even bigger change in the way people consume power, says the Australian Solar Council's John Grimes.

John Grimes: All this will do will hasten people's interest in saying, you know what? I'm going to put in solar, I'm going to put in some energy storage, and I'm going to cut off the grid altogether. So I think that if these energy companies think they have a problem today, if I look two, three, four years into the future, I think a much, much bigger problem is coming, and they're doing this all wrong.

Jess Hill: Solar power's major drawback is that it can't produce energy at night, and battery storage is still very expensive. Until people can store the energy that they produce during the day, they will have to remain connected to the grid. But another new development could change all that.

Nigel Morris: It is the next big game changer. All the numbers, and all the companies that I'm talking to who are involved in this space keep showing me data that suggests that it's actually going to happen quicker than everyone thought.

Jess Hill: Nigel Morris is a solar business consultant who spent 12 years working in the solar division of BP. He says that by next year we could see solar storage options that make economic sense in Australia. After that, he says the costs will come down fast, thanks largely to a $5 billion factory that's being planned in the United States.

Nigel Morris: The Gigafactory is a plan to build the largest factory in the world for making lithium batteries. And it will change the game. The idea of the factory is to increase the scale of manufacturing in the same way that they've done in solar to reduce the cost. And the same theory would apply in storage as it does in solar, and that is for every doubling of capacity, the costs should fall by about 20%.

Jess Hill: One company paying close attention to the development of solar storage is Ergon Energy. Ergon sells and distributes electricity to regional Queensland. They believe that within the next decade, it will be cheaper for their customers to get power from solar panels on their rooftops and batteries in their garage than it will be for them to buy power from the grid.

Ergon Energy's CEO is Ian McLeod.

Ian McLeod: You look at the network in regional Queensland, we've only got 720,000 customers, and 150,000 kilometres of network. It's one of the least dense networks in the Western world, and that's a challenge for us. So new technology like battery storage, energy conservation, distributed solar, in our area, can stack up a lot sooner than it does in others.

Jess Hill: Last year, Queensland taxpayers paid $600 million to subsidise customers in remote areas so that they could pay the same for energy as customers in Brisbane. Ian McLeod says it makes better sense for those customers to produce energy where they use it.

Ian McLeod: We see in the future that we're there to enable an effective market, so we connect all the producers and consumers together, whether they're generating energy centrally or it's distributed, whether they store it in batteries, whether they generate through solar PVs, we see our business model as connecting those things and enabling the most efficient outcome to be achieved for the market. So yes, our business model will change, and certainly solar PVs and the accelerated rollout has made us have to move quicker.

Jess Hill: Ergon Energy's approach is not typical. For most big power companies, solar poses an existential threat to their business model. They call it the 'death spiral'.

Bruce Mountain is the director of Carbon Market Economics.

Bruce Mountain: The traditional model is under threat from consumers being able to produce their own electricity through PV systems and possibly increasingly through battery storage and other means to delink from the grid totally. And as they delink, the pool of customers left gets smaller, the total costs of the industry has to be recovered on a smaller customer base, and so prices rise, more consumers leave, and eventually the whole industry can die.

Jess Hill: In Europe, the death spiral has well and truly taken hold. Governments there have set ambitious renewable energy targets, and European power companies have lost around half their value in the last five years. That's a loss of €500 billion.

In Germany the renewable energy target is 55% to 60% by 2035. Earlier this year, one of Germany's biggest fossil fuel generators, RWE, announced an annual loss of €2.8 billion. The company conceded that it had waited too long to invest in renewables. Its CEO now has a completely different outlook.

Giles Parkinson: This is the owner of these nuclear plants and the coal-fired plants, his dream is to put solar on your rooftop, a battery in your garage, and a fuel cell in your basement. And that's how he's going to deliver energy to you in the future.

Jess Hill: Renew Economy's Giles Parkinson.

The speed of Germany's transition to renewables has been criticised for being chaotic and expensive. German consumers pay the highest electricity prices in Europe.

Australia doesn't have Germany's high renewables target, but it does have similarly high prices. Bruce Mountain has just completed a study comparing power prices from around the world.

Bruce Mountain: It found that electricity prices paid by households in Australia are at or near the highest in the world, comparable to those in Germany, which is near the highest in the world. And essentially they have doubled over the last five years, which has taken us from the middle of the pack to the top of the pack.

Jess Hill: Right, because I remember just anecdotally hearing that we had some of the cheapest energy in the world, that's a bit of a general perception.

Bruce Mountain: Yes, we have very cheap ways of making electricity, we have large, old, coal-fired power stations which make electricity at a very cheap cost. But the cost paid by the end user, by the household end user, is not inexpensive. It was at one time, but it's not anymore. Now it's up there at the top.

Jess Hill: So if Australia still has cheap coal-fired power and it has more energy than it can use, why are we paying record high prices for electricity?

Federal Treasury has estimated that on average our electricity bills can be broken down like this: 9% for the carbon tax, 20% for retail and customer service, and 20% for the actual energy that you use. The remaining 51% of your bill is paying for network charges. The 4% attributed to the renewable energy target is so small Federal Treasury doesn't even measure it.

Bruce Robertson: So while many of the politicians out there are going on about carbon tax and green schemes, they're not the main game. The main game is the network.

Jess Hill: Bruce Robertson runs a farm at Burrell Creek, west of Taree, in New South Wales. Before he turned his hand to farming, he worked as a financial analyst. At the end of 2011, two years after network companies began investing billions of dollars into the grid, Bruce Robertson received a letter from TransGrid, the state-owned network company, saying they were planning to build a major transmission line through his farm. TransGrid said the area needed the new transmission line because of a sharp increase in local energy demand.

Bruce Robertson: They were telling us that they were building these power lines to cater for this massive increase in demand, and we just simply couldn't see that increase. I'd been a voluntary judge of the Manning Valley Business Awards, and I had a very good idea of what was going on in our local community in the business side of things, and I couldn't see much in the way of increasing demand that they were talking about, in fact I could actually see a fair bit going the other way.

Jess Hill: Bruce Robertson and a group of locals decided to do their own research.

Bruce Robertson: There was this amazing amount of information but it was very complex and hard to digest, and when you got to the bottom of it, the electricity industry was saying nationally that demand was rising when in fact demand was falling.

Jess Hill: What are you thinking at this point?

Bruce Robertson: Well, I think there were a few lightbulb moments in the campaign against TransGrid, and one of those very definitely was when we discovered the way they were paid. These electricity distribution and transmission companies that build the poles and the wires around the state and nation are paid purely based on their assets. They're not paid on the amount of electricity delivered, they're not paid on the efficiency of doing that, they're only paid on their assets. So if they build more, they get paid more. And once we'd sort of worked that out we realised what the incentive was for them to push a power line down our valley when there's no demand. Because they get paid more.

Jess Hill: Who pays them?

Bruce Robertson: We do, the electricity consumer.

Jess Hill: What Bruce Robertson discovered was that not only were network companies allowed to pass on their costs of investing in the grid, they were also allowed to charge an extra ten cents for every dollar they spent. That 10% rate of return was approved by the Australian Energy Regulator for a period of five years. It said this was necessary to cover the increased cost of borrowing brought about by the global financial crisis.

But energy analyst Bruce Mountain says that the 10% allowance was too generous.

Bruce Mountain: The evidence was quite clear at the time that the companies were able to continue to borrow money at considerably lower rates than the regulator allowed.

Jess Hill: How much, percentage wise, do you think was the difference, say, between the 10% that the regulator allowed, and what the networks actually had to pay for their capital?

Bruce Mountain: I could put a number on it and say that rather than 10% the number was 7%, but that doesn't tell the full story. The full story is in the actual profitability of the businesses, which can be established by looking at their annual reports.

Jess Hill: The Australian Bureau of Statistics has done that, and what it found was that in the year before networks started investing in the grid, the pre-tax operating profit of the electricity industry was $5.4 billion. Two years into the spending spree on poles and wires, in 2010/11, the industry's profit margin had increased by 67% to $9 billion. Over those two years, electricity prices rose by over 40%.

In 2012, the Senate held an inquiry into the rising price of electricity. It was chaired by Labor MP Matt Thistlethwaite.

Matt Thistlethwaite: What we found was those network businesses that earned the most profits were the ones that invested the most. So there was a perverse incentive in the system for an overinvestment in the poles and wires, and that led to dramatic profits for those businesses, but of course it was the consumer that paid for that cost of the additional capital.

Jess Hill: Matt Thistlethwaite says one of the reasons network companies were able to overinvest was because there was very little scrutiny of their projections for increased energy demand. These were the projections they were using to justify their investments in the grid.

Matt Thistlethwaite: As a result there was some evidence of investments that were being made that weren't required. We discovered a network business that had invested $30 million in a substation in Newcastle, and I actually visited the substation. It wasn't connected to the grid. The reason why it wasn't connected to the grid; when the decision was made a couple of years ago to invest in this particular piece of infrastructure, it was projected that the demand would be there. But the demand didn't eventuate. And you've got an investment in a piece of infrastructure—paid for by consumers through their electricity bills—that wasn't hooked up to the grid and wasn't needed. And that was an example that really hit home for me, this gold-plating or overinvestment that was leading to increases in electricity prices. That was the only one that we physically viewed, but there was much evidence before the committee that investments like that were being made throughout Australia.

Jess Hill: Matt Thistlethwaite.

After months of vigorous campaigning by Bruce Robertson and his community, the New South Wales government agreed to look more closely at TransGrid's proposal in his area.

Bruce Robertson: In the end there was a whole inquiry into the energy needs of the mid-north coast run by an ex-Macquarie banker, Robert Rollinson, and to be honest when that was announced I was very sceptical about the the outcome of it, but on reading his report, pretty much to a word he backed up our key contentions: peak demand was falling not rising, the general demand was falling not rising, the demand in our area was falling not rising. And once that had been uncovered, he basically said he failed to see the justification for the large power line project that TransGrid were proposing down our valley, and the project was pulled.

Jess Hill: That project, the Stroud to Lansdowne transmission line, was worth $160 million. So how much of the total $45 billion invested in the grid wasn't necessary? Energy analyst Bruce Mountain says the figure is substantial.

Bruce Mountain: I would estimate as an aggregate across the national electricity market, perhaps at least a half of that total spend was not actually necessary, but it does vary by state.

Jess Hill: Is it not necessary in hindsight, or were network companies arguably aware that it was not necessary at the time that they were making these investments?

Bruce Mountain: I would argue quite strongly it was not necessary at the time that they sought the expenditure, that the expenditure was not just about a disinterested pursuit of expansion of the grid to meet consumers' needs, but rather that a large proportion of it was driven by a pursuit of higher profitability.

Jess Hill: The next five-year period of investment in the grid will be approved later this year. The Australian Energy Regulator says the spend this time round will be far less than it was over the last five years, thanks largely to the reduction in demand that's followed the mass installation of solar, and the decline in manufacturing.

But Bruce Robertson says the damage has already been done. Consumers will be paying off the last round of investment for years to come, and for many, the costs are becoming too much to bear.

Bruce Robertson: What people have got to realise in Australia now is that we have reached energy poverty, and energy poverty is defined as when it's 10% of your disposable income goes on energy. And an awful lot of our community where I live is at that point.

Jess Hill: Are many people in your community investigating other options like solar?

Bruce Robertson: Yes, solar is definitely becoming more prevalent, particularly for people who are building a new house now, there's a very real choice. And a lot of people are making the choice of 'I'm going to just have a stand-alone system'. And there are a lot of stand-alone systems now in our area, and increasingly people will unplug from the grid.

Jess Hill: Solar energy in Australia is being produced almost exclusively on rooftops. There are no large-scale solar farms connected to the national electricity market.

Giles Parkinson:

Giles Parkinson: Look, Australia ranks about 23, 24 in the world on large-scale solar, just behind Puerto Rico and just ahead of Mozambique and Guam. It's really quite an embarrassment because we've actually developed most of these technologies.

Jess Hill: Just outside of Canberra, a solar farm is built that will be the first to connect to the grid. It's being developed as part of the ACT's ambitious target of 90% renewable energy by 2020.

Background Briefing met the ACT's energy minister, Simon Corbell, at the Royalla Solar Farm.

Simon Corbell: So we're looking down the valley here near Royalla on the Monaro Highway, just south of Tuggeranong, and in front of us is the photovoltaic solar farm which is being built by the Spanish company FRV. This will be the largest PV solar farm to become operational in Australia when it's finished later this year.

Jess Hill: How big is it going to be in terms of megawatts by the time it's built?

Simon Corbell: This is a 20-megawatt facility, so that's about enough power…the equivalent power needs of about 5,000 average Canberra homes, and it's part of our scheme to switch to 90% renewables for our city.

Jess Hill: Often you hear the criticism of renewable energy is that it can't provide baseload power and that's power that runs 24/7. Is that why Canberra is going for 90% renewables, rather than 100%?

Simon Corbell: There is certainly recognition that there'll always be a component that needs to be met from other sources, but the argument with baseload power really needs to be properly understood. The issue with renewables is that it reduces demand, particularly at peak times, and it reduces the need to build more baseload power.

Jess Hill: So how do you feel when the political debate around renewables is so centred around price, when you're going for a 90% renewable target?

Simon Corbell: It can be very frustrating. For me, it simply means we have to demonstrate how renewables are affordable and can be achieved at scale. Here in Canberra, 90% renewables, the cost of that policy is about $4 per household per week. But that's offset by about $4 per household per week due to energy efficiency schemes that are currently being deployed here in the ACT, so I think we're able to demonstrate that the cost of renewables is entirely manageable.

I think what I'm most excited about is showing people that this is possible. People can't do what they can't imagine, and the opportunity here in the ACT is to demonstrate what can actually be achieved, and what you can do and that it is affordable and that it is achievable, and that if a small place like the ACT can do it, surely the rest of Australia can.

Jess Hill: Background Briefing's coordinating producer is Linda McGinness, research by Anna Whitfeld, technical production by Andrei Shabunov, the executive producer is Chris Bullock, and I'm Jess Hill.