ABC RN Drive: PANEL DISCUSSION: SOLAR POWER

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[Waleed Aly] 19 minutes past the hour, your're on RN Drive, Waleed Aly with you, its time for our Wednesday Panel.

Do you have Solar Power at home? Lots of Australian homes now do have rooftop solar panels
now, thanks partly due to government subsidies, but we have been less successful in developing large scale solar generation projects in Australia.

In the latest setback, the first two planned projects under the federal governments solar flagships program failed to meet the deadline to secure financial backing. One has been granted extra time, while the government has been forced to reopen tenders for the other project.

So what does that mean for the future of solar power in Australia? To discuss this tonight, let me introduce Matthew Wright, who is the executive director of Beyond Zero Emissions, a not for profit organization, providing renewable energy, and Tony Wood, who is the energy program director at the Grattan Institute, who previously worked for Origin Energy. Gentlemen, welcome to the show, thanks for coming in.

[Both Guests] Thanks.

[Waleed] Tony, I'll start with you. Why are we having so much trouble getting these solar flag ship programs going at the moment?

[Tony] I think the main problem with these programs is that they are not necessarily well designed, to be able to get them to commercial viability. So so far whats happened, the two programs you mentioned, the two projects were awarded the status of going ahead, have really struggled to get contracts with retailers who would be prepared to buy the electricity, at the price they could sell it for. This was just the way that the programs were designed, and this was not unique to Australia. Some of the large scale programs have struggled with this very issue, because of the way they have been designed around the commercial reality of getting solar into the market.

[Waleed] Unpack that for us, what does it mean?

[Tony] What that means is, for example, in parts of the world where solar is working, you've got some strong ways of pulling through the technology, so they can get, say, a feed-in tariff in some cases, large scale feed-in tariffs in Spain. In some parts of the US, there is renewable energy portfolio standards, which are like our renewable energy target, but they're specifically designed to help solar. In the case of Australia, it was very difficult for these guys to get contracts with retailers,
and as a consequence, this program in isolation, hasn't been able to work. If it was done much more
in concert with other policies, that would help bring through lower emission technology generally,
and solar was one of thoses, then I think it could work. But in our assessment, what you have to do
start from the beginning, and ok, design this properly, and then getting up large solar could work,
because large scale solar could potentially be very competitive, if its done properly.

[Waleed] Other policies like, say, a carbon price?

[Tony] Well, a carbon price is fundamental in our view, to get it right first. Get the carbon price
in place, and that sends a signal to the market, that we're serious about reducing our emissions
in this country. And then you want to look at, ok, what else do we need to do, to encourage the
development of the technologies that in the long term will be lowest cost. Whether it be solar,

no view over what should be the appropriate technologies. The question is how do you make sure
that these things can happen. In that case its quite reasonable to suggest, that large scale solar, solar
thermal or solar PV, at the right scale, could be very cost competitive.

[Waleed] Matthew Wright, you obviously, you promote renewable energy, that is what your
organisation does. How much assistance, does solar need, at the moment, in Australia?

[Matthew] What solar needs, is a short wind of assistance, to get the technology down the cost curve. This is something that happens globally. It happens domestically in terms of efficiencies in the local industry, in its methods of deploying, and learning, knowing how, in country, in Australia. And learns through its additions in Australia to cummulative global capacity. Because if you have a market, where you install large scale solar, or small scale, or any scale solar, then that drives efficiencies. It drives investors, who are willing to risk money into private research and development. It forces opportunities that people want to take advantage of, to lower costs, and they take advantage of that. If you don't have a market in place, with volume of installs, thats learning through doing, then actually you get a lot less R&D. So just R&D strictly in the lab, and one or two token projects, doesn't drive anywhere near the cost reductions, than other options.

[Tony] I think thats right. One of the other problems with the scheme is it was designed as a one off. What real investors want to see, is the potential for a market thats going to be sustainable over the future. And the government should be trying to create a sustainable industry, with build out of these technologies, not just a one off. And thats right, that was a fundamental flaw in the way the program was designed. To some extent, a lot of people told them that, and I think that may be way they are trying to rethink it, hopefully might address it, but its going to challenging to get it right, to get the create, the market circumstances that Matt was just talking about, to actually pull through, these techologies. And you have gotta do both. You gotta be pushing on the technology side, and pulling on the market side.

[Matthew] And the simplest option for that is a feed-in tariff, and feed in tariffs are very successful.

[Tony] So explain that concept, because, I think a lot of people will be not all that famaliar with it.

[Matthew] Some people, certainly, will be familiar with that. People are getting paid to put solar on their roofs. And that way that they get paid for it, is through a feed in tariff. Those policies have been implemented in Australia in a very small way, for roof top solar systems, and they've been capped. But in other markets, like Germany, or in Spain, in fact in eighty countries, in most of those countries they give them for all technologies at all scales. Now feed-in tariff has a number of advantages.

[Waleed] Akso all technologies?

[Matthew] All technologies, As in Germany, you've got it for biofuels, you've got it for wave,
you've got it for wind, you've got it for solar.

[Waleed] Isn't the problem here that you might just be wasting a lot of money, because you would only want to do this because you have technologies that you have confidence will become sure.

[Matthew] Ah, and thats exactly what they do. They get the DLR, the german aerospace agency, and other government teams, to get which technologies, the proponents are saying have a reasonable cost curve, thats believable by the people that run the scheme. And if that technology shows that it can actually run down the cost curve, towards the cost of fossil fuels, they say, alright, incentivise it, at day one, at a certain price. Then over a ten year period, or a five year period, it has to get itself weaned off those incentives. Just like a child, that gets weaned off its parents, and goes off and finds its own job. Thats exactly how the scheme works. So they have only chosen technologies that can prove, to a technical panel, that they can go down the cost curve. So solar and wind, are completely that. For years and years, they have been paying incentives, and the technologies have been getting cheaper and cheaper and cheaper, and you can see that through the german scheme, which is always paying less every year, for any new installs of those technologies.

[Waleed] At what point, do you decide, that's it, you've had your chance?

[Matthew] They already planned that. Back in 2000, when they legislated the feed-in tariff scheme in Germany, they decided that 2017 would be the year that they provide no more incentive. Its now looking like they are going to beat their target, and incentives will be removed by 2015. So this shows us a super successful scheme, where you can actually remove incentives 2 years early, than what was originally envisaged. If you set yourself a task, and a target, they usually get beaten. They get beaten in countries that have got the guts to do that.

[Waleed] Tony, whats your attitude to feed-in tariffs? I mean, is this part of the design that would assist solar development in Australia?

[Tony] The question is, that I wanted to address, may be in a slightly different perspective, on
the way Matt was describing it is, as the carbon price increases, as it will do, as we get serious about reducing emissions, it will make the cost of technologies that do not have lower emissions, more and more expensive. Oil and gas for example, coal without some form of carbon capture and storage, will become increasingly more expensive. What you're trying to do, is as that rising cost curve, goes up, what you're trying to do is drive down the cost of these technologies that are going to cross over. That would be the point, if you knew where that was going to be, that you would actually say, right, thats where we're going to cut off the subsidy. What governments have been doing, as Matt said, is saying,.we think its going to be around about then. Our view is completely the same in some sense, in that is, that markets, every time that they've been used, end up being cheaper than most of the market designers ever expected. You look around the world, and all the markets that have been used, in anything like this, they have always been, the entrepreneurs and industry, find better ways, cheaper ways, than governments anticipate. But they've got to get the market design right.

So the question you've asked me, was a feed-in tariff. A feed-in tariff, if it was designed around the sort of low emission technologies we're talking about, could very well be quite effective. And that could be the way we could address this. There are other possible designs, and we've been having a look at that, but I have no objection at all, to an appropriately designed feed in tariff, being part of that mix, because its getting the policy mix right, is absolutely essential.

[Waleed] Its 28 minutes pass the hour on RN drive, its Waleed Aly with you . . . [repeated context] . . . Gentlemen I'm going to introduce another guest in just a moment, before I do that I am interested in getting your perspective on the ACT. Because the ACT seems to be the one part of Australia where this program seems to be having some success. Certainly, if you believe what the ACT government says, and maybe there is reason to be sceptical about that. They have made it clear that they want Canberra to be Australia's solar capital. They're introducing new legislation to try to make this happen. What do you make of progress in the ACT on this, and is their something about that program in particular that you'd want to comment on? Matthew first.

[Matthew] I think that they were looking at having a sort of reverse auctioning system. I think if
thats done properly, with a bond, so in other words, that if a proponent claims they can produce power at a certain price, they have got to put a whole lot of money in escrow, that they forfeit to the government if they fail to commence construction and execute on that, because if you go for a reverse auction system, then any shonk in town will claim that they can come up with a really cheap price. So provided there is a sizeable bond, it could be a great money spinner for government, for anyone whose a bit .. you know, optimistic on.

[Waleed] So bring the shonks on!

[Tony] So bring em on. So I think thats a feed-in tariff scheme where people actually bid in on
what their best bet is. And I think thats probably a good option. I think that if they're going to go for a central plant though, they should look at a central plant with storage, because there is ample roof space in the ACT to handle that "on sun", what I call on sun, the solar technology that only generates while the sun's out. There's ample space on roofs to put that in, we don't need to have a high voltage connection to the grid and do that with PV, we should have a plant there with storage to do that.

[Waleed] Tony?

[Tony] I think that theres one other point that I should make. I agree with just about everything that Matt said. The experience with reverse auctions is exactly that, is that where governments have not taken sufficient cognizance of the credibility of the proponents, it does encourage people with not too much experience and not too much track record, to bid very aggressively, and they they can't deliver. The plant doesn't get built, the money doesn't get spent, and you end up with a mess. And what it does is creates a very bad reputation for solar. Right, because it doesn't work, but in fact thats not the right. So if you establish the right criteria, that you will only be eligible to bid, if you can demonstrate some credibility here, and you're prepared, you've got some balance sheet to put on the table. That might be the way to do it. I'm not a great fan of reverse auctioning, but if it was properly designed, it could work, but its not been successful too much that I've seen. Certainly in China and India there's been some bad experience.

[Matthew] I think in Brazil its going pretty well. And I think the key thing here is feed-in tariffs,
whether they are direct ones, whether they ratchet down, or whether they're reverse auction ones. They take the monopoly power of the big power companies out, because they get to chose who sells them power at the moment, with power purchase agreements. With feed-in tariffs, you just plug in the grid, the grid accepts your power and pays you, no matter who you are. So it opens the market. Today we have a closed market. Its an anti-competative market. There's only 3 players that are dominating most of the customer base. That restricts anyone proposing a big plant to only deal with those guys. Thats TrueEnergy, AGL and Origin. If we have a feed-in tariff, anyone can come in and build a big solar plant, and they can compete. Well, not anybody. I couldn't just build a big solar plant.

[Tony] There is some big, pretty sizeable community wind plants, in some countries, in Germany and Denmark. So there are ordinary people building those plants.

[Waleed] The issues that you raise there are bigger than the ACT, but nevertheless the ACT
is having a fair crack at it. Simon Corbell is the minister for environment and sustainable
development in the ACT and he joins us now on RN drive. Hi Simon.

[Simon] Hi Waleed.

[Waleed] You're very optimistic, just going by your press releases, about what you're going to
achieve in this area. Why are you so optimistic?

[Simon] Well we've looked closely at a range of options in creating large scale solar for the ACT. And we've taken the decision as government that, reverse auction is the most effective mechanism available to us. The reason for that is, that, it allows us basically, to deliver the largest, or most ,highest amount of renewable energy we can, at the lowerst possible price, because it puts the onus on the bidders to deliver a feed-in tariff at a very competitive level. I take the point of your other guests, that it is very important to ensure that there are bidders in that reverse auction, who have the capability and the credibility, and indeed the financial capability, to deliver the project on the ground. So the way the ACT's reverse auction will operate, is in the first instance we're auctioning off 40 Mega Watts, of renewable energy generation, and making that available to be supported through a feed-in tariff, a large scale feed-in tariff. We're requiring our bidders, to explain and put their credentials on the table, and they must first of all pre-qualify, to be eligible, to actually make their final, best and final offer on what price they are looking for, for a feed-in tariff.

[Waleed] Are you making them put money though?

[Simon] They have a clear hurdle of technical and financial credentials before they are in a position to actually bid their price, and be considered in that reverse auction process.

[Waleed] Sure, but I just want to pick up on the point that Matthew Wright made, are you making them put up money?

[Simon] What we will do, first of all, feed-in tariff is not paid till the plan starts generating. So if
the plant doesn't eventuate, there is no feed in tariff paid, and thats obviously to the detriment of
the bidder. The other concern, though of course, is to make sure we don't have bidders taking up
allocations that are never utilized, and so thats what the pre-qualification process will deal with.

[Matthew] Simon, Simon,

[Simon] We will look at the issue of a bond, as we complete the process.

[Matthew] I think a bond's really important, as we will end up with some great project proposals, and end up with a lot of delay, and thats what we really don't want. We need to move ahead, you know, and things take time to plan, and if we have delays, they will just push things out by years.

[Simon] Generally speaking, our view has been that the pre-qualification process will be a very
robust one, and we have engaged expert assistance because there is not a lot of knowledge in
government on a lot of these issues. So we will be engaging, and indeed have already engaged, experts advice, to assist us with that assessment, to make sure that what we're seeing from those interested entities that put up their hand, is that they have the technological know how, the financial capacity to deliver the project on the ground. Only then will we look at their bid in terms of price and what they're looking for in terms of support for a large scale feed-in tariff.

[Matthew] Yea, I think the federal government tried that too, with flagships, and there was no huge bonds on the table, or anything, and now even a project backed by the worlds biggest nuclear power plant builder, Ariva, is delayed and not off the ground, due to financial difficulties. So you know, I think it could be important, if you're going to break this new ground and go for reverse auctioning, that you consider a bond.

[Simon] Certainly thats a process that is factored into our thinking as we finalize the contractual process that we'll work through, with the successful bidders. But I think the important thing to stress from our perspective is that, first of all, Canberra has some of the best solar exposure of any capital city in the country. We're releasing 40 MW in the first tranche of our reverse auction. The government has given in-principle agreement to 240 MW of renewable energy to be supported through a large scale feed-in tariff over a period of some years. So we will see signficant investment, we believe, in large scale solar, very early. And also we will make sure that the price to consumers, in terms of pass through costs, of the feed-in tariff to electricity consumers, will be at the lowest possible rate. Because obviously we'll have the efficiencies of scale, of larger plants compared to roof-top solar, and we also, through the reverse auction process, be seeing the most competitive and credible bids, coming through in that process.

[Tony] That sounds as if it has some interesting prospects, and I think that the idea of having
it in stages is something that others could learn from, and have, also in some other parts of the world, learned from. And so, you know if the first round, is in the way, some how as you've
been describing, is effective, then you can obviously build on that. Its got some potential. I'd be
fascinating to see how they go, and I wish them all the best with it, because I think its got some real potential as a way of moving forward.

[Waleed] Simon Corbell, we'd have to get a move on, but really good of you to join us today, and join that conversation and outline that stuff. Really good.

[Simon] Thanks so much for your time.

[Waleed] Simon Corbell, the ACT minister for environment and sustainable development there.
23 minutes to the top of the clock. We're just about to wind up here, but just a final thing I want to throw out, probably not a fair one to ask you very quickly, but you mentioned nuclear before, Tony, and you think thats part of the mix. Of course thats a very very controversial thing. Matthews shaking his head vigorously, even as I say this. Leaving aside whether its a good idea, is there really any political prospect? Of getting nuclear energy through.

[Tony] Not at the moment, no. Thats the reality as it is in Australia. Its actually illegal to generate electricity from nuclear energy in this country. In many parts of the world, there is really mixed messages. In our analysis we have looked at lots of reasons why nuclear could be cheap, lots of reasons why it could be bloody expensive, excuse the french, so I think there is some interesting challenges. Other countries will work that out before we will, to see whether nuclear should be really part of the mix. It will be in other parts of the world. Whether it turns out to be right for Australia, long way to go, long lead times, it would seem foolish to rule it out completely, but right now it is politically very challenging.

[Matthew] Just to say that Japan has 54 nuclear reactors, and only 3 of those are operating today, and by April there will be zero nuclear reactors. Now you can't bank an economy, on a fuel source, that if one plant fails, or a few plants fail, that has a cascading effect that causes the whole fleet to be turned off. You can't do that you know, thats not baseload, thats disaster.

[Waleed] Its not just a question of design?

[Matthew] The design of these plants is of second generation plants. There are no third generation plants anywhere in the world. So we're not actually operating the technology that everyone claims we should be having, anywhere in the world. China has a big rollout, that people are getting excited about, but now they've stopped doing that, because they were building the old style second generation plants as well.

[Waleed] Thats sounds like a panel for another day. The nuclear energy panel, which will happen sometime in the future, no doubt. On RN drive.

[Matthew] We'd love to come and visit.

[Waleed] You may well, we'll call on you. Thanks Gentlemen.

[closing context]