What is going to drive the investment in clean energy post 2020?
Australia requires continuing investment in clean energy and the Finkel Review proposes a set of recommendations capable of implementation within the next 18 months to drive it. But, without long-term policy certainty, we are facing a cliff in energy sector investment after 2020.
For investment in new generation to come online in 2020, the industry needs government to make policy decisions soon. A financial commitment for a solar farm to come on line in 2020 would need to be made within 18 months. This could prove challenging if these recommendations don’t become policy in the near future.
Industry players have different views about the effectiveness of the existing Renewable Energy Target (RET), but most would agree it has been the key driver in accelerating the commercial deployment of renewable energy in Australia.
Policy uncertainty with the review of RET in 2014-2015 stalled investment in renewables, but since June 2015, when the Government confirmed its RET commitment, the Australian energy sector experienced an unprecedented level of investment. Driven by the demand for additional renewable generation to meet the current target as well as the various state renewable energy programs we still anticipate this level of investment to continue in 2018 and 2019.
The Finkel Review recommended a cohesive set of climate change and energy policies. Long-awaited by investors in the Australian energy sector, if properly implemented, its recommendations, can address the energy trilemma to achieve an optimum balance between security/reliability of supply, energy affordability and emissions reduction.
A key part of the recommendations is the introduction of the Clean Energy Target (CET). The CET is similar to the RET, which is well understood by equity investors, debt financiers, energy retailers, customers and regulators. But unlike the RET, the CET is technology agnostic with all generation sources eligible for the scheme provided they meet or are below the emissions intensity threshold.
The RET will continue for new investment until 2020, at which stage the new CET will commence. To preserve the value of investments under each scheme RET and CET can coexist for a decade. The RET would then continue until 2030 for existing generators and in the scenario modelled in the review the CET would continue for a further 15 years.
The Finkel Review is a blueprint; it is the implementation that will determine whether the recommendations can achieve their stated objectives. It is imperative the government engages in a constructive dialogue with the industry, investors and energy consumers in the development of these detailed policies and reflects their views in the final policy decisions.