As debate rages over the future of a renewable energy target that mainly promotes wind power, a Melbourne think tank is calling for it to be scrapped and replaced with a new scheme to help transform the electricity industry.
A Grattan Institute report argues that a carbon trading scheme is essential for Australia to meet ambitious long-term targets to cut greenhouse gas emissions, but will not on its own reduce the cost of clean technologies that can produce enough electricity to replace coal.
It calls for a system - potentially using funding from the new $10 billion Clean Energy Finance Corporation, or something similar - under which the government would guarantee a financial return for companies considering large, risky investments in clean power.
Under the Grattan model, the government would hold separate auctions offering contracts to projects that could produce the cheapest electricity using a range of large-scale technologies: arrays of solar photovoltaic panels, concentrated solar thermal power, wind farms and carbon capture and storage.
Auctions would be held every six months for 10 years, giving companies many chances to invest.
In each case, the cheapest bid would win contracts lasting up to 20 years. Contracts would only be paid out once companies delivered low-emissions power, and would become void if deadlines were not met.
Grattan Institute energy program director Tony Wood estimated it would cost about $150 million a year. ”The reason for this scheme is to enable the government and market in the longer term to drive down the lowest-possible-cost suite of technologies to meet the emissions target,” he said.
The report comes as business groups and some media outlets campaign for the abolition of the renewable energy target, which requires electricity companies to deliver about 20 per cent of power from clean sources by 2020.
Under the target legislation, energy companies are awarded tradeable green certificates for the power they generate. It overwhelmingly encourages the development of wind farms, the cheapest form of large-scale clean electricity.
The design of the target, which has bipartisan support, is being reviewed by the new Climate Change Authority.
Mr Wood said the renewable energy target, or RET, did not reduce the cost of clean power.
”The RET just provides more renewable energy from the technologies that are cheapest today,” he said. ”We would argue that if you don’t have an emissions trading scheme, the RET delivers clean energy at reasonable cost, but with an emissions trading scheme you don’t need a RET at all.”
The report argues the auction scheme would also be more effective than grant schemes and feed-in-tariffs, which pay a premium rate for all power generated by a clean technology.
In addition to the four technology-specific auction categories, there would also be an open category that any clean technology could enter.
Mr Wood said the scheme could work as part of the government’s carbon scheme or the Coalition’s ”direct action” plan.
