One of the great advantages of being in a federation is that states can learn from each other, cherry picking good ideas and avoiding disasters.
With that in mind it’s astonishing that Western Australia has managed to blunder into the solar rebate disaster not once, but twice – firstly to introduce such a generous subsidy and then to try reneging on the deal in last week’s budget, which produced such an outcry that Premier Colin Barnett was forced to perform a very public back flip this week.
In August 2010, WA was very late to the party with its feed-in tariff scheme, which offered to pay those with renewable energy electricity generators, mostly rooftop solar systems, a rate of 40 cents per kilowatt hour for the power they put back into the grid.
Combined with the existing seven cents per kWh Renewable Energy Buyback Scheme offering, this was a good opportunity for those thinking solar. Well, clearly, because the feed-in tariff scheme blew out by more than 400 per cent within one year, from a budgeted $23 million to $127 million.
The then state energy minister Peter Collier ought to cop a lot of the blame. He was the one crowing about how popular the scheme was; even as its ballooning cost was becoming apparent.
But what about the boffins or policy advisers who either created this scheme or allowed its introduction without any checks and balances to contain the risk?
They did so at a time when there was already mounting evidence that similar policies in other states were starting to look expensive and yet they never sought to cap the scheme’s impact on the state budget until it was too late.
They also seemed to have failed to notice that the cost of photovoltaic electricity generators was falling rapidly as the producers reacted to similarly generous policies around the world, especially in Europe where cost appears to have rarely obstructed the introduction of environmentally focused ideas.
That made the up-front outlay much smaller, widening the scheme’s accessibility, and reduced the payback time to a much shorter period.
To be fair, the creators of WA’s scheme had learned something from others’ mistakes. They made the scheme operate on a net tariff, which at least meant the state was only paying for electricity exported to the grid after the household consumption had been counted. In some states, households were being paid a gross tariff, so these generous rates applied to electricity they used themselves.
However that was tinkering and seemed to do little to contain demand or, ultimately, cost.
By May 2011, barely 10 months after the scheme was announced, nearly 46,000 solar systems were operating in WA. Mr Collier said the installation rate was at least 2,000 a month, a figure higher than expected, suggesting that around 20,000 households had signed up for the scheme.
He said 70MW of capacity had been accepted into the scheme.
Stating that the cost of the scheme had already blown out to more than $111 million, Mr Collier belatedly moved to cap the scheme at 150MW, providing for more than double the level already installed.
Despite these reactions to what was obviously already a fiscal problem, the state then kept the door open to people for eligibility to the scheme at the 40 cents per kWh for more than two more months, at which point the payment was halved. Under those conditions, at least 19,000 people were prompted to join the scheme before it was suspended in early August, further adding to cost and blowing the cap by 15MW. Based on more recent numbers of 75,000 scheme participants, it appears that that the state kept accepting people well after the cap was breached.
At the time there was plenty of evidence that the state apparatus was rather inefficiently handling the applications from householders, so that it was unable to accurately forecast demand or contain it.
The problems are not just in the cost and the processing. There clearly was little effort to manage the beneficiaries of this windfall. While there are big numbers of retirees who have entered the scheme, there are also plenty of well-off households now being subsidised by the rest of us. I truly object to funding the consumption of power to drive 80-inch plasma televisions.
Not only did the government fail to forecast the number of households putting in solar systems, they also did not notice another warning sign: that their scheme was so profitable to the applicants that the average rooftop photovoltaic generation capacity doubled in one year.
I have heard of people who have so much solar installed on their holiday home that they don’t pay a bill for their main Perth residence, and still receive a cheque from the state. They were, literally, moneymaking machines.
This just added to the incredibly bad management of this scheme. It leads me to wonder what investigations were held by the experts pushing for this scheme. We are constantly hearing reports of politicians and bureaucrats engaging in expensive, fact-finding missions overseas. I don’t like to criticise these because we can learn from others. But such travel should be beneficial. Did anyone go to Europe and ask them how their systems were working? I mean the energy sector operators, not the politicians who brought in this stuff.
Europe is now backpedalling fast after years of profligacy.
Spain, one of the leaders in the renewables game, has moved to reverse the generous tariffs offered to rooftop solar energy producers. Instead of generous subsidies, household solar installations will pay 27 per cent more for their electricity – pushing payback times for domestic solar systems to almost 35 years from about 12 years currently.
Nevertheless, we are not Europe. There is no debt crisis, as Premier Colin Barnett keeps telling us. So the sudden decision to attempt to limit the damage of the state’s costly bungling is a dreadful bit of bad politics.
As much as I have highlighted in the past that the scheme is a wanton waste of money, I really could not accept that the state should renege on a deal that was originally created by this government. It seems the state government has belatedly realised this too.
Mr Barnett has shredded a great deal of political capital for no good reason and ought to be reminded every time the sun shines of the incompetency that led to this.
