14/10/2010 - 00:00

Price parity pivotal in the state’s ongoing energy debate

14/10/2010 - 00:00

Bookmark

Upgrade your subscription to use this feature.

While climate change is a big issue, not having enough energy is a bigger one, so what are WA businesses doing to marry up the two as part of the state’s renewable energy target?

Price parity pivotal in the state’s ongoing energy debate

AUSTRALIA’S renewable energy target of 20 per cent by 2020 has received a boost from industry leaders, who have predicted that the cost of renewable and traditional electricity will reach parity within five years for solar energy.

Solar cell manufacturer SunPower director Bob Blakiston says the costs of renewable and traditional energy will be on equal footing as long as the true cost of electricity is reflected in the

tariffs.

“I suspect we will get there by 2015 at the latest, perhaps earlier if we can get a bit more help,” Mr Blakiston told a WA Business News boardroom forum.

Mr Blakiston said the cost of production was one of the biggest hurdles to price parity. He explained that silica, which is used to manufacturer solar photovoltaics (PV) cells, soared from $30/pound to $300/pound during the commodities boom, “and [business] couldn’t absorb those costs”.

“Silica is around $48/pound now, so we’re seeing some significant reductions in the cost of production now and the industry is in a buoyant mode,” he said.

“But our industry needs to reduce the costs of all renewables to a grid parity situation to make us self-sufficient and not need government intervention or funding.”

Other industry leaders who attended the recent forum to discuss WA’s renewable energy sector echoed Mr Blakiston’s sentiments.

Their view is that WA has fallen behind the rest of the world when it comes to the uptake of renewable energy; compared to the international average of 13 per cent, just 5 per cent of the state’s energy comes from renewables.

Putting aside the uncertainty of a global post-Copenhagen carbon pollution reduction scheme collapse – which according to commentators was never going to work without US-backing – the first thing WA needs to do is achieve cost reflective tariffs.

“Put simply, given that tariffs haven’t really increased here since the early ’90s except for the past few years; we have a journey ahead just to get to cost reflective tariffs,” Synergy managing director Jim Mitchell said.

“But what we’re also seeking to do is reduce the cost to the consumer and still have the same result, and to do that you need to change people’s behaviour.”

Mr Mitchell cited the Californian electricity market as an example, where utilities are putting money into the consumer’s pockets as incentives to change their behaviour.

In addition to receiving a rebate for installing a five-star appliance into their home, consumers can receive credit on their utility account for changing their air-conditioner’s temperature by a few degrees to reduce the demand during peak times.

“One of the troubles we’ve had – and I’ll take responsibility for it – is that we’ve been our best-kept secret; we don’t tell people how the system works and why it’s so expensive at certain times,” Mr Mitchell explained.

“We don’t supply that visible signal to the consumer to help change their behaviour, so what we’re doing in the Perth Solar City program is putting up displays: red, orange and green lights – you can use it when you want to, but look at the lights first.”

Backing these comments further was WA Sustainable Energy Association chief executive Ray Wills, who said cost reflectivity was important because, at present, renewables were simply not

competitive.

“In 2008, government subsidised electricity prices by around $700 million in one year – it is now accepted rises in tariffs are needed to eliminate the subsidy and deliver cost reflective pricing in electricity.

“Back then, renewable energy was around 3 per cent [of the state], so if you take that off, it was a $670 million fossil fuel subsidy, because that’s where the energy was being generated from – in that context, is it any wonder renewables can’t compete?”

The sector has also taken a hit for funding because of uncertainty surrounding state and federal legislation, meaning investors have looked elsewhere – internationally – for a more attractive return.

Mr Blakiston said it took a lot for him to convince US-based SunPower to look at Australia, despite WA in particular having some of the best solar radiation in the world.

“The European and Asian markets are much more mature and robust, and they seem to have embraced the renewable technologies,” Mr Blakiston said.

Pacific Hydro business development manager Matthew Rosser told the forum that: “A lot of our investment is going overseas, to Chile, because the renewable energy space in Australia has been difficult, it’s been hard to justify a case for continued construction in Australia.

“And the reason for that has been a collapse in the renewable energy certificate price, which is the mechanism that incentivises it over fossil fuels,” he said.

Mr Rosser, who represents Pacific Hydro’s WA operations, including the 30-megawatt Ord River hydro project, was hopeful the changes in the certificate legislation, due to come into effect next year, would put some certainty back into the market.

The frustration being felt by industry was summed up by Mr Wills: “Tell us yes, tell us no, just don’t tell us maybe – that’s the critical thing business wants to hear.”

General manager of climate change at Alcoa, Tim McAuliffe, echoed those thoughts.

“You can put carbon in the ground quite cheaply but the industry is stumbling because of the regulatory risk and the capital, combine those two things and it’s not attractive to the investor,” he said.

Constant changes to legislation and a ‘switch on, switch off’ approach are not conducive to long-term investment from overseas, according to Mr Blakiston, who argued that a lot of corporates wanted to make an investment into the sector, but weren’t confident in the rate of return.

“These businesses are the ones that use 80 per cent of the power around here and they have massive roofs and are very willing to make an investment, but they do want a return over 20 years,” Mr Blakiston said.

“I have calls every day from companies such as Lend Lease who say, ‘We have buildings, Bob, give us the economic model to get there’.”

Pacific Energy managing director Adam Boyd commended the state government for significantly lifting tariffs in the past year, which has taken industry a step closer to price parity, but he put the onus back onto industry to deliver energy efficiency.

“Frankly if businesses wait for the government to legislate, they’re throwing caution to the wind because timelines on political processes flex,” Mr Boyd said.

Mixed messages are not just in legislative regimes. As an example, the state government approved two coal-fired power stations in the state’s south and Mid West regions earlier this year.

“If they go ahead, they will increase greenhouse gases in the state by 75 per cent,” EMC Solar director David Harries said.

Considering WA is the biggest emitter of greenhouse gases per capita in Australia, those at the boardroom forum said it again fell to industry to put a convincing case forward to generate enough renewable energy to avoid building ‘dirty’ power stations.

“All companies such as Alcoa want at the end of the day is energy – they don’t really care where it comes from,” Mr Wills said.

“We would prefer it to have a small carbon footprint, but that’s got to get over the price first,” Mr McAuliffe added.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options