No time for looking back
I acknowledge that we meet here on land of the Wurundjeri people of the Kulin nation, and pay my respects to their elders past and present.
The year 2015 will be seen in retrospect as the year of step-change for solar and renewables more generally. 2013 marked the year that more renewables were deployed globally than fossil fuels. In 2014 a Saudi-government backed conglomerate funded by their oil profits made history in a small, but very significant way when they won a tender to supply large scale solar in neighbouring Dubai. Without any subsidies of any form, they got the project up for just 6 cents a kilowatt hour.
The Chief Executive of Bloomberg Finance has called this the ‘Hussein Bolt’ of the energy world – a record setter. Interestingly the bid that came second would have also been a world record. What joy it brings us all to think that just four years ago costs for building large scale solar were around 35 cents per kwh.
Despite these milestones, 2015 will truly be seen as the year that deep structural change in our energy system really took off. Battery storage has become within reach for households, small businesses and industry.
Batteries will do for solar, what the microchip did for computer systems. Everyone has seen pictures of old computers taking up an entire room with their hardware. Those computers were far less powerful than that smart phone that is currently tucked into your pocket. It is more likely than not that in the not-too-distant-future we will look back on these huge industrial batteries and even Tesla’s slick new Powerwall and chuckle at its size and clunkiness.
What the microchip did for computers was allow computers to become far more efficient in both size and function and allowed them to be widely utilised by households and businesses and radically transform our society for the better. Similarly, batteries now enable solar panel systems to take off in a new, exciting direction, with a huge potential for changing our energy systems, changing the world’s emission profile, open up new markets for you all and bring emissions-free power to developing countries and impoverished regions at a far cheaper cost than centralised coal power.
Tesla’s announcement of a 10kw battery storage system for $US3,500 was half the price of where analysts had set the price. While we don’t know expected life cycle of the powerwall or total installation costs, what this means in general terms for the average household is that the tesla powerwall is about the same cost as being on the grid in Australia (one of the most expensive places in the world).
So while it is not a purely economically rational investment just yet, the price has been set at a point to inspire those who want to help our climate, those who love sitting on the edge of technology curves and those that resent the greed and insouciance of network companies and want to assert their new found rights to leave the grid altogether.
There can only be one direction for prices from here – and that is downwards. One of the most valuable elements to Elon Musk’s announcement was that he was pinning his prices to the mast. This enables his competitors, like RedFlow in Queensland to start positioning their products while installers and distributors are able to start calculating their costs. As this competitive crunch happens and Tesla’s gigafactory in Nevada starts production and creating its economies of scale, then as costs come down to below grid costs there won’t be a home in Australia that won’t turn their minds to installing batteries and solar.
Then add the excitement that research and development can bring to hasten these falling costs, just like it has with solar panels. For instance, Harvard University has trialled storage methods using organic molecules, such as Rhubarb to store electrons which would create a new generation of batteries that cost one third of existing expensive metals as well as the environmental benefits from not relying on extractive industries and growing landfills.
Australia is one of the most attractive markets for this solar and storage roll-out to begin because of our sunshine and high costs of delivering electricity. This makes the gap that solar and batteries have to bridge much smaller than elsewhere in the world.
Australia’s network companies have created this situation. They are their own worst enemy. Their price gouging and gold plating to boost their guaranteed returns has made us a ripe experiment in people leaving the grid. Their business model is now clearly dead. The incentives laid out before them are to build more infrastructure. We don’t need more infrastructure, we need smarter infrastructure. We are using less energy, creating more of our own energy and now able to store and dispatch electrons as we please. A radical reformulation of the national electricity market has become an urgent priority for our economy and all of your businesses.
A few weeks ago the Senate handed down a report into electricity networks. We heard from witnesses across the spectrum about just how broken our electricity networks are. We heard of state-owned networks influencing funding allowances that directly benefit them; that the profit incentives for networks make no sense as we start decarbonising our economy. We heard about how networks behave like the monopolies they are and care not for servicing the needs of customers and renewable energy generators alike.
There was absolute outrage from both the Liberal and Labor committee members at the hearings once they learned of the blatant ripping off of customers that networks engage in, but by the time the report was released, their masters in the ministerial and shadow ministerial offices told them to say that everything was fine, carry on, nothing to see here.
The huge regulatory and political capture that allows network companies to continue doing what they are doing is the biggest barrier currently facing Australia’s solar industry. We should be incentivising networks to adopt solar and distributed generation because the solar and storage market will destroy networks if they do not change their behaviour. An abandoned, over-capitalised grid benefits no one. We will need our grids to be adapted for the future, even if for many people it is no longer ‘an essential service’ because of the rise of solar and storage.
The Greens laid down recommendations in that Senate inquiry that would fix the problems of past overspending, protect their future customer base while also preparing for the future. The Australian Energy Regulator has to dangle out new incentives for networks to provide innovative services that match the technological transformations occurring around them, not just build more stranded assets.
Regulatory arrangements need to be adapted to facilitate the development of decentralised energy systems. Tariff structures must be adopted that correctly charge for the development and use of networks so that distributed generation and storage and local demand response is properly valued. This would have huge financial benefits for households, industries such as sugar mills that feed surplus electricity back to the grid and large commercial buildings that stand ready to generate and trade their own electricity. Of course these regulatory changes would have huge financial benefits for the solar industry too.
The Greens know that an environmental objective of reducing greenhouse pollution has to be inserted into the National Electricity Rules in order to recreate what we want our grid to do. We need to turn on its head the notion that more and more energy should be fed through the grid and offer a hope for network companies to operate profitably and innovatively into the future by supporting localised, decentralised energy. Such changes are necessary to accommodate the inevitability of further rapid change in technologies, consumer behaviour and government policies to ramp up our response to global warming.
The other barrier that exists for solar and renewables is that you are all in competition with networks which are treated as monopolies without competition. Our rules need to reflect this changed reality. Solar is reducing peak demand, the most profitable part of a network’s business plans. Both household and large scale solar systems need approval from networks to connect to the grid. They have the power to require their competitors to reduce or relocate their systems. This has to change.
So not only do we have to rewrite the rules, change the incentives and remove conflicts of interest from state-owned networks but we also have to correct the dramatic overspend that occurred during the past 5 years. Australians spent $45 billion on poles and wires since 2010. Far and away the biggest infrastructure spend in our country that could have built us the NBN to connect to every home in the country. This investment was not based on need, but by greed of companies that knew how they could game the system.
Law and policy makers must act in the public interest by correcting the previous overinvestment by forcing a revaluation on the regulated asset base of network companies. State governments will have to decide whether to write down the asset base and transfer the debt to state debt to be serviced by all taxpayers or continue to gouge consumers for the state government’s previous greed. Selling off is a worst case scenario as sweeteners will be required to seal the deal and that will lock in higher consumer prices and lock out the innovation that drawing a line under the mess and beginning from scratch would facilitate.
Corporations law requires that companies must recognise impaired assets by writing down their asset values when needed. If a network monopoly were to voluntarily reduce its asset values to reflect their economic worth, it would radically reduce its profitability and reduce electricity prices which would free up desperately needed income particularly for low-income households and businesses. Naturally networks will never do this voluntarily.
While there are very serious consequences with state entities forcing the revaluation of assets, it has become clear that this is the least, worst option available for the long-term interests of both network companies and Australian businesses and households. Although the Australian Greens fully appreciate the possibility of an increase in the cost of capital for network companies because of the perceived increase in risk, this amount will be insignificant in comparison to the savings that Australians will experience on their electricity bills as the previous overspend if rectified.
Asset revaluations would also strengthen the longer-term position of network companies as assets that are vulnerable to both demand reduction and customers leaving the grid would be identified and rectified. This would not only give investors more confidence in the true state of the network’s asset position but it would reduce the impact of the ‘death spiral’ on networks customer base as the solar and battery storage era erodes it.
All these proposals may sound harsh to anyone from a network company sitting in this room, but these proposals are about helping your industry to adapt to an inevitable future. That future is one with lots of solar, lots of storage and a hell of a lot less heat-trapping gases being produced by our energy system.
The Renewable Energy Target
Turning now to the Renewable Energy Target, it has been over a year and despite all the offers, manoeuvring and posturing there is no more progress towards a resolution. This uncertainty is not the process, but the destination for the Abbott government, it wants to go nowhere. It doesn’t want a deal for as long as possible.
Not once along the way has the Clean Energy Council or the Labor opposition sought to fight and take up a battle against this weak government. They have capitulated, agreed and given away everything and got nothing in return. They have fallen into the same trap as Kevin Rudd, Julia Gillard and President Obama. They all believed that giving ground to arch-conservatives and watering down policies would reduce the ferocity of their opposition. They were all wrong, each time the conservatives gladly accepted the concessions being offered while keeping their opposition just as resolute. I made this exact point 12 months ago to the industry and I make it again today.
Just when they thought a deal has been done at 33,000GWh, the government knows full well the weaknesses of their negotiating partners, so they insert the two-yearly reviews and native forest burning back into the terms and conditions. They did this because they knew how desperate the industry is, they may very well agree. If they don’t agree, then there is no agreement – either way they win.
89% of Australians support more clean energy. This solid public support could have been used by the Clean Energy Council and the Labor opposition to make this deeply unpopular government drop its broken election promise to slash the clean energy jobs and investment just like they dropped GP co-payments, reducing pensions or watering down our racial discrimination laws.
After the Warburton review came out, there was not one compelling argument of why the target should be reduced. It reduces bills, drives jobs and investment and cleans up our largest source of pollution. The government had no arguments and was totally isolated. Then in November came a letter from the CEC saying they agreed to exempt aluminium smelting from the RET and by doing so, transferred the negotiating power away from the industry towards the government with that transfer of power continuing unabated until this very day.
Compare this approach with the Solar Council who reacted to the announcement of the RET review by taking out advertising in Western Australia during the Senate by-election. They put pressure on the government, made their compelling arguments that renewables allows us to take control of our electricity bills and they successfully provoked the ire of the government but ultimately forced them to leave the small scale solar target alone. They secured outcomes for all of you here involved in putting systems onto rooves and they should be congratulated.
The future of large scale solar in Australia should be looking much brighter than it is right now. The global moves are in all the right direction, but Australia is being governed by a wholly-owned subsidiary of the coal industry. The only industries they are happy competing with coal is gas or burning native forests.
In conclusion, despite all the chaos caused by this government, we live in very exciting times. Those of us in this room are very privileged that we understand that we are in the midst of a global energy revolution. We get to watch and observe the changes that others will only be able to read about after it has happened. We are privileged because we are taking part in what is an unstoppable technological change that will wash away all the things that Tony Abbott and his minister’s hold dear.
Despite my departure from politics, I cannot wait to see the clean energy industry and the Greens continue to build on our strong partnership into the many prosperous years that lie ahead of us. Every win for you is a win for us. The commercial interests of solar and storage are completely aligned to the Greens’ political mission of a prosperous, clean and empowered future.