Investing in clean energy: More mines than field. ESWG Workshop. Tony Wood Grattan Institute Sydney, 28 May 2014

Transcription

1 Investing in clean energy: More mines than field ESWG Workshop Tony Wood Grattan Institute Sydney, 28 May 2014

2 Outline Clean (low-emission) energy investment shares the same challenges as all new technologies, with the added, and major challenge, of needing policy drivers. Successes have generally been narrow and volatile, so there are still lessons to be learned about what works, what doesn t and unintended consequences Effective policy needs to build on clear objectives and understand the arguments of vested interests. 2

3 Low-emission energy has value in a broader context Projected electricity emissions intensity (450/550 ppm) t CO 2 /MWh Australia World Source: Australian Treasury 3

4 TWh A dramatic transformation is implied Source: Australian Treasury Easy to model, hard to deliver 4

5 Cost estimates: illuminating and unhelpful NEM LCOE A$/MWh Source: Grattan Institute from industry estimates They are all to expensive, unless the market values clean 5

6 And, they face real, non-cost barriers Grid infrastructure: wind, solar, geothermal, bioenergy Grid integration: wind, solar Resource data: solar thermal, geothermal, CCS Regulatory framework: geothermal, CCS, nuclear Scale and finance: CCS, nuclear, possibly solar thermal 6

7 Why governments should intervene The challenge is to decarbonise Australia s electricity sector within forty years, whilst maintaining security of supply and affordability Despite current projections, none of the assessed technologies can produce power at a scale and at costs similar to today s electricity Pricing emissions is the best start, but will not be enough, due to: Government regulatory barriers, including transmission and subsidies for existing technologies High costs and low returns: Finance, minimum scale, resource data and regulation No premium, carbon price discounting Systemic under-pricing of carbon 7

8 How government should intervene Promote an efficient market Provide a credible, long-term pricing signal maximise predictability Map resources Reduce existing subsidies Reform network regulation Support low emission technologies Research and development national interest and comparative advantage Demonstration and early deployment support a variety of options Re-cast the policy framework to constitute a necessary and sufficient set of conditions for investment 8

9 Principles for government intervention The problem must be effectively addressed, the solution must be low cost and provide a flexible, predictable framework for investment. Assessment criteria: Efficiency and effectiveness of meeting a carbon emissions constraint Creation and development of a portfolio of technology options Feasibility within the broader policy framework Flexible and predictable in responding to future policy and technology developments 9

10 Several options have been tried Investment incentives Capital grants, low-cost debt or equity Contracted revenue support Feed-in tariffs, government-backed power purchase agreements Tradable green certificate schemes Australia: Renewable energy target UK: Renewable obligation USA: Renewable portfolio standards 10

11 Each approach has specific characteristics Policy Strengths Weaknesses Capital support Firm revenue support Market based support Can address spillover risk Removes policy risk Provides strong investor certainty Delivers a target efficiently Does not lead to scale History shows poor deliverability Price setting is usually a fraught process Can drive winner s curse Delivers on-the-shelf technology Creates confusion within an ETS Becomes an industry subsidy Unintended consequences and political cycles are constant features 11

12 Capital grants generally under-deliver $ million Announced budget Operational within 5 years Operational within 10 years Source: Grattan Institute analysis (2011) LETDF GGAP NSW ESF 12

13 Feed-in tariffs feature boom and bust Australian Solar PV installations Pro-rata YTD Source: Clean Energy Regulator The national proportion has more than doubled over 3 years 13

14 The Australian experience is not unique Total weekly solar PV installations in the UK 30,000 Boom 25,000 20,000 15,000 10,000 5,000 Bust 0 4 July January July January 2012 Source: Department of Energy and Climate Change 14

15 So, what? There is great uncertainty regarding policy drivers for low emission demand and technology developments for supply of clean energy technologies. Clarity of objective is the first step. The rest of the policy framework should be based on addressing market failures and barriers once an emissions constraint has been introduced, however that is structured. Other objectives for clean energy can sound appealing but will ultimately lead to the fatal flaws. The requirements of policy are credibility, flexibility and predictability. Certainty is an illusion Governments need to address early-mover technology and carbon market risks. 15

16 Investing in clean energy: More mines than field ESWG Workshop Tony Wood Grattan Institute Sydney, 28 May 2014