Green Power a Victim of Own Success in Australia as Costs Plunge

Written by Perry Williams. This article first appeared in Bloomberg Technology.



Plummeting costs for renewable energy in Australia may tilt the government toward scrapping subsidies designed to encourage use of the technology.

A sharp decline in the cost of solar and wind power has raised the prospect of ending the incentives as renewables are now able to compete or even beat fossil fuels. That may give Prime Minister Malcolm Turnbull sufficient cover to avoid setting clean energy targets as he seeks to avoid further political infighting that’s plaguing his government.

Australia, one of the largest exporters of coal and natural gas, has struggled to maintain reliable domestic power supplies and a coherent renewable energy policy over a decade of political squabbling and missteps. While the nation has committed to subsidize clean energy via its existing Renewable Energy Target until 2020, setting a formal policy beyond that has become a battleground for the divided coalition government as it tries to balance competing energy sources amid spiraling power costs.

Energy companies in Australia are looking for “a settled bipartisan investment climate regardless of whether there are subsidies or not,” Energy Minister Josh Frydenberg said Monday at a conference in Sydney. “Industry is looking for that stability, they’re not necessarily looking for a handout.”

The cost of solar in Australia has dropped by more than 50 percent since the start of the decade and batteries will fall 60 percent by 2020, according to Frydenberg.

The declining costs of renewables means any government-provided incentive is “less of a driver today than it ever has been,” Origin Energy Ltd. Chief Executive Frank Calabria said Tuesday at a press conference. The more important issue is getting investment certainty once the existing program ends in 2020 and it remains critical to have some form of government-mandated target to ensure reliability of the grid and meet emissions-reduction goals.

Even if falling costs mean subsidies aren’t needed, scaling back the proposed clean energy target would be the wrong response for investors in the sector, said Leonard Quong, an associate with Bloomberg New Energy Finance in Sydney.

“Providing a long-term policy target gives industry the opportunity to efficiently manage and invest in their own assets,” said Quong. “Removing this certainty decreases market transparency, meaning greater risk to investors and consumers.”

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