Move to clean energy requires smart policy

The phrase “sovereign risk” is used liberally in Australian public debate, most often in relation to established industries that may be affected by change in federal and state policy. But few have suffered as much as the still-establishing renewable energy sector, which has had to deal with constant chopping and changing in government thinking since the turn of the century.

This has particularly been the case since the election of the Abbott Coalition government in 2013. With an axe hanging over the renewable energy target and the abolition of the Labor-Greens carbon pricing scheme, there was a 70 per cent decline in clean energy investment.

In a welcome development, this is beginning to change. Both Prime Minister Malcolm Turnbull and Energy and Environment Minister Josh Frydenberg have strongly backed the existing target, roughly equivalent to 23 per cent of clean energy by 2020, and the long-term growth of the sector. But this should just be the start. Australia’s energy system is badly in need of an overhaul. The decentralised system has served the country well, driving the development of the prosperous economy we have enjoyed for generations and now take for granted. But it is a system designed for the last century, and in recent years its limitations have been exposed.

In terms of electricity, nearly half the amount consumers pay on their inflated quarterly bills covers the costs of extraordinary spending on networks over the past decade. Much of this investment was not needed: the poles and wires of the national electricity grid have been gold-plated far beyond what is required to ensure our lights stay on.

The system is also highly damaging to the planet. Burning cheap, wet brown coal for electricity in Victoria’s power plants comes at a vast indirect cost in the damage caused by the heat-trapping greenhouse gas they emit.

There are valid arguments for the government to intervene to ensure an orderly closure of coal plants, but the biggest shift is likely to be forced by allowing and encouraging the growth of a revamped system that is increasingly decentralised. With the rapidly falling cost of solar power and improvements in battery storage, this is now within grasp. This is a future in which households become “prosumers” – both producers and consumers. It requires changes to the national grid to become a much more fluid market, favouring consumers as much as energy companies. Households and businesses should be able to buy and sell electricity on the national grid at the best prices.

The benefits: the system becomes more efficient, with less energy wasted in transmission; the cost of infrastructure is low; and there is a greater incentive to reduce energy wastage.

There is a role for governments in driving this change. Other nations are far ahead of Australia – witness Denmark where, since the 1980s, public policy has encouraged cogeneration of electricity and heat for apartment buildings and businesses, producing an efficient decentralised system.

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