The cost of solar panels for residences is likely to rise by as much as 50 per cent if the Abbott government takes up the recommendations of its hand-picked panel to wind back the small-scale renewable energy target.
The Warburton panel reviewing the renewable energy target said rooftop solar generated or displaced 6400 gigawatt-hours of electricity in 2013, well above the original target of 4000 gWh by 2020, and so the scheme should be rolled back.
The panel "considers that there is a strong case for winding back the [small-scale renewable energy scheme], through either closing the scheme immediately or accelerating the phase-out of the scheme", it said in its report.
The government is likely to announce its verdict within weeks, although Darren Gladman, policy manager of the Clean Energy Council, said potential solar customers shouldn't delay as the window to apply is likely to be very narrow if previous policy changes are any guide.
"People who are thinking about it should really be putting in orders now," Mr Gladman said.
The Renewable Energy Target was split in 2011 into a large-scale component - with a goal requiring 41 terawatt-hours of renewable energy annually by 2020 - and an open-ended scheme for households and smaller businesses.
Both components of the target work by generating renewable energy certificates. Residential owners of solar panels, for instance, claim certificates worth the equivalent of 15 years of expected output when they install their system, substantially reducing the cost.
About 1.3 million households now have solar electricity, with total installed capacity at about 3.3 gigawatts. The sector added about 800 megawatts of capacity last year with about 750 megawatts expected this year – assuming there is no spike in orders to beat any policy change.
Scrapping the small-scale scheme would likely raise the cost of a typical 3-kilowatt photovoltaic system from about $5000 now to $7500, according to industry estimates. All else being equal, that would extend the payback period from about five years to eight, according to solar retailer Sungevity.
Residential solar hot water systems, also covered by the scheme, will be 40 per cent more expensive, according to one supplier.
Boom then bust
The end of support "will almost certainly create a boom then a bust" in panel orders, said Kobad Bhavnagri, lead analyst at Bloomberg New Energy Finance. "Every policy change does."
The panel, led by climate change sceptic and former Caltex chairman Dick Warburton, conceded that a scrapping of the small-scale scheme would hit the industry hard - at least in the short term.
"Modelling indicates that repeal of the [scheme] would have an immediate effect of reducing the install rates of rooftop PV by at least 30 per cent and the number of solar water heaters by around 16 per cent," the panel's report said. "However, by the early 2020s, the rate of small-scale solar PV systems installed each year would recover to a rate similar to that if the SRES was left in place."
That recovery view is shared by forecasters including Bloomberg, and is based in part on the expectation that solar panel prices will continue to fall and electricity prices will keep rising.
Large-scale demise
Bloomberg's Mr Bhavnagri said the panel's recommendations for large-scale renewable energy plants were surprising, particularly the option of setting one-year targets allowing clean energy firms to bid for 50 per cent of any growth in capacity.
"It's very hard to see how one-year extensions would give you any certainty," he said, noting that wind farms typically take two-four years to construct even when planning and finance approvals are in place. "It's totally unworkable."
The other option - to close the large-scale scheme to new entrants and to "grandfather" existing operators - would "run a big risk of bankrupting" current firms, Mr Bhavnagri said.
Tim Flannery of the Climate Council said the recommendations were the result of "a controversial review panel with vested fossil-fuel interests [that] shouldn't be taken seriously".
"The uncertainty in the energy market that has been brought on by this process is preventing investment in Australia's energy future," Professor Flannery said. "It's lamentable that over the last year or so most of the large-scale investment in renewable energy has dried up."
Investment in large-scale wind or solar plants fell to about $58 million in the first half of 2014, the lowest in more than a decade, in anticipation of the government's cutbacks to the renewable energy target. Investment last year reached $2.67 billion.
Kane Thornton of the Clean Energy Council said lowering the target would put 21,000 jobs at risk and result in "massive financial damage" to the more than $10 billion already invested.
"It is inconceivable that the review could objectively recommend slashing the RET when its own economic modelling showed this would lead to higher power bills in the long run, while at the same time smashing billions of dollars of investment," Mr Thornton said.
Most-costly option
The government is likely to come under intense lobbying as it ponders its final decision. One calculation it will have to make is whether the Senate will pass any change to the Renewable Energy Target.
Clive Palmer's Palmer United Party has vowed to block any change this side of the next election.
Innes Willox, chief executive of the Australian Industry Group, called for a "bipartisan deal that can safeguard the interests of energy users".
"All examinations of the RET have concluded that extra renewables generation puts downward pressure on wholesale electricity prices," Mr Willox said. "Nearly all such studies have found that this effect is large enough that large reductions in the RET would leave energy users worse off."
The Warburton panel appears to be calling for the most expensive option for the large-scale component. According to its own modelling, provided by ACIL Allen, closing the scheme to new entrants would be $302 more costly than the current setting for households over 2015-2040. By contrast, raising the goal to 30 per cent by 2030 would leave households $297 better off.
The Energy Supply Association of Australia, representing mostly large fossil-fuel fired generators, also called for bipartisan support - but for reform of the industry.
"If the current uncertainty over the RET is dragged out until after the next election the policy will fail to achieve its target and investors that have made investments on based on the current legislated RET will suffer," the association said.
The group welcomed the panel's view that the current target is "contributing to market dysfunction".
"We are building generation that isn't needed to meet demand," the association said, adding that the scheme "threatens to make the entire electricity market uninvestable."
The Australian Mines and Metals Association welcomed the proposed adjustments to the target, adding there is "a strong argument to scrap the RET altogether".
"The resource industry and members of the wider business community have long raised concerns about the RET and its impact on energy competition, consumer prices and Australia's competitiveness as an attractive place to invest and do business," Steve Knott, the association's chief executive, said.
Market to shrink
Groups such as the Australian Solar Council say renewable energy remains overwhelmingly popular in polls, and they plan to target marginal Coalition electorates at the next election.
Solar Citizens on Wednesday handed Coalition MPs Sarah Henderson and Warren Entsch a petition with more than 25,000 signatures calling for the target to be maintained or expanded.
"The Abbott Government promised before the election to maintain the target," the group's campaigns director Claire O'Rourke said on Thursday.
"The current target should see at least two million more households go solar by 2020 but if [the panel's] recommendations are adopted that number will be slashed in half," Ms O'Rourke said.
Activist group GetUp has called on members to switch their household power away from the big three fossil-fuel power generators - EnergyAustralia, AGL and Origin Energy - and almost 3000 members in Victoria had so far done so.
