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Interview: ABC radio

29 August 2014

Subject: RET review


JOURNALIST: Ian Macfarlane, this review sets out a range of options for both large and small scale renewable projects but they all amount to a winding back of the Renewable Energy Target.  Why would that be justified if this scheme is working well, as this review says it is?


IAN MACFARLANE: I’m not here to argue for or against any of the options that are in the paper that’s been released.  What I’m saying is that there was a report produced by a very distinguished committee headed up by Dick Warburton, they did an enormous amount of work, they got 24,000 submissions, they literally had thousands of interviews and discussions.  They’ve come up with those proposals as part of their research, and in reality this is all part of the process.

It wasn’t the Coalition who asked for a review every two years, it was in fact the renewable energy industry when they increased the scheme from nine and a half thousand gigawatt hours, which it was when we were in Government and when we established the renewable energy scheme originally.  When they increased that scheme to be 20 per cent they asked for a review every two years.  So this review is as a result of that process and it’s up to the review committee to put out the report.

It is a very extensive report, it covers a lot of issues and they are their findings.  The Government will consider the report over the next few weeks and there will obviously be a lot of discussion and debate within the general community. In the end we’ll listen to that debate and we’ll have a discussion.

JOURNALIST: Do you accept though that this review says that the scheme does cut electricity prices, it does reduce emissions, the administration is efficient, that all points to something that you wouldn’t want to wind up, doesn’t it?

IAN MACFARLANE: We accept that renewable energy has a very important part to play in our energy mix, but the reality is, as that report also highlights, that we currently have about 9000 megawatts of surplus generation in Australia.  That is almost 15 per cent more generation capacity than we use.  And that’s the result of a lot of factors, particularly as a result of the installation of renewable energy and particularly photovoltaic cells of people’s rooftops, but it’s also because of energy efficiency and a slow down in the growth and use by manufacturing.  If you’ve got 9000 megawatts more than you need, the report then goes through to ask whether or not you need to in fact create more.

And that’s the report’s basis – that is, would you spend money creating more generation when you’ve already got too much.  Now that’s a discussion that I want to see in the community, it’s a discussion that I’m very alive to and in reality if we stay on the current course – that is an unaltered course – we’ll exceed the 20 per cent target, in fact we could be as high as 27 or 28 (per cent), and again that is something that the report highlighted.

JOURNALIST: You talked there about roof top solar panels that thousands of Australians have used…

IAN MACFARLANE: Millions actually, I think we’re heading towards two million in a rush.

JOURNALIST: So that’s far above the expectations of how many people would take up the opportunity to install those sorts of things.  The most extreme recommendation in this report is for that subsidy to be abolished immediately.  What would that mean for those people and for the people who install those panels?

IAN MACFARLANE: For existing systems it would mean nothing, they would continue business as usual.  But you’re right, the original modelling, the original guesstimate if you want to use that term and be unkind to economists, was that there would be 4000 gigawatt hours of roof top installed.  In fact we’ve exceeded that by more than 50 per cent already and in fact if the scheme continues to run it could end up three times the original target.  When you remember that not everyone has those on their roofs, that is being subsidised by people who don’t, and again the report goes into that.

It is a discussion paper, and I know people will find the best and the worst in the report but it is up to the community to now discuss that report.  As I said, it is a substantial and a very detailed document and providing the facts is what it was all about.

JOURNALIST: If that scheme though was to be abolished immediately that would have immediate consequences for a growing industry of the people who do install those sorts of systems.  How many job losses are you prepared to wear?

IAN MACFARLANE: With all respect it’s a hypothetical situation.  We’ve made as a Government no decision as to which , if any, of the proposals we’ll adopt.  We want to see a debate in the community.  The community should use this as a reference document. In relation to the roof top solar we do need to be mindful that the cost of those units has more than halved, in fact it’s almost a quarter of what it was when the scheme was originally introduced.  So if you want to put a three and a half kilowatt unit on your roof, when the scheme started in 2001 it was going to cost you around $25,000. It’s now costing you substantially less than that and looks like the price is going to fall further.  At the moment I think it’s costing about $6000, the expectation is that it will get less and less.  The aim of that part of the scheme was to get roof top solar installed on houses because they were so expensive, we wanted to drive the price down, we wanted to get people installing roof top solar as almost part of building their houses.  That’s certainly been achieved in spades.  As I say, it is one option that’s being considered, but as I reinforce, the Government has not made a decision.

JOURNALIST: Whatever decision you do make, should people expect their power prices to go down as a result of that decision?

IAN MACFARLANE: Well what people should expect is a reasonable balance between our need to have renewable energy and the cost of electricity to the household. That’s the reality, no one argues (against the fact) that renewable energy is more expensive than coal-fired electricity.  There are variations in how much more it costs and there are some situations, particularly in isolated situations, where renewables are actually very competitive.

But it is a question of getting the balance right.  I’ve been involved in this issue as the energy minister and for six years in Opposition as the energy shadow minister, I’ve been involved in this issue since the very beginning – 14 years.  I’ve watched this scheme, I’ve watched the machinations, I’ve watched the arguments, I’ve watched the furphies and we are now at a point where we need to make a decision about getting the balance right.  The scheme is running ahead of what all projections were.  As I say, small PV is half as much again in total as it was expected to be and the scheme has still got six years to run.  In percentage terms, based on trajectories, the large scheme is going to be almost half as big again as well, so it is time to have a close look at this, have a discussion and decide what we should do to make sure the scheme is both supplying a good balance in terms of renewable energy into our grid, but also meeting the expectations of people as to how much they pay for their electricity.

JOURNALIST: But have you created unrealistic expectations about prices falling if you were to do something about, make any changes to the Renewable Energy Target?

IAN MACFARLANE: Well I certainly haven’t.  As I say, I understand this scheme very, very well.  I understand how it impacts, I understand the costs, I understand the alternatives.  I think what we’ve got to do is have that discussion.  Again, the report goes through those numbers very carefully and very much in detail and I met yesterday with the renewable energy industry and though they hadn’t seen the report, they haven’t rung me this afternoon and said the numbers were all wrong.  So I think there will be that discussion, but in the end it is a balance.  We need more renewable energy, there’s no doubt about that, it’s how we get that balance right.

JOURNALIST: The industry has been warning that any changes will place in jeopardy 10 billion dollars’ worth of planned projects.  What kind of message are you sending to people who have invested in renewable energy projects on the proviso that they thought there was bipartisan support for the 2020 target?

IAN MACFARLANE: Well I hope there is bipartisan support as we resolve this issue, but I’m not sending them any message.  The reality is that they are the ones who asked for this review.  They are the ones who asked for a review every two years.  There had to be a review in 2014.  They are the ones who suggested to me that there are parts of the scheme that could be adjusted, I’m not going to go into those discussions.  The reality is that current investment, and the report covers this, current investment will not be effected by any change to this target, so there’s no sovereign risk profile issue.  The reality is though that we need to look at what the overall mix, the overall balance is going to be, and that’s what we’re going to see over the next few months.

JOURNALIST: What about though the gold-plating of infrastructure, the over-investment in poles and wires, isn’t there enough evidence now that that is a far bigger factor in the problems with electricity prices or the massive fluctuations in electricity prices?

IAN MACFARLANE: Well the Government is more than aware of that and of course electricity prices doubled in our absence from Government, so we’ve seen a situation where, yes, poles and wires have added significantly to that.  So why didn’t the last Government address that?  I don’t know.  Are we addressing it as a Government?  Absolutely.  I’m picking up where I left as the Minister for energy in 2007 and driving at the states energy market reform to ensure that there isn’t this so-called term of gold-plating, that there is electricity delivered in a reliable way, but not in an overly expensive way.  Australia when I was last Minister had some of the cheapest electricity in the world, we’ve now gone to a situation where we’ve got some of the most expensive.  There are a whole range of reasons for that.  Obviously the carbon tax was a significant contributor to that.  We’ve got rid of the carbon tax, we’re addressing the issue of electricity prices right across the board not just focussing on one area.

JOURNALIST: Is this work credible when it was produced by Dick Warburton whose scepticism about human-induced global warming is firmly on the record?

IAN MACFARLANE: I seriously don’t think that has got anything to do with this report.  Dick Warburton is a very, very respected businessman, he approached this is a business-like fashion.  His committee who sat down with him, and it isn’t just Dick, it is the committee, they are highly regarded people in terms of business and the energy sector and also of course economics.  They approached this on the basis that they understood right at the start that we need renewable energy in the mix, that we do need the right balance, they’ve looked at it, they’ve looked at it in detail, they’ve produced a set of facts which we will now discuss, and as I say, we will listen to the community discussion that goes on.  People’s views, what football team they support, what their views are on climate change, whether or not they think the All Blacks are going to thrash us three-nil, that has got nothing to do with this report.  This report was done by very professional people who approached it in a very business-like way on the basis that they understood we had to have renewable energy in the mix.

JOURNALIST: Was he asked to do more work on scrapping the target altogether as was reported last week?

IAN MACFARLANE: I seriously don’t ever believe everything I read in newspapers.  I didn’t ask him to do that, I’m not aware that he was asked to do that, so in reality I deal with the facts that I know and that’s not something I knew anything about if it ever did occur.

JOURNALIST: You’ve emphasised that this isn’t the Government’s report yet, it’s something that you’ll consider.  When can businesses who are waiting on investment decisions expect a decision by the Government on how you will proceed?

IAN MACFARLANE: Well we want to make sure that people have time to have a discussion about this paper.  This debate has been going for a while now, as I say everyone was expecting this review, whether or not we won Government there was going to be a review this year.  We will approach it on the basis that we want to give ample time for people to discuss it, but we do want to get the issue to conclusion so as you say we can provide as much certainty as you ever can in any business in Australia to those businesses thinking of investing.  I am saying sooner rather than later, I’d like to think that we could do it in the next month or so.

Media contact: Mr Macfarlane's office 02 6277 7070