“The Energy Minister and regulators seem amazingly resistant to climate change,” says Pears

by Lynne Blundell

Australia’s chances of cutting greenhouse gas emissions costeffectively are being seriously undermined by Energy  Ministers and bureaucrats who are maintaining a system that encourages inefficiency and high usage, according to energy efficiency expert Alan Pears.

Winner of the Centenary Medal for contribution to climate change and environment policy in 2003 and currently Adjunct Professor at RMIT, Pears has been a major contributor to energy policy reform and energy efficiency schemes in Australia, including helping to formulate the GreenStar ratings system for buildings and reforming the Building Code of Australia.

He told The Fifth Estate in an interview this week that he has serious concerns about the ability or will of Energy Ministers and energy regulators to make the necessary changes that will allow Australia to cut emissions in the most cost effective way and to create a viable renewable energy industry.

“The Energy Minister and regulators seem amazingly resistant to climate change,” says Pears.

The fundamental problem, says Pears, is the way the energy industry has been set up. Energy ministers set certain objectives and regulations for the industry, which are interpreted in a very narrow way.

For instance, while all regulators have an overarching objective to operate in a way that is in the long term interests of the community, this is interpreted as meaning delivery of low energy prices.

Low prices are achieved by encouraging high demand, which is contrary to climate change policy and a move to cleaner energy sources.

“For example, the Victorian energy regulator, according to its Charter, must ensure the ongoing viability of the industry it regulates. Energy efficiency is not governed by the regulator so if efficiency is deemed to threaten the industry then the regulator obviously will not encourage it,” says Pears.

Report slams energy ministers

Pears’ views are backed by a report released in July by the Total Environment Centre which looks at the reaction of the National Energy Market to climate change policy. TEC commissioned market research company McLennan Magasanik Associates to investigate impediments that the National Energy Market has created to climate change policies.

The report concludes that climate change policies are being hampered by Australia’s energy ministers – Martin Ferguson (Federal); Ian MacDonald (NSW); Patrick Conlon (SA); Peter Batchelor (Vic); Stephen Robertson (QLD); Simon Corbell (ACT); David Llewellyn (Tas); Delia Lawrie (NT); and Peter Collier (WA).

“These Ministers, who make up the Ministerial Council on Energy (MCE), are maintaining a system that shuts out renewable energy, discourages energy efficiency, promotes poor investments and traps Australia in a dependence on polluting coal,” the report says.

The report claims environmental objectives have been articulated for the national energy market since 1991 but have not been included in the critical piece of legislation, the National Electricity Law.

“The lack of alignment between climate change, energy efficiency and NEM policies would be transformed into a first order issue if an environmental or carbon objective were to be incorporated into the NEM objective. This could also provide an incentive for greater alignment between climate change and energy portfolios.”

According to the report, the NEM ignores the social and environmental effects of generation and treats emissions as an externality.

The Total Environment Centre concludes that “COAG should urgently initiate an overhaul of energy policy to ensure that energy policy goals and the energy market framework are more appropriately aligned with climate policy. “

Renewable energy held back

According to Alan Pears progress on renewable energy is also held back by a clash of culture in government.

“The Rudd government was voted in on a commitment to have 20 per cent of energy coming from the renewable sector but it has all gone wrong in the fine print.

“In practice companies can bank permits early rather than build new renewable energy capacity. And the system of net feed-in tariff rather than using gross feed-in is seriously holding back the solar panel industry.

Gross feed-in tariff is straight forward, says Pears. The amount of power the panels produced over a year, say 15KW per hour, is measured and counted towards a rebates. With net feed-in, a smart meter measures the energy generated every half hour as well as the amount used and the consumer is paid a premium for the difference. This disadvantages people who are home all day, such as retirees, and rewards those who are out during the day.

“Net feed-in tariff is far too complicated and the poor PV [photovoltaic] solar people have to go out and try to explain it to customers. Buyers can’t make a clear choice – it is all about lifestyle.

“The net feed-in system has been chosen because of opposing interests in government. Some genuinely believe it will save money, while others realise it will protect the current energy system.”

No incentives for building sector

Much the same is happening in the property sector regarding installation of trigeneration and cogeneration plants.

By making it difficult for building developers and owners to integrate cogeneration plants into the energy grid, or to sell power back to it, the energy industry is holding back a key area of sustainability and cost effective emissions reductions (see our story in this issue).

Alan Pears says that by making it difficult for building developers and owners to integrate cogeneration plants into the energy grid, or to sell power back to it, the energy industry is holding back a key area of sustainability and cost effective emissions reductions

“Being able to sell excess power back to the grid is an important part of installing a cogeneration plant,” says Pears. “Otherwise companies have excess heat they can’t dispose of. It also makes the installation more financially viable,” says Pears.

“But the energy suppliers are creating obstacles based on the assumption that if the plant fails they’ll then have to supply the building with power from the grid.

“It’s unlikely that where there are five or six generator plants in an area that they will all fail. Most companies also have smart power strategies where they will dim the lights or reduce power usage in other ways if there is a plant failure.”

Pears believes there are currently too many disincentives for building owners to spend on technology such as trigeneration. This will change as the tension builds and large influential property companies put pressure on the government for an overhaul of the energy supply system.

Much of the inertia stems from the fact that the current energy rules are built around the energy suppliers’ cost base, with 70 per cent of costs tied up in capital equipment.

“The costs to produce power are fixed and the government has structured the system to pay for these costs. The more power people use, the easier it is to pay for the capital.”

This sort of mentality has been overcome in places such as California by setting energy targets and penalising energy companies if they sell above that target.

The lower they are under the target, the more reimbursements or incentives they get.

This, says Pears, motivates the energy sector to find ways of educating their customers to be energy efficient.

Another problem currently holding back investment in sustainable buildings by the funds management industry is the gap between funds’ investment horizons and the payback from such investments.

Investors on the demand side – at the point where energy is being used such as in buildings – have been used to returns of 25 to 30 per cent per year.

On the energy supply side investors who put their money into utilities infrastructure invest for the long term, with a rate of return on investment of around 10 per cent. Super funds love this sort of long term stable investment.

“Building owners and developers are not always prepared to have this sort of long term investment approach. Where they do, for example with the City of Melbourne, which was prepared to invest on a 10 year payback with [its new headquarters] CH2, sustainable technology gets pushed forward.”

There are signs of change, with Vic Super and other large superannuation funds increasing their commitment to sustainable investment funds (see our story on this).

“Once the super funds really start investing in a substantial way in sustainable funds they may drive the cultural change needed,”says Pears.

He does not believe that there is an awareness at the upper levels of government, particularly with Kevin Rudd and Penny Wong, about the disconnect between policy and practice in the carbon emissions reduction debate.

“Government is going to have to instruct energy regulators and operators to operate differently. They will have to rewrite the rules including the way energy companies are financially rewarded, and provide strategic incentives to help people generate power and sell it back to the grid.

“We could halve energy usage with these sort of measures.”

But there is a glimmer of hope, says Pears – the technology savvy younger generation.

“The explosion in interest in new green technologies and sustainability amongst talented young people gives me hope for the future.

“And the other major factor that will push renewable energy forward are the economies of scale that are inherent in many of the new technologies.

“Once they take off, particularly with rebates from government, each unit can be produced for very little.You only have to look at laptop computers – not that long ago they cost $5000 – now the same thing is $800.”

By comparison, says Pears, the under-investment in energy infrastructure means traditional carbon-based energy suppliers face enormous future costs, which will get added to the consumer’s bill.

So even if government does not heed the call for the energy industry to be restructured, pure economics may bring about change.

“The conventional energy industry faces deteriorating cost structures. So if alternative industries can get properly established it may lead to very surprising developments and the speed of change may be swift.”

lblundell@thefifthestate.com.au