Alexi Lynch

By Alexi Lynch, Ironbark Sustainability

1 July 2014 — There has been a lot of discussion in council land about the impact of the (relatively) new federal government, the near-coast-to-coast Coalition state governments (the exceptions being South Australia and the ACT) and the impact on energy efficiency and renewable energy projects and investment. In a previous article we looked specifically at council opportunities through the Emissions Reduction Fund and the funding possibilities that may arise from the ERF. However, the impact of other federal and state decisions will of course impact local government. Also, from councils we talk to, the mood has been one of apprehension given the removal or watering-down of many of the mechanisms that supported energy efficiency and renewable energy at local government level.

Politics and the Palmer Factor

Firstly, we need to point out the obvious – things are moving and changing very quickly. When this article was first drafted it seemed that the Renewable Energy Target, Clean Energy Finance Corporation and Climate Change Authority were dead and buried. Enter Clive Palmer centre-stage with Al Gore and suddenly these three bodies and mechanism are safe. Or maybe not, given Palmer has a history of changing direction 180 degrees at short notice and that we don’t know much about his Palmer United Party colleagues who may not fall in line with their boss.

We can toss a coin as to whether the RET, CEFC and CCA are safe, and while it’s hard to leave the politics to one aside, there’s no doubting that a lot of the high-level programs and policies that encouraged renewable energy and energy efficiency have been cut or are still on the chopping block.

The state of the states

From a state point of view, the big picture or headline policies that supported renewable energy and energy efficiency have been eroded over the last few years. State targets have been removed, energy efficiency programs axed, funding rounds for climate action all but gone and feed-in-tariffs for solar have been cut or removed in all states. In Western Australia the government even tried to retrospectively cut the solar feed-in-tariff before reversing that decision a day later.

The Western Australian government has abolished the body responsible for a variety of energy efficiency initiatives, including the provision of policy and advice on the six star Nationwide House Energy Rating Scheme rollout for new homes in WA, as well as advice on NABERS and Commercial Building Disclosure.

In Victoria, the Victorian Local Government Accord that supported councils with mitigation has changed significantly with a focus on adaptation and the State no longer has an emissions reduction target. Funding such as the Green Light Plan never came the way of councils, and programs such as the Greener Government Buildings, that could be accessed by councils, have been altered.

Last month the Victorian Energy Efficiency Target (VEET) was scrapped and the Energy Savings Scheme in NSW has been under threat but so far has bucked the trend. One thing is for certain – we are now a long way off having a national energy efficiency program or nationwide “white certificate” scheme that looked on the cards 4-5 years ago. Remember the National Energy Savings Initiative anyone?

Sustainable transport infrastructure is still losing out to roads (more than before!) and while there are smaller state-based programs and funding for councils such as the Climate Change Fund and Renewable Energy Precincts in NSW and Adaptation Resources in Tasmania, most of the key macro policies and signals have gone. Tasmania developed its Climate Smart Tasmania Strategy in November last year but with the election of the new government there are concerns around implementation. In Queensland the renewables sector has taken a battering where the Newman Government moved very quickly to disband the state’s climate change and renewable energy programs. The one major exception is the ACT where the Territory Government has legislated a 90 per cent renewable energy target by 2020 and recently announced that a 200MW wind auction will be completed this year. The other is South Australia where wind continues to dominate, even hitting 91 per cent of demand for South Australia in late June and an energy efficiency scheme that is growing, not shrinking.

Otherwise the trend in the states has been a move from climate action and energy reduction to adaptation, as well as from sustainability programs to more traditional waste programs.

Federal government policies

Federally there will be no funding for councils like the $200 million Community Energy Efficiency Program (CEEP) for at least 3-4 years. Other energy efficiency, renewables and climate-related programs and entire departments have either gone or are slated to go depending on the outcome of the Renewable Energy Target (RET) review and of course the Depends On Clive factor mentioned earlier.

This is not an ideal policy environment when trying to build support for the implementation of council energy efficiency and renewable energy projects. As a dedicated local government consultancy we are pretty in-tune with the big issues and concerns of councils throughout Australia and while we’re involved in targeted advocacy and lobbying behind the scenes – some of it public and some of it private – there are a few points to keep in the back of your mind when the going seems to be getting really tough.

Local governments filling the void again?

The largest and most successful council climate change program in Australia, if not the world, began in the late 1990s under the Howard government. It was ICLEI Oceania’s Cities for Climate Protection program and it grew over a decade to a peak in 2008 when 240 councils across Australia were participating in the program, representing 84 per cent of the population.

It’s worth remembering that this was at a time when there was very little climate action happening federally under the Howard Government, our chief scientist also held a senior position at Rio Tinto and we were told that ratifying the Kyoto Protocol was “the most serious challenge to our sovereignty since the Japanese fleet entered the Coral Sea on 3 May 1943”! However, local governments took up the challenge and led the way on climate action and were implementing emissions reductions actions throughout the land.

Can we see the same again?

The overarching issues of climate change and high energy prices won’t just go away and will have severe impacts on local government over the next decade. A continued over-investment in electricity transmission and distribution will see electricity prices continue to climb while gas prices may see even larger increases as the industry moves to world parity pricing, as articulated clearly by the Sydney Morning Herald’s Bruce Robertson in late June.

The other observation from the last decade or so is that councils have got smarter, developing strong business cases for climate action to determine whether a project is financially viable as well as reduces emissions.

Our advice is to keep a very practical take on projects and councils. To get a project funded and implemented you need to have a clear understanding of the project and technology with detailed financial modelling underpinning business cases. These are the steps that have seen thousands of council facility audits and retrofits around Australia that have saved councils millions of dollars in energy bills. Detailed business cases and risk analyses were also the first steps into the Victorian street lighting program that will reduce emissions by 1.56 million tonnes. Risks must be covered and mitigated, all potential stakeholders mapped and engaged and an adherence to a council’s project management approach adhered to strictly.

For councils that still struggle to find the upfront capital for energy efficiency and renewable energy projects, there are many financing options available that can mean a project can start with zero up-front costs.

Three years ago Ironbark partnered with the CEFC (then known as Low Carbon Australia) to help develop energy efficiency finance packages specifically for councils and we hope that they can continue the fantastic work they have been doing to date. Whether or not the CEFC continues Depends On Clive but even if the CEFC is dismantled we’ve already seen banks jumping into the fray to offer financing (many have contacted councils even in the last few months alone offering their services for energy efficiency projects) and services such as Alleasing that provide finance to councils who pay it back over time through energy and maintenance savings. This is all completely independent from any political changes and an option that we believe councils will focus more on over the next few years, along with a maturity in the market and knowledge around Energy Performance Contracting and Environmental Upgrade Agreements in areas where legislation allows them.

High-Level Summary of Energy Efficiency and Renewables

From a big-picture point of view, here are some rules-of-thumb for the next few years that you might find helpful:

  • Energy Efficiency projects will still be implemented, just without federal support. Councils may be able to take part in the Direct Action Emissions Reduction Fund (ERF) due to come online in 4-5 months pending the politics of the Senate, however there is a fair bit of water under the bridge before we see this up and running.
  • Renewable Energy Large Scale is effectively on hold until we know more about the outcomes of the review of the RET and the Depends On Clive factor. Those in the renewable industry are not confident and say there won’t be any new projects in the pipeline unless there’s an unexpectedly good outcome from the review of the RET. Utility scale wind farms and big solar plants are not on the radar anymore. South Australia and the ACT may continue to be an exception.
  • Renewable Energy Small Scale is not as dire as large-scale renewables. The Federal Government had promised a million “solar roofs” but has abandoned this. Solar photovoltaic installations will still continue in some form for residential and council facilities as the capital costs have been dramatically reduced. Longer-term the game-changer is battery-storage, which could mean farewelling the grid. While still 3-4 years away, councils could be the first to pilot and move into this space with small council facilities such as childcare centres and maternal child health centres.

The politics and the long-term

The federal government wants to remove the carbon price and will likely be able to do so in a few months pending deliberations in the Senate. However most commentators say a price on carbon is inevitable longer term (3-8 years) and most larger and exposed businesses factor it in long-term so it’s probably only a matter of time before we have a price on carbon again.

In NSW, Queensland and Tasmania, the Liberal governments are still in their first terms and it would be very unlikely to see a change of government for 4-6 years. However stranger things have happened (remember Kevin Rudd was supposed to be “at least a two-term prime minister”) and as things get closer to election periods funding could again open up.

In South Australia the Labor Government was barely re-elected and in WA the Barnett Government is in its second term and not due for re-election until March 2017. In Victoria the two main parties are neck-and-neck and if the election in November 2014 brings the ALP back to power then things could change again. We could see the restrictive bans on renewables removed (especially wind farms) and possibly more funding for councils through programs like the Victorian Local Government Sustainability Accord and the reinstating of the Victorian Energy Efficiency Target.

In Summary

Here are the take-home messages on the current lie of the land.

  1. Local government has a history of action even in the face of challenging federal and state policy environments.
  2. Financing solutions independent of the political processes will become more attractive. The CEFC could be a big player here, and if not innovative ways to set up energy performance contracting and EUAs will continue to demand the spotlight.
  3. The political swings and roundabouts mean things can change very, very quickly.

Alexi Lynch is business leader – sustainability strategy at consultancy Ironbark Sustainability.

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  1. Hi Genesis,

    Thanks for the response.

    Yep the Residential Building Mandatory Disclosure has certainly disappeared. I’d totally forgotten about it!

    I remember looking into this 2-3 years ago when NABERS disclosure was moving to commercial and I think hotels was next? Residential was to come I thought?

    It’s amazing how large advocacy bodies seem to read the tealeaves in advance of political cycles. My guess is that’s what happened with NESI and Mandatory Disclosure. When people started to be more sure of the government that was coming they really left these issues. (With NESI the colour of COAG slowly changed from red to blue and energy efficiency kept falling down the pecking order).

    Interestingly those who “read the tealeaves” around the Renewable Energy Target (RET) and suddenly started to batter and belittle renewable energy at any opportunity (hello electricity retailers from coast to coast) may have just shot themselves in the foot. The big ones – Origin, AGL Energy Australia etc – have been so anti-renewables over the last 12 months and have undermined all attempts to promote and encourage renewables in the expectation that the RET would be gone with Abbott and Warburton at the ready.

    Enter Clive and his merry men.

    And enter the GetUp! campaign that has directly targeted those retailers and seen tens of thousands of customers leave Origin, AGL, Energy Australia etc for Powershop.

    I dare say there’s a touch of schadenfreude directed at the Origin, AGL and Energy Australia’s at that moment from those who are pro-renewable energy and sustainability. As per the last line of this original article, the political swings and roundabouts mean things can change very, very quickly… so all major players need perhaps tread a little more carefully before nailing their colours to the anti-sustainability mast.

  2. Great article. I find it really moving and informative.

    Unlike the scale of discussion that you have shown, I work predominantly in the microeconomics of building energy efficiency (residential housing and small scale commercial buildings).

    Since the commercial building industry have kicked off nicely with national regulation making it mandatory to disclose efficient use of electricity to run our big towers and what not, I am yet to see the initiative of Government to do the same thing with residential housing. I mean what has happened to the Residential Building Mandatory disclosure?

    ACT has proven it can be done yet the rest of Australia seems afraid to put both their feet in the water.

    I know for a fact that due to the lack of attention by the Government to issue relative legislation lifting our building standards, common practitioners find lots of ways to bend the rules and get away with it with a grin in their faces because clients cannot see immediate financial benefits of doing it right.

  3. Hey Simon,

    Thanks for the comment.

    Great question re Federal-State funding – I assume you’re talking about precedents from the decision regarding the school chaplaincy program? I’m by no means a constitutional law expert but CEEP certainly could be one of the 400-odd programs funded by the Feds. However I very much doubt it’s under threat.

    Firstly, CEEP itself is small fry. It’s $200m in total and much of the money has been expended. Dozens of projects have been completed, buildings retrofitted, lights changed and final project completion reports well and truly submitted. Some projects finished over a year ago, remembering that there were only two rounds of CEEP and all projects must be completed by mid-2016.

    Secondly, for all current CEEP projects, contracts have been signed between Feds-Councils long ago. Perhaps more importantly, contracts have been signed between Councils and contractors/local businesses/installers etc, and most governments would be reluctant to break these because of issues around sovereign risk, or at least the perception of sovereign risk issues. That’s not to say funding agreements can’t be broken – the agreements between Feds and Councils are generally weighted heavily in favour of the Feds and as expected give them a lot of power. However I doubt they’d use the relevant clauses to stop mid-project. This is very rare and CEEP projects are very advanced.

    Finally, the new government is generally more supportive of energy efficiency than renewables, and CEEP is all about energy efficiency. To get CEEP funding, councils and community organisations had to demonstrate a lot of “bang for the buck” which is consistent with Greg Hunt’s principals around low-cost abatement and being “blind to the source” as long as it’s additional and can be verified. I understand that CEEP actually falls in Ian Macfarlane’s department, however the signals are that projects and contracts will certainly be honoured.

    In the short-term I don’t there’s going to be any change. The Government may rush through legislation to keep the Chaplains program going and the Opposition has said it would support this. They don’t want 400+ projects falling over.

    Longer-term, who knows… perhaps there will have to changes to the model. However by then I doubt people will even remember what “CEEP” even stood for.


  4. Fantastic article and the input of Clive is certainly being watched. Whats your thoughts on the decision in the High Court about the funding mechanisms between Federal Government and Local Government and any current funding agreements such as CEEP etc. Are they part of the coin toss as well?