Renewable Electricity Support Policy

Abstract

Renewable electricity (RES-E) is likely to play a major part in the reduction of Australia’s greenhouse gas (GHG) emissions. Because it is currently dearer than fossil-fuel-generated electricity, support mechanisms are needed to allow it to compete with fossil-fuel electricity. In the thesis I examine the generation and subsidy price performance of Renewable Portfolio Standard (RPS) and Feed-in Tariff (FIT) RES-E support mechanisms in the USA, eight Western European countries and Australia. I also examine RES-E subsidies provided by the Australian government as well as its electricity transmission. The thesis’s analysis of Australia’s RES-E development shows that RES-E has a lower electricity generation market share in the country, is less diverse, and is part of a system with a lower level of electricity transmission, than in the other two regions/countries. I also show that the country’s current level of RPS RES-E subsidy compares poorly with equivalent levels of wind and solar subsidisation in Germany, Spain and the UK. Two major conclusions in the thesis, which together form its most significant contribution to knowledge, are, firstly, that radical RES-E expansion will require RPS mechanisms to adopt some features normally found in FITs. The most important of these are different levels of subsidisation for different types of RES-E and a high level of investor certainty about subsidy levels. Secondly, achieving radical RES-E expansion will require FITs to adopt features normally found in RPSs, the most important of which are a high level of generation certainty and a close connection between subsidy levels and market performance. However, the extent to which the RPS and the FIT can be hybridised will not be known with certainty for another three to four years. The RPS will very likely remain the main form of RES-E support in Australia, so the need I have shown for an RPS to adopt features normally found in FITs means that banding should be introduced into its RPS, so that it gives different levels of subsidisation for different RES-E types (particularly for solar and geothermal electricity) and that an implicit, or explicit, price floor is needed to make its tradable certificate prices less volatile. The thesis also makes the case that pre-RPS RES-E generation should be removed from Australia’s RPS; banking of its tradable certificates should be restricted; unusual energy sources should be removed; and its target should be market share based. I also show that if Australia is to make deep cuts in its GHG emissions, its RPS target needs to be significantly increased so that it at least absorbs all the projected increase in its electricity demand. I further recommend that Australia’s different state and territory FITs be replaced with a national gross FIT for small to medium scaled RES-E, differentiated according to location. In general, I find that while Australia has made a reasonable start in its RES-E development, significant redesign of its RPS is needed if the country is to make deep cuts in its electricity generation GHG emissions through radical RES-E expansion.