Page 892 - Week 03 - Tuesday, 16 March 2010
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With regard to setting the level for systems under 10 kilowatts, the Greens were concerned that a dramatic cut in the premium rate only 12 months after the introduction of the scheme could have undermined public confidence in its operation and could precipitate an element of the boom-bust cycle that has so plagued the development of the renewable energy industry in Australia. We accepted that the level of adjustment of the tariff is warranted for smaller systems but the 37c per kilowatt-hour as was proposed in the draft report for the next premium period was potentially too dramatic and too disruptive for industry and consumer confidence.
In light of that, we are pleased that the commission’s recommended adjustment to the premium rate was more moderate but also acknowledge that the increase in the federal government subsidy has left the return on investment for 1.5-kilowatt systems, as an example, in better shape than it was when the premium rate was at 50.05c.
With regard to systems between 10 kilowatts and 30 kilowatts, I think the good news in the commissioner’s report is the acknowledgement that the rate of return for larger systems was adversely affected by the legislation, which means that systems between 10 and 30 kilowatts are receiving a significantly lower rate of return. The Greens were fearful that the recommended premium price in the draft report of 37c per kilowatt-hour would actually prevent the installation of larger scale systems of between 10 and 30 kilowatts. Indeed, we had already heard feedback that investments were being put on hold because the draft report indicated that 15 and 30-kilowatt systems were not financially viable.
The commissioner has acknowledged that the level of subsidies to smaller systems effectively skews the rate of return and has recommended that the minister revisit the percentage rate of 80 per cent for larger systems. Of course, that would be a legislative change that should be considered when the feed-in tariff is extended later in the year. Broadly, the Greens support establishing premium rates for different sized systems and technologies that effectively equalise the rate of return at a similar level for each of those sized systems and technologies.
It is of note that larger renewable energy companies are generally looking for a rate of return in the vicinity of nine to 12 per cent to cover operation costs, cover the risk on investment that comes with a larger scale project and to deliver a financial return. Currently the rate of return on 10 to 30-kilowatt systems falls well short of that, based on the modelling that the ICRC has provided.
For very large systems over 30 kilowatts, this is saying that the government will need to take that into account when we move forward in considering stage 2 of the feed-in tariff. As such, the Greens recommend that the government request modelling from the ICRC that makes clear the return on investment and proposes rates for different sized systems that attempt to equalise this return prior to establishing the premium rates for stage 2 of the feed-in tariff.
We are also pleased that the commissioner has recommended setting the price for two years to provide extra stability to the market. Again, we think that stage 2 might well necessitate locking in the premium rates for longer than a one-year period to ensure stability for industry and certainty.
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