Speech to Future of Energy Conference Q&A With Kobad Bhavnagri
Wednesday, 4 November 2015
Topics: climate change, Paris climate summit, renewable energy
So Minister Hunt, firstly thank you very much for making the long trip to Shanghai. I realise that it was quite a detour on your busy travel schedule.
Is there a specific message that you are looking to bring to Asia?
Sure, of course there is – and there are probably two things.
The first – the point of making a trip such as this – because I was in any event going to the Montreal Protocol meeting in Dubai and then the pre-Paris negotiations – but the specific point of coming to Bloomberg New Energy Finance and to Shanghai is to say we are open for business, and we have a stable platform when it comes to renewable energy investment.
The second thing is to say that when it comes to the outcome of the Montreal Protocol negotiations, and the Paris negotiations, frankly we want to work with China.
We think that China is one of the indispensable pillars of a good global agreement.
Okay. So last year's review of the Renewable Energy Target caused a lot of concern for investors.
There was – one of the options that the review considered was perhaps cancelling the scheme altogether.
And we certainly know that that made a lot of investors nervous about the stability of the policy settings in Australia as well as a lot of the negative messaging that was coming out of the then Prime Minister's office.
Are those days now over?
Look I would say this – that you can have absolutely confidence in support for the Renewable Energy Target and more generally for the renewable energy sector in Australia.
A little bit of history – I think it is important to understand the fascinating challenge we had in Australia and then the response.
The challenge was that the target was set in 2009, when electricity was at its peak consumption in Australia. And the presumption at the time was that electricity would continue to grow in terms of demand.
What we've actually seen – as has happened across much of the developed world – is that gross electricity consumption has not just slowed, but it's declined.
And so in Australia we've seen electricity come down. I see Richard Lancaster from China Light and Power, that's an issue that he and his company and other companies actually have to manage.
But at the same time, we set the Renewable Energy Target bringing new renewables in, and so it was clear that we had to adjust the target.
We've moved a notional 20 per cent to a notional 23.5 per cent. We've established a floor of 33,000 gigawatt hours.
In real terms that's – depending on the capacity of what's installed – that's 6000 to 7000 new megawatts of capacity.
In terms of dollars, that's $12 billion upwards of new investment.
And so that's significant, hard investment and the basis for absolute confidence going forward.
But – I understand the rationale. But if energy demand falls again, will the Renewable Energy Target be cut?
Sure. Look, firstly I think that the advice from our Australian energy market operators – so our Australian regulator – is that we've probably reached a stable point in electricity demand.
We've brought on board a series of new LNG production plants.
But secondly I will make this statement to the audience and I will make this statement to Australia, that the base that we have in the Renewable Energy Target is rock solid.
It will not decrease, it will not change downwards, and obviously if it's achieved then people will consider the next stage from there.
But this is a target out to 2030, so if you're writing investment contracts – let's say it takes you two years from here to complete an investment – that's a 13 year stable period where you will have a pretty solid base of income.
And in a contemporary world, a 13 year period of certainty is a pretty good starting point for any investment.
So what sort of investment is Australia encouraging? What's hot right now?
What should an investor in this room be looking at? Is there a particular type of technology or asset or financing...
No no no, we are completely source blind in terms of the type of electricity supply.
We simply care about trying to produce the lowest cost renewable energy.
Clearly though you're seeing solar come down the cost curve very quickly.
I recently met with and examined some of the new technologies with regards to wave and tidal investment in Australia, and there are some very prospective technologies.
But the game changer now, the next wave that we are seeing and we will be encouraging our Clean Energy Finance Corporation to work with, is storage.
And so storage of course transitions intermittent renewable energy into dispatchable energy.
And whether it's in the domestic environment or whether it's in the merchant scale environment, that is a really powerful opportunity.
But for us, it's whatever you can produce that is the lowest cost renewable electricity, and that's a matter for the market.
Okay. So storage you mention specifically. How about wind?
Look wind – my approach to wind has always been there are no moral qualities either way in different forms of energy and electricity.
They all have different capacities, some may be lower cost, some may be lower emissions, and as I've said in Australia beauty is in the eye of the beholder.
We're likely to see, however, a move to offshore wind.
There are some very significant opportunities which are close to the electricity backbone, and I think that there are likely to be some major international financing and investment opportunities on a grand scale.
And so we will try to facilitate offshore wind, and if it's cost competitive grade, if it's not then it doesn't matter.
But we want to remove any bureaucratic barriers.
But is that a consistent position now within the Government?
Because many people in this room will be aware that there was some difficult talk about the aesthetics of wind farms over the last year.
Sure. Look, individuals have had their views and I respect that.
That has not been a position that I've ever taken. I've always said beauty is in the eye of the beholder.
Some people will find Kobad good looking, some people will find me good looking, and there are one or two that might find both.
But let me say this – that so long as it produces reliable electricity, that the regulator believes that it's high quality, then that's all that matters to us.
So you've mentioned the framework to 2020, and you mentioned of course that Australia has an emissions reduction commitment for 2030.
So what's in the works for renewable energy policy to 2030?
Well the first thing is that the current Renewable Energy Target runs out through to 2030, and it's – it provides a floor, not a ceiling.
And so it means that there has to be an increase of in the order of a doubling of current large-scale renewable energy, or let's call it about an additional 16,000 gigawatt hours a year, or 6000-7000 megawatts of installed capacity. So huge, significant volumes.
But that's all to 2020.
Sure. Look, I think that sometimes people try to get too far ahead of themselves.
There's a system which is guaranteed until 2030, there's very significant growth that has to occur, and this of course will be – as and when we get close to 2020 if more consideration is required then the Government of the day will look at it.
But let's achieve what's a minimum of probably a $12 million investment and a 6000-7000 megawatt installed capacity. I think that's a lot of incentive.
The Opposition Labor Party have a target of 50 per cent renewables by 2030.
Is your Government going to be formulating a position for 2030 and taking that to the next election?
Well it's a notional target but it's not a policy.
My understanding is that there's not going to be – legislated or mandated. So that is what it is.
I think that what we've got in Australia at the moment is stable because it's achievable.
To set a figure which is just a figure without a policy doesn't actually create investment.
So we will obviously look at the next phase as we get closer to 2020, but right now we have an emissions target to 2030, we have an Emissions Reduction Fund to 2030, we have a Renewable Energy Target to 2030.
And when we approach the next round of – the next big round of international pledging, which I assume will be in 2020, then we'll be in a position to build on the success.
So as you mentioned, Australia is in a fairly unique position actually in Asia, that our energy demand is flat or has indeed been declining, and that's a very different market for most of the investors in this room who are used to countries with [indistinct] a seemingly endless appetite for energy.
What is the Government doing to ease the existing capacity out of the system so the new, cleaner capacity can come in?
So what we've seen is that as renewable energy increases there's been a decrease in coal fired capacity through the market of about 17 per cent over the last five years.
Our best estimates are that that's likely to decrease by about a third from 2010 to 2022.
So the very existence of the Renewable Energy Target is helping to bring that about.
Okay. And last question, we're out of time, but will Malcolm Turnbull be joining you in Paris at the end of the year?
Yes, he will.
And I spoke with Malcolm Turnbull who is our new Prime Minister in Australia on Saturday and actually discussed whether or not I could announce that here.
And so the way it will work is that I will lead week one, which is a lot to do with the land sector, we'll be taking forward a global rainforest recovery initiative.
Julie Bishop, who is our Foreign Minister, will lead week two which is a lot to do with financing, which naturally falls within the Foreign Minister's remit.
And the Prime Minister will attend day one which is the leaders' summit, and may have some very prospective and constructive things to propose on the day.
Great. Greg Hunt, thank you very much for joining us.