Don't wreck the RECs by Reg'ing them.

Flicking through the AFR on Wednesday 28th October, I found an Article by John Breusch called “Call for REC pricing regulator”. The article outlines that – in response to the bottom falling out of the renewable energy certificate (REC) market – the clean energy industry is pressuring the government to create a REC pricing regulator. The issue was also picked up by The World Today on ABC radio.

The price of RECs has dropped significantly recently. Clean energy industry participants such as the Clean Energy Council suggest that a primary driver of this price reduction has been the considerable uptake of solar hot water heaters in Australia. This uptake has been spurred on by the recent increase in government rebates offered under its $96bn stimulus package.

Matthew Warren, the chief executive of the Clean Energy Council, is quoted as saying that the low REC price:

“will not deliver against the government’s objectives of developing a world class, competitive, clean energy industry”...and ...“A government regulator or carbon bank could solve the short-run problem in the REC market by either setting a floor price of buying enough certificates to support the price to a level that would trigger broader investment”.

Mr Warren somewhat spuriously likened the actions of the carbon bank to those of the RBA acting in international money markets to stabilise the dollar.

The saga continued on The World Today on ABC radio with Oliver Yates, the head of Utilities and Climate Change at Macquarie Group proclaiming a similar view:

“So if the REC price is low, it signals to the market that it should not be proceeding with a large renewable project. Currently the REC price is quite low, and therefore there is some question as to whether it will stay that way and therefore jeopardise some of those renewable projects. But what the Government probably needs to do is step into the market and buy some of the RECs which are in excess supply”.

Mr Yates went on to say:

“A little bit of market intervention (is needed) at the moment. But they (the government) can hold on to them, they can bank those RECs and hold them, and they can release them later into the market when the market price improves”.

In answer to Mr Warren’s concerns, the development of a world class clean energy industry is a tool, not an objective. It is a tool that can be used to reduce the environmental footprint of our energy market and to reduce our reliance on non-renewable fuels. If we can have these two objectives, without a world class clean energy industry then great. Who cares about being world class?

More to the point, what the hell is a ‘world class’ clean energy industry anyway? I would have thought that a clean energy industry would be the one that was able to meet the MRET requirements at the lowest possible market cost. Wouldn’t then the low price REC price suggest that we are well on the way to having a world class clean energy market.

And to Mr Yates, if buying up and holding RECs until the market improves is a suitable investment strategy for the government, why isn’t Macquarie following your advice? Also, how is the government buying up all the surplus RECs (or worse still, setting a price floor) ‘a little bit of market intervention’, that would be a very large bit of market intervention.

Personally, I think it is great to see the Australian people putting their (and the government’s) money where their mouths are and buying into the solar power market. The use of domestic solar panels could significantly reduce the need for expensive additions to the electricity network through providing generation in the areas of consumption.

I think we should go further faster. In spite of all the hoo-ha around the development of the MRET scheme – which electricity retailers suggested would send them (and every Aussie battler) broke – it appears as though we are meeting the current targets easily and now have a surplus. And, judging by the REC prices in the market, the MRET scheme should not have significantly impacted the price of electricity at all.

Finally, if the government is going to play any role in the market, surely it should be to bring forward the 2020 target of 20% renewable energy. Clearly its current targets are too soft.