* Annabel Hepworth and Sid Maher * From: The Australian * February 21, 2011 12:00AM
THE Gillard government's renewable energy scheme will saddle consumers with more than $1 billion in extra electricity costs this year, and uncertainty created by its failure to implement a carbon pricing regime is forcing power bills higher than they would otherwise be.
Research to be released today by the Australian Industry Group finds that a "well-designed" carbon price would ease some of the pressure on energy prices, which are forecast to rise over the next decade.
However, a carbon price of $26 a tonne is still estimated to increase electricity costs for households by 17.6 per cent in 2012-13, taking an annual bill for a Sydney home to $2000 from $1700.
But the report warns that a failure to implement a well-designed climate change policy could entrench higher power prices.
"Without decisions in this area over the next couple of years, damaging uncertainty is likely to lead to sub-optimal investments that leave both prices and emissions higher than they need be - with serious and uncompensated impacts on trade-exposed firms," the report says.
The research attacks the government's renewable energy scheme - particularly subsidies for household solar photovoltaics panels - as not offering value for money in terms of either emissions abatement or support for innovation.
The report comes as the government's multi-party climate change committee is locked in negotiations over the shape of a carbon pricing scheme, with the government preferring a fixed carbon price beginning from July 1 next year with an emissions trading scheme beginning three or four years later.
But the Greens and the government are on a collision course over compensation for energy-intensive, trade-exposed industries. Julia Gillard argues that she will not throw out the "good work" on compensation in her predecessor Kevin Rudd's Carbon Pollution Reduction Scheme and the Greens have declared the levels negotiated in that regime unacceptable.
The AIGroup research concludes that a decision on carbon pricing could reduce the reliance on the government's "high-cost" renewable energy target scheme - which aims to source 20 per cent of the nation's power from renewable sources by 2020 - and break an "investment drought" in new electricity generation.
AIGroup chief executive Heather Ridout said the government's renewable schemes were splurging on the most expensive renewables instead of the cheapest and warned that the nation could "get stuck with the equivalent of a Rolls when a hatchback would do". The report - based on a survey of more than 150 companies - warns that consumers would be forced to pay $1.12bn in 2011 just to cover the cost of household-level renewable systems, particularly rooftop solar photovoltaic panels.
The government's scheme for small-scale generators such as household solar panels was "not offering value for money in terms either of emissions abatement or support for innovation", the report warns. If the same funds were invested in big wind farms, four times as much renewable energy could be produced each year. Investing the money in large-scale solar plants would produce twice as much energy, the report finds.
On top of this, the future costs of the government's scheme to encourage commercial-scale renewables would be "substantially higher" than forecast if a price was not eventually put on carbon.
The government last December moved to wind back subsidies to households installing solar schemes as it sought to lower pressure on electricity prices. The move followed a decision early last year to reform how renewable energy certificates were issued to deal with a glut caused by a flood of solar panel installations.
Under the new scheme, renewable energy certificates generated from solar panels and solar hotwater schemes were separated into a discrete market from those generated by large-scale enterprises, such as wind farms, in a bid to drive up the price of RECs to encourage investment in large-scale renewables.
And last month, in a bid to deal with the glut, the renewable energy regulator increased the number of certificates that power retailers had to buy - a move that would lift electricity prices by an estimated $5 a household each year.
The AIGroup research finds that while renewable-related costs have been "higher than necessary", they are only a "relatively small" driver of price rises because other factors are so significant. These include the need to fund tens of billions of dollars worth of investments in network infrastructure, as well as likely rising coal prices, and escalating labour and materials costs that would make new electricity supplies more expensive.
The AIGroup report urges the government to address climate policy and carbon pricing, and to use the introduction of a national policy to "trim the thicket" of inefficient green programs that are "adding somewhat to energy prices for insufficient benefit".
It also says that the government's energy white paper - which was promised in 2008, but delayed after Mr Rudd shelved his ETS last March - should be completed as soon as possible.
Ms Ridout said there was "no end in sight" to rising electricity and gas prices over the next decade.
"Australian industry is already grappling with the challenges of a strong dollar and an economy nearing capacity."
She said it was crucial a carbon price was well-designed because a badly-designed carbon price "will put even more pressure on energy costs" .
She stressed her group was anxious to work with the government to ensure its carbon policy protected the ability of manufacturers to compete with offshore rivals. While a well-designed climate change policy would "soften the blow" of a carbon price, it "would be a big hit on business".
As well as the findings on renewables schemes, the report warns that bankers are baulking at supporting coal-fired power stations because of the uncertainty around carbon policy. The problem with this is that there could eventually be a rush of open-cycle gas turbine generators rather than more cost-efficient baseload combined-cycle gas plants.
According to the survey, most companies were expecting electricity price rises of between 11 and 20 per cent over the next two years.
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