Government Policies

Every country’s transition is different – politics, culture, energy resources and policy mechanisms combine to make for quite different outcomes. I’ve highlighted some differences to note and policies to admire for each place without trying to provide the complete picture.

German Energiewende

Germany is famous for its energy transition, triggered in concert with a commitment to phase out nuclear power. The current target is 40-45% of renewable electricity by 2025. There is strong pressure at the moment to cap the costs of the transition. There is no doubt that funding various renewable energy policies has added to electricity bills (around 10%?) and bureaucrats are now challenged to move forward without additional costs. Interestingly, industries have been excluded from the costs of the transition so this has allowed policy work to continue without heated debates about what it might do to the economy.

The strong engineering culture of the country was cited as a reason for the community support that the energiewende policy received. Another important statistic is the level of community ownership[1] which was 47% in 2012 often through energy cooperatives that offer shared ownership and financing.

Japanese Fragmentation

Japan has only recently liberalized its market for the residential sector and is yet to see the results. To date only larger industries bought electricity competitively and as a result over 90% of electricity company profits come from the smaller customers. The electricity companies all own different regions and the interconnection between regions is poor. This is exacerbated by the fact that half the country runs on a 50Hz system with 60Hz for the other half.

Policy development has a very technocratic feel in Japan and relationships appears to be key for wielding influence. It was pointed out to me that the country’s disaster resilience policy work might ultimately lead to more climate action than stated energy policies as it underpins local and resilient forms of energy supply.

UK network innovation

Australia’s market model is closest to the UK model. In 2010 a network innovation program was launched and the sunshine tariff I investigated in Cornwall was incentivised under this program. It is hard to imagine the industry transforming without some room to experiment and regulatory constraints don’t always make this possible. I was pleased to stumble across various projects that seem to solve problems but have only been made possible under the innovation banner. It was excellent to meet with OFGEM, the country’s regulator and discuss the future role the innovation unit can play. The future grid scenarios they have explored have raised useful challenges for internal planning and decision making. They are working on understanding the type of light handed regulation that might be suitable for decentralised generators to become market participants without drowning in consultation paperwork. They are also hoping to improve the conversations with innovative energy products and services so that a better understanding arises about the timeframe for bringing technology to market and the market conditions that can be expected.

Denmark planning and community support

On the north-west coast, no major wind farm proposals have proceeded in almost a decade, the planning regime has created winners and losers with land suitability and there has been an overall push to tidy up the countryside with less scattered turbines. Most powerlines are undergrounded contributing to the aesthetics. There appears to be an overall drift from the distributed generation focus of the 2000s toward strong large scale interconnection with other European regions. As the Hvide Sande example demonstrates, community scale with good community acceptance leans toward the small scale – three turbines to suit the size of the village. There are four community support measures embodied in wind energy development rules:

  • 20% of each project must be opened up to community shares,
  • community coops can access up to 10mKroner for project feasibility studies,
  • green scheme pays for projects to ‘enhance local scenic and recreational values’ and
  • a compensation scheme recognises changes in land values due to wind turbine proximity

US patchwork

It soon became clear to me that the state sovereignty in the United States leads to very different policy outcomes in each state. The existence of renewable portfolio standards and energy efficiency mandates can often be predicted by whether a state votes red or blue. Likewise in the pushback against solar energy, supportive solar policies tend to persist in the blue states. California is often cited as an environmental leader with policies that build entire new industries but its electricity system tolerates a vertically integrated investor owned utility with strong market capture and little incentive to change. By contrast, the east coast has managed a competitive market for a long time and governments have adapted to create policies with market operation front of mind.

 

What we might learn for Australia

Australia’s Mandatory Renewable Energy Target

We should celebrate our Renewable Energy Target. As a policy, this has been in place consistently since 2001. This has driven the uptake in rooftop solar and the development of many wind farms. It has not been perfect and changes have always resulted in industry uncertainty and boom/bust cycles, problems that occur in every country. Consistency and ability to be adapted to changing markets make for good policy design. The fact that individual householders were able to benefit with an upfront capital rebate is the key difference with other country efforts. In South Australia we have the equivalent of an 800MW power station which sits on over 200,000 homes. By contrast many countries have massive mega-solar installations sitting on low value land such as near the motorway corridor. The difference in the flow of benefits and the citizen engagement of these policies is enormous.

Design of the National Electricity Market

I was surprised to discover how committed and speedy Australia has been to industry liberalisation with most jurisdictions still grappling with breaking up vertically integrated monopolies. If we want to retain the best elements of competitive markets and still ensure that the electricity system delivers necessary and timely changes we need to accept that it has no incentive to change at the moment. The lack of demand for innovation in our market is a failing. It shuts out innovative products, industry learning and new business models. The niche innovations will not thrive and demonstrate potential energy transition pathways unless they can be tested in protected ways.

Revisiting the fundamental principles

Another key issue is the goals of the system and a better understanding of community values. We need to have a stronger conversations about how the electricity market can deliver benefits to citizens. Many of the projects and movements I have visited emphasise that the electricity industry is failing to deliver what citizens want. There are already everyday benefits of smarter energy saving homes and equipment to be gained and in future we will want to easily adopt cleaner ways to deliver our heating and transport needs. At its heart, the Electricity Act needs to have objectives about moving to a low carbon system as fast as possible.

Programs and Services

Australia needs to duplicate its success with the renewable energy target in the spheres of inclusive/low income policies and energy efficiency. Energy efficiency is a never-ending marathon but it delivers local jobs and community economic and equity benefits. Demand management, if we do it well, can deliver system benefits back to the electricity grid. There is no substitute for mandates and thoughtful policy in this area. Market failures abound and the energy efficiency mandates being delivered at the moment create perverse incentives for the utilities and suppliers. (Many installers do not install rebated products because non-accredited types are often newer technology, perform better and remain cheaper). There is no doubt we could do better.

[1] http://energytransition.de/2012/10/energy-by-the-people/

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