Why a target?

Australia has some of the best solar and wind resources in the world. These renewables, as the name implies, are sources of energy that are typically not depleted no matter how much you use.

Sounds good, but they typically cost more than fossil fuel-sources such as coal and gas, and are intermittent. As Prime Minister Tony Abbott has noted, the sun doesn't always shine and the wind doesn't always blow. Batteries may eventually solve the intermittency issue but not for years, perhaps a decade or more.

Burning fossil fuels, though, has unwanted side effects, not least the release of carbon dioxide that contributes to cooking the planet. The speed and impact of climate change is hard to calculate but the US government reckons it amounts to a $US30 ($34) social cost per tonne of C02. Add back that damage – remember the carbon tax? - and the gap in costs between renewables and coal or gas narrows and even disappears.

Given the "market failure" to correctly price fossil fuels, policy corrections are needed, and adopting renewables is one. In Australia's scheme, retailers are forced to buy a rising proportion of their power from sources such as hydro, wind and increasingly solar, with the cost passed on to consumers.

(The consumer price varies per state but is small compared with network charges that attract scant political attention.)

What is the target?

A major source of confusion. The Abbott government backs a "real" 20 per cent.  

In fact, the legislated goal has never been "20 per cent".

From its inception in 2001, the industry has been working to absolute targets of electricity supply for the simple reason that nobody can predict precisely the supply needed in any single day, let alone a year's worth in 20 years.

In 2009 and 2010, the Renewable Energy Target (RET) was raised, and then tweaked, with bipartisan support. Marketers then picked up on the RET's increased targets and coined the figure of a 20 per cent reduction by 2020.

In reality, Australia's RET goal is for large-scale generators to deliver 41,000,000,000,000 watt-hours per year. That equals 41,000 gigawatt-hours, or 41 terawatt-hours if you're particularly geeky. That's enough to power about 6.2 million households.

The part of the scheme affecting households has no limit - and about 2 million homes have solar panels or solar hot-water systems, grabbing a subsidy worth about 40 per cent of the price of a unit.

Supply-side angst

With gripes, the big electricity firms, namely AGL, Origin and EnergyAustralia, supported that RET - at least publicly - when power demand each year was growing as it had done for decades. But demand began to fall, in part because electricity prices jumped 70 per cent in the five years to 2013 (thanks largely to investments in poles and wires) and consumers became thriftier.

And so, instead of a 20 per cent share, the 2020 figure is set to be more like 27 per cent. Plus, the scheme has cost about $5.2 billion to date, the government's Warburton review found, in terms of a transfer of wealth from fossil-fuel generators to renewables suppliers.

Inconveniently for the review, though, its own commissioned modelling found consumers would be barely affected in the run-up to 2020 and would actually pay lower electricity prices after that date because of the way wholesale markets work. In short, wind and solar energy is basically free, so wholesale prices are suppressed.

Reviews

The Warburton review – headed by businessman and climate sceptic Dick Warburton – recommended options including shutting the scheme to new entrants or setting annual targets tied to demand for large generators. It also favoured reducing or axing the small-scale support scheme entirely.

(The independent Climate Change Authority in 2012 recommended leaving the RET largely intact. It is legislated to conduct another review by year's end and, since the Abbott government has failed to win Senate support for its scrapping, the authority confirmed this week it will examine the target yet again.)

So just cut the target?

Industry Minister Ian Macfarlane this week said the government wants to do just that, slashing the 2020 target to 27,000 gigawatt-hours a year, equating to what it guesses would be a "true" 20 per cent.

Big power users, such as the aluminium industry would also be exempt.

Any change, though, needs backing in the Senate to change the legislation. So far, Labor, the Greens and Palmer United say they will block what amounts to a broken promise by the Coalition made prior to the 2013 election to leave the RET alone.

Renewable energy developers such as Infigen Energy and CWP say that changing the rules of the game midway undermines the value of existing investments made in good faith and would raise Australia's "sovereign risk" in global markets.

States such as NSW stand to lose billions of dollars in new investment that is required if the RET is to be met. (Current generation is about 14,500 GW-hours, or a bit more than a third of the level needed.)

The Clean Energy Council estimates there are 34 wind farms alone that have been approved around the country including 10 in NSW and 13 in Victoria that are unlikely to be built if the target is cut.

All up, there's potentially $15 billion more investment and thousands of jobs between now and 2020 if the RET is left as it is (and companies can move fast enough within the shrinking time left).

Sun worshippers

Mr Abbott will hope that Labor bows to calls to return certainty to the industry - albeit at a much reduced scale - and buckles.

The Coalition, though, knows Australians worship the sun and few would turn down the chance to reduce their reliance on the big energy companies if they could. Soaring gas prices this year and for years to come will only stoke consumer distrust of utilities.

That may be why the government has so far opted to leave the small end of the renewable industry alone.

Solar firms remain wary that its constant use of "household" in describing the sector, suggests the government does not want businesses to join residents in the rush to put solar on their rooftops.

How will it end?

In the short term, it's hard to say.

Without the return of bipartisan support for renewables, though, investment in new large-scale plants will remain all but frozen, even as 50,000 more homes install solar panels each quarter.

Solar panel prices are about a quarter of the level of three years ago and drop by an estimated 30 per cent for every doubling in production. Advances in wind and other sources, such as tidal or geothermal, will drive down their costs too.

As the accompanying chart shows, when new electricity capacity is added worldwide it is more likely to be from a renewable source than coal, gas, oil or nuclear.

And banks and investors won't finance new coal-fired power plants in Australia without factoring in some future price on carbon emissions, undermining whatever diminishing cost advantage coal has over renewables.

Add batteries to the mix – and many expect prices to fall as fast as solar panels if manufacturing scale ramps up – and the day comes closer when Australians can ignore Canberra, renewable energy target or no.