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The price of certificates fell more than 15 per cent last week to $28, its lowest in almost three years, extending a steady slide since reaching a peak of $51 in May and taking the fall since the renewable energy target legislation was passed in August to 30 per cent.
Certificates, each representing 1MW hour of renewable energy produced, are the currency generated by the renewable energy target scheme and are supposed to bridge the gap between the price of coal and gas-fired energy and renewables.
But the market is being swamped by certificates generated by domestic solar hot water and heat pump systems, and some industry analysts say if this continues it could last for several years and may cause the delay or cancellation of wind power and other renewable projects because the price signal will simply not be strong enough to make the projects viable.
The renewable energy industry is putting pressure on the government to alter the scheme by creating a separate heat market for solar hot-water systems and heat pumps, particularly if governments mandate that all new houses be equipped with solar hot water.
And the industry is calling for annual targets to be adjusted and take into account the anticipated flood of phantom certificates created by the multiple credits allowed for household solar systems.
But there is a view in the industry that some government bureaucrats are happy with the present situation because they do not believe the target, which calls for the production of 45,000GW hours of renewable energy by 2020, can be met by renewable energy sources alone and are happy for the heat technology to fill the gap.
The market slump might suit energy retailers such as Origin, AGL and TRUenergy, which need to either buy certificates to meet target obligations, or who are less affected by the market because they source their supply of certificates from their own wind farm developments.
We're not the leaders
One of the most confounding claims of the debate on Australia's response to climate change is that somehow it is in a position of world leadership and should be a cause for concern.
Alas, Australia is at no risk of being a world leader in developing emission trading schemes or abatement targets, or in introducing other complementary measures such as energy efficiency for building and fuel efficiency for cars.
But perhaps the most damning indictment of Australia's relative inaction is its failure to make progress on transforming its stationary energy sources, which the International Energy Agency identifies as the heart of the problem.
While European countries, the US and China are surging forward with investment in renewables, Australia has been left flat-footed.
The renewable energy target is expected to fix part of the problem and spark large investments in wind turbines, but the development of two of the transformative energy sources of the future, solar and geothermal, are at a virtual standstill, despite the fact Australia enjoys the most generous resources in the world.
This year, about 6000MW of solar energy capacity will be installed around the world, a further 9000MW expected next year and doubling to an estimated 20,000MW by 2013.
Australia's share this year is a paltry 50MW and it is not expected to increase significantly in the next few years.
Solar thermal is expected to offer the best solution for large-scale and distributed solar power supplies and the present confirmed development portfolio across the world is estimated at 4000MW and in Australia just 8MW.
In geothermal, there is 10,000MW of capacity as well as a similar amount in the pipeline. Australia is expected to bring just 1Mw of capacity into production next year, adding to the tiny facility that has been operating at Birdsville since 1992.
Australia does have the opportunity to be a world leader in developing enhanced geothermal systems, tapping hotter rocks that lie deep underground, but the drip-feed nature of government funding, particularly in regards to drilling, means progress in this and in developing more conventional geothermal energy sources in deep-lying aquifers is slow, and there are now concerns that further delays will impede the country's ability to develop its expected 2000MW of geothermal capacity by 2020.
Financial crisis not all bad
It may be that the global financial crisis has been good for the ability of industry to cope with fundamental changes that will accompany the move to a low carbon economy.
A report issued recently by the International Energy Agency suggests global emissions of carbon dioxide are likely to fall 3 per cent this year as a result of the crisis and its curtailment of manufacturing and power generation.
As a result, by 2020 emissions might be 5 per cent below what they might have been, according to the agency.
But it seems the crisis has had a more fundamental effect on the way corporations are managed, and therefore how they might deal with the transformation required by ascribing a cost to carbon.
In a booming economy, executives tend to be dazzled by the spectacular growth in revenues and the value of their share options.
At the height of the crisis it was said that business could no longer afford to pay attention to climate change, a view reflected by the government's decision to delay the start of the Carbon Pollution Reduction Scheme.
But the carbon disclosure project, a worldwide survey supported by institutions with about $45 trillion under management and co-sponsored in Australia by Goldman Sachs JBWere, reveals a major shift in thinking.
It turns out the financial crisis may have provided company boards and management with the very skills and attitudes needed to deal with the task of reducing emissions (better business processes, improved efficiencies and cost savings) and identify new business opportunities.
The concept of cost efficiencies and process efficiencies is entirely consistent to the task of reducing emissions, Goldman analyst Andrew Gray says.
The change is one of risk management, and cost containment is critical to the task of dealing with climate change. In some ways the financial crisis has been something of a dummy run for the task of dealing with a price on carbon.
The difference is that the quantum of carbon costs will be nowhere near the slump in commodity prices experienced over the past 12 months by most resources and many heavy industry groups, although the physical and regulatory effects from climate change may ultimately be far greater.
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