RUDD BUDGET INVESTS HEAVILY IN CCS, SOLAR

UNCLAS SECTION 01 OF 02 CANBERRA 000456 SENSITIVE SIPDIS STATE FOR EEB MONOSSON, ENERGY FOR SHRIER, DER E.O. 12958: N/A TAGS: ENRG SENV AS SUBJECT: RUDD BUDGET INVESTS HEAVILY IN CCS, SOLAR REF: A. CANBERRA 452 ¶B. CANBERRA 275 ¶C. CANBERRA 268 ¶D. SYDNEY 64 ¶1. (SBU) Summary: The Rudd government's 2009-2010 budget (ref A) stakes out US$3 billion in new money investments in energy developments. As expected, the budget invests heavily in clean coal and carbon capture and storage (CCS),closing the domestic circle with the Global Carbon Capture and Storage Institute (GCCSI) opened in Canberra in April this year. The other technology singled out for funding is solar, with a new US$1 billion investment by government to develop commercial scale solar plants generating at least a gigawatt of power for Australia's commercial grid over the next several years. Other renewable technology also gets a further boost to the existing Renewable Energy Development Program (REDP - ref B) and the budget also restructures Australia's energy bureaucracy, creating Renewables Australia under the Minister for Energy. The investments, coupled with the Carbon Pollution Reduction Scheme and the Mandatory Renewable Energy Target scheme, are intended to facilitate the transition to a low-carbon energy future. End Summary. NEW CLEAN ENERGY INITIATIVE -------------- ¶2. (SBU) The Clean Energy Initiative (CEI) is the major energy funding element in the budget. The CEI is a restructuring and substantial increase in funding for clean and renewable technologies. The new funding is based on three pillars - carbon capture and storage "flagship" projects worth nearly US$2 billion over the next nine years; solar flagship projects worth US$1.2 billion; and an additional US$76 million for other renewable energy developments beyond the previous commitment of US$277 million. The flagship projects for carbon capture and storage and solar are required to deliver commercial scale power generation of at least 1000 megawatts. While many of the CCS projects in Australia have been in planning for a while (ref D),the solar projects will be largely completely new, and will likely be divided into four smaller projects, two using solar thermal technology and two using photovoltaic technology, to spread risk and fit more appropriately into the national energy market. Flagship funding is in tended to be matched 2-1 by state and industry funds, to reach a total of over US$7 billion. PICKING WINNERS: NECESSARY? -------------- ¶3. (SBU) Department of Resources, Energy and Tourism (DRET) Deputy Secretary Drew Clarke told econoff on May 14 that the CCS commitment was the second step towards fulfilling the government's pledge to develop commercial-scale clean coal. It complements the GCCSI and gives Australia a legitimate domestic program in the international arena while accelerating the domestic deployment of CCS technology, which will be critical to Australia meeting its own emissions reduction targets between now and 2050. The solar flagships program, Clarke said, was a slightly riskier proposition as there were currently no commercial scale solar projects in Australia. As such, the government would need to bring in a commercial partner, one of the existing large generators like Origen Energy or AGL, to ensure that the output of the QOrigen Energy or AGL, to ensure that the output of the flagships was integrated into the national electricity market. A partner with significant gas generation capacity would be preferable as they could supplement any variation in solar generation due to weather. Clarke said he was personally wary of picking winning technologies, but Australia had to have clean coal in its future, and the investment in solar is also intended to help boost solar as a competitor for wind energy under the increasing mandatory renewable energy target scheme. Many renewable energy developers in Australia are concerned that wind power's dominant market share and mature technology will crowd out solar and other technologies at the outset of the MRET scheme, hampering further investment in a range of possible technologies. The establishment of Renewables Australia under Minister Ferguson would provide a vehicle to support CANBERRA 00000456 002 OF 002 other renewable technologies as they move toward commercialization, Clarke said. ¶4. (SBU) DRET plans to select flagship projects for funding by the first half of 2010 following a selection process starting in the second half of 2009. Construction would begin sometime between 2012 and 2015, depending on regulatory approvals. Renewables Australia will be established as a body by mid-2010. ¶5. (SBU) Comment: The restructuring of clean coal and renewable energy funding may accelerate CCS, and will definitely boost solar. US$7 billion in energy investment is a massive increase on a per-capita basis, but commercial-scale CCS or solar plants are likely to cost billions, and the overall targets (2 gigawatts from CCS and solar plants) are still only about four percent of current generating capacity. The government has to find a mechanism for accelerating large-scale commercial investment in cleaner technologies to meet even the modest targets for emissions reductions taken on so far. The influx of funding will, however, be very welcome in Australia's coal industry, under pressure from emissions trading and facing increasing export competition in the region. End Comment. CLUNE