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