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Monday, 19 May 2008

About that PV rebate means test

Hi again.

By now I expect you've all heard that in last week's federal budget, the first under this new management, it was announced that the Photovoltaic Rebate Program (PVRP) would immediately be subjected to means testing. Specifically, the $8,000 rebate would not be available to households whose combined income exceeds $100,000 per annum.

Predictably, there's been an enraged outcry from the renewable energy industry and green groups, and of course the opposition parties have seized the opportunity to attack the government's credibility on climate change policy. ("Hi Kettle, I'm Pot! My, you're a lovely black colour aren't you?")

Like many commentators I have great sympathy for the small business owners and employees who've been enjoying a surge in PV installation activity as a direct consequence of the PVRP and who are now dealing with a sudden drop in orders. Yet I do not necessarily agree that the PVRP should have been left as it was. Let me explain.

In the back of your mind you must always remember this: photovoltaic technology is really neat, but it's a long way from ideal. For starters, today's PV is generally more expensive than other renewables. And it only generates power while the Sun is shining brightly. No matter how many solar panels we install in this country we'll always have need for other energy systems which generate significant power for the other 16 hours per day.

As a rule, I was no fan of the former government. So hopefully it should get your attention when I say that the basic premise behind the PVRP was pretty sound. $150M was allocated over five years to encourage industry development and hence further R&D in PV technology - not to generate as much electricity as possible! Maybe they were forced into it, I don't know, but it was a sensible notion to invest public funds in a promising sector of the renewable energy industry. Unfortunately... they didn't follow through with a sensible rebate scheme for the distribution of those funds.

The PVRP previously offered a flat $4,000. Better than a kick in the teeth, but with PV systems starting at around $12K for an average output of 4kWh per day even that wasn't enough to spur a lot of interest. The "battlers" still couldn't afford it and the more well-off could get better rates of financial return from other forms of "investment". So last year, possibly reading the pre-election mood re climate change, they doubled the rebate to $8,000.

Well didn't that just open the floodgates. They halved the effective cost of an entry-level PV system, bringing it within the reach of middle Australia and making the financial payback time far more acceptable. The take-up rate exploded, "with 35% of all solar installed in eight years of the program occurring in the last six months." (Quote from ATA e-bulletin 19 May 2008).

Poor Mr Swan. Elected to government on the promise of leadership on climate change, faced with the economic necessity of slashing government spending, he had to deal with a PVRP that had gotten out of control and was burning through its multi-year budgetary allocation at an alarming rate. There were only two options: put the brakes on the rate at which money was being paid out (by lowering the amount per payment or limiting its availability) or let it continue to accelerate before slamming into a brick wall a little way down the track when the money runs out. Clearly the brick wall option would be catastrophic for the very PV industry which the program was intended to foster.

So the new management decided to slow the rate of payments by introducing a means test, in line with the general policy of targeting financial assistance to those who need it most. In my personal opinion, that was a reasonable thing to do. The biggest thing to criticise is that it's an all-or-nothing measure tacked on to what was a poorly-designed rebate scheme in the first place.

Just for the fun of it I'm going to do a separate post discussing the actual impact of the means test, how it might relate to the also-announced green loans scheme, and explore an alternate design for a PVRP means test.

To wrap up this one, though, I would ask you to keep looking at the bigger picture and reserve your final judgement on this government's climate change credibility until we see their response to the Garnaut review. The PVRP is something that was inherited and that, politically, had to be carefully managed. Failure to slow the rate of payout would have harmed the PV industry and been attacked by the opposition as financially irresponsible. Axing the scheme (presumably in favour of something better down the track) or reducing the rebate would have sparked a political feeding frenzy. It had to be maintained, but carefully.

The Minister for the Environment put it this way on ABC TV: "We've got programs out there... which will ensure there is enough demand in the Australian community in the long term to get solar panels on roofs... and to make sure that we continue to build a sustainable solar industry into the long term."

Mind you, the other climate change measures announced in the budget weren't terribly inspiring... my guess is it'll be another year, the post-Garnaut budget, before we know whether the promised leadership will be delivered. Let's keep up the pressure.

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