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ANALYSIS-In big green push, Australia thinks too small on solar

* New laws promise boost for solar investment

* Complex rules limit size of installations

* Little incentive for commercial solar projects

HONG KONG/SYDNEY, April 8 (Reuters) - At first glance, a new day seems to be dawning for the overshadowed solar sector in Australia, the world's sunniest continent.

The government is pushing through a carbon trading scheme that will penalise big greenhouse gas emitters; a major piece of renewables legislation is due for approval within months, setting a target of 20 percent green energy by 2020.

But supporters say these shiny targets may be undermined by policymakers who think too small -- limiting the most generous rebates for renewables to the first 1,500 watts of capacity, or about half the minimum of the 3,000-5,000 watts used by the average Australian home.

"The limit of something like 5 KW would have been a really useful driver," said Muriel Watt, chair of the Australian Photovoltaic Association. "But the limit being 1.5 KW, it's not going to drive the large systems we'd like to see."

Australia draws just about 5 percent of its electricity from renewable sources, mostly hydropower and wind. Solar power comprises less than one percent.

The Clean Energy Council, Australia's main clean-tech body, has urged the government to raise to 200 KW the limit for renewable energy installations eligible for generous rebates.

Instead, say campaigners, Australia needs to adopt a nationwide feed-in tariff structure that would allow users to generate revenue by selling excess power back to the grid.

Such "feed-in" tariffs in Germany, for example, led to the country's solar power installations increasing 11-fold since it introduced a generous gross feed-in tariff eight years ago.

China and Japan are also ramping up solar investment, with China last month announcing a subsidy of 20 yuan ($2.93) per watt peak for large solar projects. Japan offers a further $200 million subsidy to boost home solar panel usage for the year from April 1 after a $90 million outlay from January to March.

Australia's policies have not proved as enticing. BP Plc's

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solar unit in Sydney, which operated the only panel-making plant in the country, closed down last month to cut costs.

That leaves the Australian market open to Japan's Kaneka Corp

4118.T

Sanyo Electric Co Ltd

6764.T

and Sharp Corp

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, and China's Suntech Power

STP.N

and JA Solar

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.

Australian firms that have persevered despite the obstacles include electricity and gas supplier Origin Energy Australia

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, Dyesol

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and Silex

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, which are working on individual solar cell technologies.

"GREENHOUSE MAFIA"

Solar, though, remains costly compared with wind power, and particularly with coal, which generates 80 percent of Australia's energy, making it one of the most coal-reliant nations in the world.

"That's one of the hardest things for us to compete against. There's a real inadequacy of government programmes and inconsistencies but whatever they do it's still competing against cheap brown coal," said Simon Troman, vice-president of the Australian and New Zealand Solar Energy Society.

He said coal-fired power generators had long enjoyed subsidies from taxpayers, with for example, transmission lines linking power stations being built for free.

The coal lobby -- together with other carbon-intensive export-oriented industries such as mining -- also wields tremendous political influence, not only because of the higher costs but for fear of unstable electricity supplies in a country that regularly faces sporadic shortages.

"Everyone knows perfectly well what's holding things back," said renewable energy policy expert Mark Diesendorf of the Institute of Environmental Studies at the University of New South Wales in Sydney.

"It's a group called the greenhouse mafia. It consists of the coal industry, oil, aluminium, iron and steel, cement and motor vehicle makers," he told Reuters.

The government has backed mandatory renewable energy target legislation (MRET) that ramps up existing targets to 20 percent national green energy production by 2020. Parliament is expected to pass the law within months.

For related factbox, click on [ID:nSP457971]

The law is expected to attract renewable energy investment of A$20 billion to A$30 billion by 2020, with wind power capturing the most investment initially, analysts say.

LITTLE INCENTIVE

Australian states and territories have introduced, or want to introduce, schemes to reward householders for power fed back into the grid. But so far, only the tiny Australian Capital Territory has opted for the more generous gross feed-in tariff from March this year for systems up to 30 KW.

Solar Shop Australia, the country's largest installer of domestic solar systems, wants the federal government to implement a national gross feed-in tariff, instead of the less generous nett tariff backed by most states.

Diesendorf said there was no incentive for large-scale solar power from the federal government, a view echoed by the manager of an energy systems supplier.

"Even for very small commercial installations of 20 to 50 KW on buildings or small farms, there's very little incentive," said the manager, who did not want to be named. "The feed-in tariffs designed in most states exclude commercial solar projects."

But engineering firm WorleyParsons Ltd

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announced plans last year to build the world's largest solar plant, a 250 MW project, in Australia.

The plan would be reliant on big mining firms funding the A$1 billion ($710 million) project. Mining firms want to invest in renewable power to cut fuel costs and curb carbon emissions to meet targets under national emissions trading, expected to begin in the middle of next year. [ID:nSP410901]

WorleyParsons said it aimed to deliver 40 percent of Australia's renewable energy needs with 34 solar power plants by 2020 but carbon credits would have to be priced at well over A$10 a tonne to make the solar power plants commercially viable.

The government estimates credits under its scheme will initially trade above A$20 a tonne of carbon pollution. (A$=71 U.S. cents) (Additional reporting by David Fogarty; Editing by Clarence Fernandez)

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