Chapter 2
The Government's rebate and the means test
2.1
Government rebates have been a valuable policy in encouraging the
adoption of solar photovoltaic technology, and increasing their profile as a
source of renewable energy. The committee noted evidence that the industry is
continuing to grow, and the use of photovoltaic systems is rapidly rising.
2.2
Evidence from the Department of Environment, Water, Heritage and the
Arts (DEWHA) showed that the number of applications for the SHCP rebate continues
to grow. Applications are at record levels, dwarfing the number of applications
under previous forms of the Plan.[1]
2.3
The Committee also heard that the number of accredited installers
serving the industry is rising. Clean Energy Council figures quoted to the
inquiry indicate that the number of installers has risen from 230 in 2007 to
470 by the first quarter of 2008.[2]
2.4
Major companies are showing confidence in the Australian industry and
market by establishing significant operations here. Examples drawn to the
attention of the committee included the extension of US company SunPower
Corporation's operations into Australia through the acquisition of Solar Sales
Pty Ltd,[3]
and the establishment of Suntech Power in Australia in December 2007.[4]
2.5
Demand for the SHCP rebate continues to be strong, and the minister has
indicated that the government remains committed to the rebate. The minister
recently stated:
Let me say this very clearly – the Government is committed to
the future of the Australian solar industry, committed to providing assistance
to those households who most need it, and we will continue meeting demand in
this program.[5]
DEWHA confirmed this at the Brisbane hearing.[6]
2.6
The committee also notes that government support for renewable energy is
at record levels. Commenting on the recent decision to accelerate the
availability of funding in the SHCP, the Minister recently stated:
Combined with the $480 million solar schools program, which has
now commenced, and the $300 million green loans program commencing next year,
the recent Budget saw the most significant investment in the future of solar
ever made by an Australian Government.[7]
2.7
The committee notes that debate about the current bill, and around the
SHCP rebate, is taking place in the context of a rapidly growing and evolving
policy environment supporting renewable energy development and greenhouse gas
emissions reduction. Within this context two issues dominated discussion of the
current bill: the implementation of a means test by the government in the May
2008 budget; and the relative merits of rebates versus other policies to
support renewable energy, particularly feed-in tariffs.
The Means Test
2.8
Many submitters raised concerns about the implementation of the means
test. These included installers who were worried about loss of business, and
householders who had hoped to take advantage of the rebate but who were no
longer eligible. Concern was expressed that the means test would discourage
from installing photovoltaic systems the key group of people who would be most
likely to adopt the technology: households with the relatively high income
levels needed to pay the high price of solar energy systems.[8]
The reality is that it is the people with greater disposable
income who have the capacity to change their carbon footprint. Not only that,
they are also the people who have not stopped at the entry level solar system
of 1 Kilowatt but have chosen in most cases to go for a bigger system.[9]
2.9
At the same time, there was widespread support for a means test as an
appropriate mechanism to help target the scheme. The majority of people
surveyed by the Adelaide Buyers Group believed a means test was appropriate.[10]
Many submissions from householders and installers supported a means test (though
often at a higher level than the current $100 000).[11]
The Australian Conservation Foundation (ACF) indicated it had 'no opposition to
the principle of a means test on the solar PV rebate, and to the targeting of
rebates to lower income applicants'.[12]
2.10
While such a test found broad acceptance, the committee heard a range of
suggestions were made to modify the means test. The Clean Energy Council for
example suggested:
A rebate of $8 per watt up to a maximum of $8000, restricted to
households with an annual taxable income of less that $150,000, and $4 per watt
up to a maximum of $8000 for households above $150,000.
The industry transition from a rebate scheme to a gross national
feed in tariff which is to be put in place by 1 July 2009.[13]
2.11
Over the period of the committee's inquiry, it became clear that most concerns
about the means test arose because submitters were worried that it would cause
a cut in the number of systems being installed, and a loss of jobs and business
in the industry. The Clean Energy Council, reporting on behalf of members in
the industry, observed:
In the two weeks following the budget announcements, the
industry reported a decline in the number of orders, with orders from
households no longer meeting the threshold requirement being cancelled. In
addition, staffing impacts were also reported with new employees not being
engaged as a result of the uncertainty, casual staff laid off, and contractors
having hours reduced.[14]
2.12
However, data provided by DEWHA shows the numbers of applications for
the rebate has been rising since the introduction of the means test. DEWHA
reported on three six-week snapshots of rebate applications from the industry
to illustrate its point:
for the six week period up to 8 February 2008, the average number of applications received weekly was 178;
- for the six week period leading up to the 2008-09 Budget, the
average number of applications received weekly was 324; and
- for the six week period up to 11 July 2008, the average number of applications received weekly was 544.[15]
2.13
While particular businesses experienced a loss of customers immediately
following the budget announcement, this effect appears to have quickly been
superseded by overall growth in the industry, and with changes in the customer
profile of the sales and installation companies.
2.14
Examples from evidence taken in Adelaide and Perth highlight the complex
nature of the evolution of the industry. Mr Troy Ryan is an installer in the Adelaide
region who has been in the industry for most of the last two decades. When he
made his initial submission to the committee on 14 July, he had been
disappointed by the government's announcement:
Due to the publicity surrounding the decision, there was still a
spike in interest and sales of systems stayed steady...
Now the publicity spike is over. We have put off one electrician
and one salesman. Sales are down around 25% in numbers 40% in value...[16]
2.15
However less than a month later, by the time he came to Committee's hearing
in Adelaide, his experience and perspective was changing:
I have done this chart here to show our sales over a comparative
period immediately before and immediately after the budget. You can see a
slight increase in sales. The main thing that I wanted to make clear was that
we had a huge increase in single-occupant buyers. They are the sort of people
who earn less than $100,000 who can still afford a solar system...
I was as disappointed as everybody else to see a new government
come in with all the great promises and then to have that policy announcement
in the budget. It was pretty disappointing. Having said that, as you can see,
we have not had a drop in sales, and I thought we would. I am surprised that we
have not, but the publicity has been fantastic really. I would like to see that
publicity every month. Our customers are ringing up in droves and they know
whether they are eligible or not and they know what they want because they have
heard all about it. It is fantastic. In that regard it has done a great job,
but that is a short-term thing and cannot last forever.[17]
Similarly, Ms Drummond of EcoSouth Solar reported an
increase in sales, while expressing concern that a fear of the rebates running
out might be driving the growth.
2.16
In Perth Dr Wills, from the WA Sustainable Energy Association, was asked
what had happened in the industry in the wake of the budget:
Dr Wills—It was within a few days of the budget measures, I
guess. We were expressing concern then about the impact on our members.
Certainly at that point we had members that were reporting cancelled sales; in
fact, one member had reported that 72 per cent of sales were cancelled within a
few days of the budget announcement...
Senator PARRY—Going back to that member that had a 72 per cent
cancellation of sales, is that replicated in other members? What is the
anecdotal evidence—
Dr Wills—The 72 per cent was the largest figure, but most
figures were well over 50 per cent, and usually in the range of 60 to 70 per
cent. Some of those have now reported some recovery beyond those numbers.
Senator PARRY—What do you put the recovery down to?
Dr Wills—There certainly appears to have been an educative
message in the announcement of the means test on the rebate, and the
consequence of that is that there seems to be particularly more retirees taking
up systems who had not realised that they were eligible even for the rebate; that
the rebate was available. The news around it clearly has sparked some marked
interest from that point of view, so that is certainly a positive, and we have
some other suppliers who are saying that in some cases that has almost replaced
their previous market.[18]
2.17
The committee believes that the industry is undergoing a process of
maturation and restructuring. As part of this process, there may be changes in
how photovoltaic systems are supplied and installed, and new business models
emerging in the sector. This was clear from some comments by witnesses, such as
Mr Lamond:
What has happened since then is that there has been a pick-up in
our sales because of the larger marketing activities of the handful of larger
dealers. So while overall we see our dealer base and our sales looking at
dropping back 30 per cent, as a business we see our large dealers actually
doing more work.[19]
2.18
Similarly the committee was persuaded by the analysis offered by Mr Mitra
Ardron of Beyond Building Energy:
CHAIR—Mr Ardron, you were in the room when we were talking with
the department about the number of installers and accreditation and that sort
of thing. From your perspective, can you give us a view of how you think it
will pan out in the industry if we take away the ongoing availability of the
rebate, whether you believe there will be a consolidation of small retailers
and installers into larger organisations?
Mr Ardron—Absolutely. I have spent some time looking at the
industry in Newark in California where they have decent government support. In
both those cases, in order to achieve the volume, the industry has changed. Australia’s
industry is based on a cottage industry model. It is based on mostly off-grid
installations. In fact, until the current rebate system, I believe 90 per cent
or so installations in Australia were off-grid. Don’t quote me on that; I do
not know the exact numbers. But it is of that kind of magnitude. It has been a
cottage industry because of the high-touch, lots of personal attention that is
required because every installation is different. If we look at Europe and California,
what we are seeing is a model which is grid-tie dominated which means
installations are essentially similar. They do not need nearly as much personal
attention and they are industries that have organised their business model to
scale that are actually achieving it; it is not the one or two-person
installers where you do one or two a week. That was a long answer to your
question, but we absolutely see a significant change in the industry towards an
industry that is capable of supplying large volumes of solar and other
renewables.
CHAIR—We have had installers and retailers come along to us and
say their business has changed with the introduction of the means test. Is it
possible that some of that business has gone to larger retailers and installers
or organisations like your own?
Mr Ardron—Absolutely. Certainly, as the industry grows, as with
any industry that changes this rapidly the people who are less efficient will
either have to change and grow with it or they will be forced out of business.
I see that as not necessarily a negative outcome as long as the overall
industry itself is growing. But, yes, I believe we will see that kind of
restructuring inside the industry.
CHAIR—And it could be happening now.
Mr Ardron—I think it is happening now.[20]
2.19
DEWHA officials also thought that changes in the industry may have been
factors in explaining recent growth:
we have certainly seen emerging new business models, and I think
you will receive evidence later today from one such company. These are
cluster-type developments where solar PV companies are going out and targeting
neighbourhoods or towns and actually getting an economy of scale in the way
they do their business, and I think that is also contributing. Changing
business models in response to heightened public awareness and a more generous
rebate program I think are the key factors [explaining growth in demand].[21]
2.20
The committee understands the frustration of some submitters over the
recent change to the scheme. It asks them to consider, however, what the
consequences might have been if a change to the rebate was announced to take
effect at some future date. If several weeks or months' notice had been given,
for example, this would have risked a sudden rash of applications, and a lull
after the change. This could have been more damaging to the solar energy
industry than the immediate announcement that was made, which has seen
continuing strong demand for the rebate.
2.21
The committee also understands the frustrations felt by some businesses
in trying to ensure prompt processing of rebates, which can present them with
challenging cash flow issues. The committee notes that DEWHA is aware of, and
trying to respond to, the problem:
What you are seeing there is a reflection of the increased
demand for the rebate and the administrative workload that is placing on the
department, and the reality that it takes us time to catch up in terms of
increasing our human resources available to manage and administer the program
relative to that demand. Just to give you an example, in April I had 14 staff
working on the program. That is now up around 22 staff with a bit of
supplementation, and the program manager is saying to me that he would like a
couple more in order to get us back as quickly as we can to the time frames
that are outlined in the guidelines.[22]
2.22
The committee has concluded that, despite short-term concerns created by
the budget decision, there has been no reduction in the desire of households to
install photovoltaic systems, and no slow down the take-up of the rebates. The
budget decision has not caused a dampening of demand for the services of the
solar industry. The rebate is continuing to contribute to the policy objectives
of encouraging the use of solar photovoltaic technology, thereby reducing greenhouse
gas emissions; assisting in the development of the Australian photovoltaic
industry; and increasing awareness of renewable energy resources. In fact, it
appears that the policy debate triggered by the budget decision has led to
unprecedented levels of awareness in the community of the rebate's
availability.
2.23
There is one particular aspect of the operation of the rebate that
concerns the committee. Several witnesses expressed concern that the rebate was
encouraging the installation of smaller photovoltaic systems, and that, as a
result, less renewable energy was being generated than might be possible, and
the government may not be getting value for money from its rebate.[23]
2.24
Ms Michelle Drummond described the problem from an industry perspective:
One of the problems that has been created from this is that
people cannot afford a system as much as the people over $100,000. What you are
doing is forcing the industry into a decline because you are selling smaller
systems and they are actually going to cost more. While we had people getting
money over $100,000 for the rebate they would buy a bigger system, you could
buy bulk and therefore the people under were getting a better deal out it. We
cannot afford to buy on bulk anymore. We have to buy as per system is sold.[24]
2.25
Green Energy Trading argued that this handicapped the meeting of
government policy objectives:
The means testing of the solar rebate is also a retrograde
policy step as it will increase the amount of money that Government spends per
unit of solar PV installed...
Under the previous PVRP scheme... the overall rate of Government
spending under this scheme was only $5,000 per kW of installed capacity, or in
other words, each dollar invested by Government was more than matched by
customers...
Anecdotal advice from installers since the means test indicates
that recent systems being installed and financed via the Solar Homes and
Communities Plan are typically much lower capacity – towards 1 kW – targeted at
the minimum capacity required for maximum Government assistance. This results
in minimal extra spending on the customers behalf. The impact of this is to
increase the average rate of government support from $5000 to more than $7000
per installed kW and correspondingly reduces the level of private investment.[25]
2.26
The analysis provided by industry figures appeared to be confirmed by
figures provided by DEWHA:
Senator PARRY—What about the size of unit? Do you record data on
the size of unit that has been pre-approved?
Mr Oxley—Yes, we do record that data. Over the life of the
program the average size of system installed has been about 1.57 kilowatts. To
anticipate your next question, since the introduction of the means test the
average system installed is at approximately 1.24 kilowatts...[26]
2.27
The tendency to install smaller systems limits the benefits that could
be gained throughout the industry from economies of scale. Mr Brazzale gave an
example:
there are economies of scale in system sizes too. For example,
you only have to install a system once, whether it is one kilowatt or two
kilowatts. It does not cost that much more to install a bigger system because
there is a whole lot of one off costs. There are economies of scale in
installing bigger systems.[27]
2.28
This may contribute to explaining why the cost per-watt of systems
installed has not dropped significantly as the number of systems has increased.[28]
However the committee also notes that this may partly be a result of increases
in the price of silicon, a key component of the systems.[29]
2.29
Witnesses suggested different ways in which the decline in the size of
systems could be addressed. The commonest suggestion was to reduce the rebate
offered per watt, generally to $4/watt, and increase the number of watts up to
which a rebate would be paid, generally to 2 kilowatts.[30]
An alternative proposal was to change the basis for the rebate from dollars per
watt installed to a percentage of the installation cost.[31]
2.30
The committee recognises the concerns raised by many witnesses. It
appreciates that the government also recognises that the rebate system itself
is not going to be the key long-term policy that will lead to a low-carbon
economy. As the Minister recently stated:
[W]hat I want to say very clearly is that the idea we can
achieve significant reductions in carbon pollution – the reductions we need –
from the open-ended, non means-tested provision of $8,000 rebates for any
technology is not only financially irresponsible, it’s environmentally
misguided.
It’s no way to build a solar industry with a strong and sure
footing, the industry this country needs, as we rise to meet the great
challenge of climate change.
If solar power in all its forms is going to play the role those
of you here believe it can - and quite frankly, that is must - in our future
energy mix, then it needs to become a mainstream solution.[32]
2.31
The committee endorses these observations.
Policies to support renewable energy
2.32
The committee heard evidence in support of a gross feed-in tariff for
electricity generated using renewable energy technologies. Support for the
introduction of such a tariff on a national basis came from a range of
submitters.[33]
2.33
Experienced industry players recognised that there would need to be a
carefully arranged transition from rebates to feed-in tariffs if the industry
was to develop sustainably. There was also recognition that a means-tested
rebate could work effectively in combination with feed-in tariffs, by focussing
on removing the up-front cost barriers for poorer households that lacked the
capital to make the initial investment that could then take advantage of
feed-in tariff benefits.[34]
2.34
Many advocates for the industry saw rebates as a short to medium-term
policy, and that in the long term they should be reduced or phased out as other
policy mechanisms are phased in. EcoTasmania for example recommended that the
long term strategy should be:
·
Set a sunset date on that rebate policy, pending the introduction
of more comprehensive carbon market and feed-in tariff laws.
·
Foreshadow a national feed-in tariff mandate, and a mechanism to
bring such a policy into effect as soon as practicable.[35]
2.35
The Clean Energy Council pointed out that rebates are an inherently
volatile policy approach, and favoured a transition to feed-in tariffs:
It is both the Council’s, and the industries view that it a
Gross National Feed in Tariff is necessary to provide the ongoing certainty
required for the industry to expand and reach its full potential over time. It
is acknowledged that rebate type schemes are always vulnerable to budgetary considerations,
and a Feed in Tariff will provide more sustainable support to both industry and
households.[36]
2.36
Conergy Pty Ltd made similar suggestions:
Have a smooth transition from the end of the rebate program into
a National Gross Feed-in Tariff for various renewable SGU technologies, by
2010, so it falls in line with the introduction of the proposed Emissions
Trading Scheme. An effective Gross FiT should provide a maximum payback period
of 10years for householders and 15years for commercial consumers.[37]
2.37
The Australian Conservation Foundation supported a similar model of
transition from rebate to feed-in tariff, with some overlap of the two schemes.[38]
Mr Dickson from the Adelaide Buyers Group said:
I believe that in addition to the means test of $150,000, $4 per
watt up to two kilowatts, and a gross metered feed-in tariff, preferably
applied nationally, would be the optimal solution for generating growth in the
solar PV industry.[39]
2.38
Another suggestion, based on California's renewable energy policies, is
to make government financial support dependent on whether households have
already taken other steps to improve their energy efficiency. Energy efficiency
standards have to be met before an existing household can access the California
Solar Initiative.[40]
Mr Warwick Ryan, representing Suntech Power Australia, discussed the
arrangements:
Clearly, we have seen evidence from other witnesses before this
committee who have said that households should be encouraged to reduce their
overall energy consumption by other means before they look at getting
assistance to put on a solar PV unit. Reducing their energy usage almost as a
prerequisite to getting the Rolls Royce add-on is a clever strategy. In California
this applies as well... CARE eligible homeowners, which is the California
Alternate Rates for Energy program, actually receive a higher rebate or subsidy
than those who are not eligible. There is actually a complementary system. If
you are showing that you are taking other initiatives to reduce your energy use
in your home, you fit into one category and you receive a higher subsidy.[41]
2.39
The Committee notes that the government appears to recognise the need
for further policy development in the area. This is evident in both the
Minister's support for discussions around a feed-in tariff, and through current
steps being taken to consult with industry stakeholders:
Through the next COAG meeting in October the Government plans to
work towards a harmonised approach to renewable energy feed-in tariffs...
I will shortly begin a series of roundtables with key
stakeholders on practical action households can take to save on energy bills
and reduce their environmental impact. The roundtables will include
representatives of the community, NGOs, business groups and industries,
including the energy services and renewable energy sectors...
We recognise that the industry faces a number of issues,
including new and emerging business models, some on a scale we haven’t seen in
the past, and I look forward to hearing from you what the industry, in these
changing times, considers critical for discussion.[42]
2.40
The committee acknowledges the point, made by many industry players in
their evidence, that repeated changes to the rebate scheme over a number of
years have made it difficult for solar businesses to plan for growth. The
rebate scheme has been intended to encourage householders to adopt renewable
energy and to provide a platform from which the solar industry may grow and
mature. The committee considers that, in the long term, a rebate of this size
is not likely to provide a sustainable footing for industry growth.
2.41
The committee notes that feed-in tariffs are scheduled for discussion at
COAG in October. They are also being considered in detail by this committee in
its inquiry into the Renewable Energy (Electricity) Amendment (Feed-in-Tariff)
Bill 2008, which is scheduled to report by 14 October 2008. In these circumstances, the committee leaves further discussion of feed-in tariffs to that
report.
Recommendation 1
2.42
The committee recommends that the government:
- Continue to provide support to households to take up renewable
energy and energy efficiency initiatives, including through schemes such as the
SHCP;
- Give consideration to providing incentives to householders to
install larger photovoltaic systems; and
- As part of its deliberations with COAG on feed-in tariffs, note
industry preference for the introduction of a feed-in tariff scheme as a sustainable,
long term mechanism to encourage domestic uptake of solar energy systems.
The Bill
2.43
The committee has considered the Save Our Solar (Solar Rebate
Protection) Bill 2008. It notes that the bill is mis-named. While subtitled the
Solar Rebate Protection bill, the bill itself does nothing to protect the
rebates. It merely says that the scheme for administering the Solar Homes and
Communities Plan should be subject to parliamentary disallowance. Passing the
bill would do nothing to 'protect' rebates in any form.
2.44
The committee was also surprised at Coalition members' vociferous
criticism of the means test. Less than two years ago, the then Environment
Minister, Senator the Hon. Ian Campbell said:
In relation to PVRP, I am very keen to see a program to succeed
PVRP that does what we did last time. I have extended it once already as
environment minister. I am very keen to extend it again, but I am absolutely
certainly we can improve it more. One of the problems at the moment is that it
goes generally to very wealthy people. It cuts out middle Australia and it is
virtually unaffordable for low-income Australians. I have said to the renewable
energy industry that, when a replacement for the PVRP scheme is negotiated and
worked on, which I am working on at the moment, we want to make sure that
people on lower and middle incomes can get it because, quite frankly, at the
moment the people who generally get it are very, very high income earners, and
I would like to see low- and middle-income earners be able to shift their homes
and schools across to solar power.[43]
Such targeting of the rebate to low- and middle- income
earners is exactly what the current rebate policy achieves.
2.45
The committee received little evidence in either submissions or the
public hearings that related directly to the substance of the bill, and the
committee can not support the bill. It opposes it for four reasons.
2.46
First, the opposition has made it clear that it wishes to attempt to
reverse the means test on the rebate, announced in the May budget. They have
not stated any other ways in which they wish to reform administration of the
SHCP. However, as evidence received from DEWHA has shown, the Plan is
continuing to meet its environmental objectives, and is doing so while being
targeted to lower income earners. The Committee cannot support a bill which
some MPs wish to use as a vehicle for modifying administration of a government
program that is already meeting its objectives.
2.47
Furthermore, even if the bill were passed, any move by Coalition
Senators to use it to modify the administration of the SHCP would depend on the
support of Senators from other parties who share the balance of power in the
Senate. To the committee's knowledge, some of these Senators have not publicly
stated their views about the SHCP. There is no certainty around what kinds of
administrative arrangements would gain the support of enough Senators to avoid
disallowance in the Senate. Passage of the bill could thus significantly
increase uncertainly for industry and the community over the future of the
program. This is the opposite of what industry wants.
2.48
Second, the rebates are already being taken up at record levels. Demand
for the program is extremely strong, straining the resources of the Department,
taking up an increasing share of available public funds for household renewable
energy and water efficiency measures and causing rapid change and volatility
within the industry. Removing the means test would therefore create even
greater demand, to the detriment of both the long-term viability of the rebate
scheme and the solar industry. Given that such volatility is precisely what the
industry has complained about, removal of the means test would be ill-advised.
2.49
Third, administrative reform should be backed by coherent principles.
However there is no plan underpinning the Coalition's approach to parliamentary
scrutiny. The bill is at odds with how the Coalition approached the
administration of other programs when they were in government. The Regional
Partnerships and Sustainable Regions programs were the subject of critical
comments by a Senate Committee and by the independent umpire, the ANAO.[44]
Labor Senators recommended changes, but did not go as far as suggesting that
the program guidelines become disallowable instruments.[45]
Yet even Labor's modest reform proposals were rejected by Coalition Senators,
and by the then government.[46]
Furthermore, the committee is unaware of any previous examples of a bill having
the effect of allowing one chamber to dictate the administrative arrangements
for a government program (see Chapter 1). The committee has been offered no
policy rationale to explain the Coalition's inconsistent approach to program
administration revealed by this bill.
2.50
Fourth, the bill has the potential to significantly increase the amount
of red tape in the program, and above all to reduce the ability of the
government to respond quickly to what all agree is a fast-evolving industry. If
the bill were to be passed, then every single proposal to reform the
administration of the scheme would be required to go through lengthy
consultation and clearance processes. Potentially valuable improvements could
become hostage to the interests of individual political parties and lobby
groups. The bill could seriously hamper efforts to respond to the evolving
needs of the renewable energy industries, and to Australia's carbon emissions
reduction strategy.
2.51
The bill would also force the government to telegraph to energy markets
possible changes in financial incentives, which could cause market distortions
and potentially counter-productive strategic behaviours in the industry. This
could artificially distort prices and increase market volatility. This would
not be good public policy.
Recommendation 2
2.52
The committee recommends that the bill not proceed.
Senator Anne McEwen
Chair
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