Rudd missteps on green energy blew away wind market

One of the central mysteries of the Renewable Energy Target scheme, the final form of which is still the subject of fraught negotiation, is its apparent failure to stimulate the development of large scale alternative energy projects, such as wind farms and solar energy installations, in Australia.

The alternative energy industry would have us believe that the problem is uncertainty created by the government in undertaking various reviews of the scheme, combined with the Abbott government's ongoing attempts to water it down to reasonable levels.

In fact, as advisers involved with the Rudd government's massive expansion of the original, modest Howard scheme in 2009 whisper, the real problem is major policy blunders by that government compounded by state government efforts of the time to climb aboard the solar energy bandwagon, which are still affecting the market.

This may not be the full reason but it certainly makes some sense in view of the present hiatus in green energy projects. For the original concept was that alternative energy schemes would be able to make money by selling electricity to retailers as well as the renewable energy certificates earned through generating clean electricity. To make it work at the time the wholesale price had to be around $50-$60 per megawatt hour and the renewable energy certificates about $40.

The trouble was that the scheme allowed rooftop solar units, including photovoltaic and solar water heaters to also generate these certificates, and both the federal government and the state government had major subsidies in place for such systems. Advisors say that the federal government scheme paid people who put solar systems on their roof several times the number of certificates their system would earn over its lifetime.

Combined with very generous feed in tariffs from the state utilities, these incentives resulted in an explosion in the number of rooftop installations. The Rudd government quickly back peddled, splitting the RET target into two, reserving 41,000 gigawatt hours to be generated annually from large scale projects by 2020 (this is now the commonly quoted RET figure), and 4000 reserved for small scale projects.

Unfortunately for the wind industry, the window for buying the certificates was left open through 2010, before the split came into effect. Also, and equally crucially, the distributors who have to meet the green energy targets were allowed to bank the certificates they bought. As the price of the certificates fell to below $20 at one point, compared with the present fine of about $90 for each certificate not presented, the distributors bought as many as they could find. In the end they found so many, the industry estimates that there are enough still in the system to last to 2016 and perhaps beyond.

Many of the concessions enjoyed by roof top solar have long been withdrawn but attempts to absorb the RECs overhanging the market by changing the scheme rules seem to have made little difference.

Despite hopeful claims that electricity from wind is cheaper than electricity generated by conventional means – claims given a patina of respectability by studies showing that intermittent green energy can depress wholesale spot prices – without the need for certificates, green power projects have proved unfinancial, and mostly unwanted. This is despite the targets mentioned above simply being the end point. The target is being increased until it gets to 45,000 megawatt hours by 2020, including the substantially over-filled 4000 for small scale projects.

Green projects are certainly still being completed with Nyngan Solar Plant, a photovoltaic installation which can produce 102 megawatts, built by AGL Energy in western NSW, announcing in mid-March that it was starting to generate power for the National Energy Market.

But the thin trickle of such announcements is far short of the flood of completed plants that were expected to meet the original dream of 20 per cent of Australia's power being supplied by alternative energy projects.

The Clean Energy Council's annual report for 2013 shows that by the end of 2013 wind farms with an installed capacity of just 435 megawatts were due to be completed in 2014, with another 1000 megawatts worth due to be completed this year. However, as average output for wind farms is typically about 30 per cent of installed capacity (less for photovoltaics), the effective additional capacity built in those two years is about 120 and 300 megawatts respectively. A single coal fired plant is usually rated at around 500 megawatts, or an effective capacity of close to 450 megawatts.

Wind farms may take up to two years to move from concept to generating power, with much of the time taken up in getting approvals, and as the REC stockpile may be used up in the next two years the pace of development in wind farms is expected to increase.

Despite much hype and considerable research funds being spent on technology such as solar plants which store energy in molten salts and designs with gigantic towers and fields of mirrors, the heavy lifting in the alternative energy sector will still be done by wind farms, like them or lump them, for the forseeable future.