Wind storm of green energy is a flat calm

Renewable energy was a major topic at the Paris climate conference but in Australia, despite all the green energy hype and discussion over the Renewable Energy Target, investment in green energy projects has tailed off to almost nothing.

This marked lack of activity, despite hopeful stories about how green energy is now cheaper than conventional fuel generators, underlines the point that energy retailers won't bother with alternate projects unless they are forced to do so.

And they are not being forced at the moment. Despite a bipartisan deal on the RET being hammered out in May, a disastrous decision by the Rudd government in 2010 has crippled the market. Investment in renewables collapsed in 2014 and has stayed very low.

An announcement by wind energy development company Windlab in late October is typical of what is not happening in the industry. The Windlab announcement was for the Kennedy Park project in north Queensland that would eventually have an installed capacity of 1200 megawatts – about that of a full-scale nuclear plant. But a closer look at the company's release shows the initial proposal was for a modest first stage, $140 million, combined wind and solar energy park of about 80 MW (a small installation) split evenly between the two technologies, construction of which is due to start after June 2016, if it goes ahead at all. The project does not yet have financing.

Windlab chief executive Roger Price is confident he will get a power purchasing agreement, where one of the power retailers agrees to take the power produced – an essential step towards getting financing. But the lack of a PPA for what is undoubtedly an innovative project shows the difficulties facing renewables industry.

The activity that is occurring is mainly due to a separate decision by the ACT government to source 90 per cent of its electricity needs from renewable sources by 2020.

This is despite the fact that the final, agreed target of 33,000 megawatt hours of green electricity from large-scale projects, wound back from 41,000 MWh, plus another 4000 MWh from small-scale projects – the countless photovoltaic panels on roofs – will be reached in 2020, or in just five years' time. Expected to amount to the equivalent of 23 per cent of total demand for that year, the target is not just imposed in that year but builds up to that amount under the watchful eyes of the Clean Energy Regulator.

The hiatus is the result of a Rudd government decision to allow those selling small-scale solar systems to claim an enormous benefit in renewable energy certificates. Those selling the systems at the time were allowed to claim the equivalent of five times the renewable energy certificates those systems were expected to earn over their entire 15-year life span, up front, and store them.

RECs bought by the barrow load

The result at the time was to flood the market with the RECs, each representing one clean megawatt hour-worth of power generated, with the price falling to about $30 each. Major electricity retailers bought them by the wheelbarrow load and have been using them to meet regulatory requirements since.

Subsequent attempts to change regulations in order to soak up the RECs overhanging the market, and chopping the target into separate figures for small-scale and large-scale systems, have not fixed the problem, with REC prices only really starting to show signs of life in the past few months.

National co-ordinator for the Australian Wind Alliance, Andrew Bray, says he wrote submissions to the Rudd government recommending against such a generous concession for solar systems to no avail.

He says it is commonly believed in the industry that the REC overhang will persist until about 2017. But as it takes about two years to get a wind farm from proposal to power generating stage, the distributors should now be considering investment in the industry. That increase in investment has yet to be seen, which is disappointing considering Bray also estimates that investment in large-scale renewable energy fell by 88 per cent in 2014.

He attributes that collapse to the 2013 election of the Tony Abbott government. When power companies realised Abbott would win, and that he had no time for renewable energy, they stopped signing power purchasing agreements.

Steve Garner, general manager of Keppel Prince in Portland, Victoria, agrees that very little is happening in the wind sector, one of the markets that his engineering company services by building wind towers.

Keppel was forced to lay off 85 workers last year, and a promise by the Daniel Andrews' Victorian state government to buy 100 megawatts-worth of RECs from new-build projects in the state has not reignited business.

The only order the company has received has come through a wind farm being built to meet the ACT government target, Garner says.

Subdued development

A spokesman for the Clean Energy Council agrees that wind farm development has been subdued with perhaps 10 to 20 wind projects at the planning stage. However, the council has heard anecdotally from state planning departments that there has been an increase in companies seeking planning amendments to their projects, to take advantage of the bipartisan RET deal.

Of a list of projects sent to this writer by the CEC, the most impressive is the $450 million Ararat Wind Farm, with an installed capacity of 240 megawatts under construction in Victoria. However, in evaluating any contribution wind may make, it is important to remember its capacity factor (average output) is typically one-third of installed capacity. So the 240 MWs is an effective 80 MWs.

(Theoretical capacity factors for conventional plants are typically above 90 per cent, but gas plants in particularly are rarely run to that level while part of a network. They may have an average output of 70 per cent but that does not mean wind has a capacity factor half that of gas plants – they cannot be compared.)

Although the renewable energy market remains surprisingly subdued, it includes innovative projects such as that of the Kennedy Park project mentioned at the start of this article, organised by Windlab and joint venture partner Japanese company Eurus Energy.

To be located on farmland 290 kilometres south-west of Townsville, the 40 MW of generating capacity from wind towers is expected to complement the 40 MWs worth of PV panels, to create a project that will generate power through most of a 24-hour cycle.

Windlab's Price says the wind usually blows at night and the site gets strong, consistent sunlight during the day.

The company's press release declares the resulting capacity factor will approach 70 per cent of installed capacity. However, Price points out that means 70 per cent of 40 MW. That means the average output is 35 per cent, or 28 MWs. That's still well short of conventional generators, but Kennedy's generating profile may be better than the elaborate and expensive solar projects designed for 24-hour operation.

As for pricing of the output, Price declined to discuss specifics for the Kennedy Park project, but typically a wind farm survives by selling both the electricity it produces and the RECs generated for each MWh. At the time of the Rudd government's 2010 decision to swamp the market with RECs, industry sources calculated that wind farms needed a certificate price of about $50 to $60 – in addition to a price for their power of about $40, all adding up to perhaps $90 a MWh – to remain viable.

Qld cheapest, SA most expensive

A regular report from the Australian Energy Regulator, listing average wholesale prices for the different states, shows Queensland had the cheapest electricity at $30 a MWh for 2014-15, and South Australia the most expensive at $45 MWh. NSW's average price per MWh was $38 and Victoria's $36.

In April, Price was reported as saying his company's tiny Coonooer Bridge wind farm, 80 kilometres north-west of Bendigo, would generate electricity at $81.50 per megawatt hour, fixed for 20 years (about the expected life of a wind farm). That price would include the REC generated for each megawatt.

One of the bright spots for the future of the wind industry is that the price of RECs has climbed significantly, with the price for LRECs (RECs for large scale projects) listing at around $72. At that price large projects should be viable but, as we have seen, investment remains subdued.

More projects may also be on the way with the Australian Renewable Energy Agency and the Clean Energy Finance Corporation announcing $350 million in new funding initiatives in September. ARENA's $100 million program will seek bids from major solar PV projects. The CEFC's complementary $250 million financial program will support projects with loan requirements of $15 million or more.

Despite that additional support, while the major retailers have no particular need to hand out power pricing agreements, getting major new projects up and running in Australia remains difficult, and this may take some time to change. There is also the question of just how many more wind farms need to be built. Estimates vary, but Wind Alliance's Bray says he believes about 85 per cent of the capacity needed to meet the target is now in place.

The expected storm of wind and alternate energy projects is proving to be a gentle breeze.