Infigen Energy, Australia’s largest listed pure-play renewable energy group, held its annual general meeting on Thursday. RenewEconomy caught up with CEO Miles George afterwards to chat about the major issues in the renewable energy market.
George discusses why his next big project will likely be solar rather than wind; the company’s solar storage project – the first solar plant to be connected to the National Electricity Market, and the smallest plant of any type; why only desperate wind developers would accept the power purchase agreements on offer from major utilities; why community ownership of wind turbines is a bonus; and why his chairman suggested that people could attribute symptoms to the lack of wind farms.
Here is an edited transcript.
RenewEconomy: I guess the good news is that Climate Change Authority has resisted calls to change the renewable energy target. I suppose you are relieved about that, but when will see things starting to get built?
Miles George: We were very much relieved and supportive of the CCA recommendations, and the comments that the authority made about the importance of regulatory stability outweighing the potentially minor impacts of fiddling around with it was music to our ears.But when is something going to happen? The authority will release its final determination in January, and Minister Combet is not required to respond until June. I don’t see any reason why he might take that long, but I expect it will come in January and February.
RE: Are you saying that no projects will go ahead until there is confirmation from the minister?
MG: No. I think there are projects struggling to get up right now, and the big three utilities are in the market, they are willing to talk about offtake in a way that they weren’t in the last three years. But not surprisingly they are trying to find out who’s most desperate to do something, and in our view the prices they are offering are designed to attract those who are desperate., and not particularly attractive to someone like us who has limited capital and wants to invest at the right time at a price that is going to be attractive. Snowtown is one example is where the utilities have offered pricing which in our view is not attractive at all, but the developer has decided to go ahead anyway.
RE: What sort of prices are you talking about?
MG: The prices generally mooted are in the $80s to $90s a megawatt hour.
RE: Presumably that must be around the cost of the technology, but not enough for a return on investment?
MG: Not in our case. If you look at the forward market for large scale renewable energy certificates, our view is that the REC prices are going to rise substantially from the mid $30s probably up to the $60 range, and electricity has upward potential as well, we’re up in the $50 and $60s. In that environment, why would you contract now at the bottom of the market at $80 or $90.
RE: Why wait for a PPA (power purchase agreement) at all, why not play the merchant market in that case?
MG: The key problem with that is getting debt funding. We did that with the Woodlawn wind farm. It’s 48MW, cost $115 million to build, but we were only able to get $55 million of debt – we were very thankful to have it from Westpac – but the level of debt you get from a merchant plant is low.
RE: You are involved in a solar joint venture in the US and have been proposing a solar farm in Australia with Suntech, where do you utility scale solar fitting into the market?
MG: In the US, it’s already the case, because you have the federal tax credits locked into place until 2016, unlike the wind tax credits that expire this year. And you have the state-based renewable energy obligations, and in some cases a certain percentage of solar, so utilities in the US are constantly running tenders looking for projects to meet those targets. In that environment, solar PV is being built rapidly, in 20-50MW pieces. And that’s the range we are targeting with the Pioneer partnership in the US.
RE: Shouldn’t we be doing that sort of stuff in Australia?
MG: Well, we should be. But the fact is we haven’t. Solar Flagships was the first time that the government acknowledged that maybe we should have a utility scale solar PV industry, and since that was awarded (to AGL), our project and others have been referred to ARENA, which has some funding allocated to it. We re in the process of talking to them about a solar PV project. It is not the same as the flagships proposal, because that had a requirement of 150MW ….
RE: This one will be about 30MW, won’t it?
MG: This one will be about 35MW, in one of the locations we proposed for flagships. This is the Capital wind farm site, where we have the land, the planning approval, and the connection for Woodlawn and Capital wind farms that can take the solar output. Solar has a different profile to wind, and is more market friendly.
RE: And you are building a solar storage project down there which is going to be the first solar project connected to the National Electricity Market?
MG: And it will be the smallest one. It’s 200kW in the first phase.
RE: And this is to test how you deal with solar and some sort of storage?
MG: Exactly, and to establish construction techniques for the larger project we hope to win. A few weeks ago I went to visit a 30MW solar PV project near Austen in Texas. It’s pretty simple technology, piles are just driven into the ground, a pretty basic frame and panel put on. The key is to minimize the time to put on the panel. This had 135,000 panels, so a lot of the construction process is to minimise the time taken to assemble them – if you can use two bolts instead of four, you could save $1 million. So that is what we are trying to learn with this project, and we are also trying to get experience on how to bid solar into the NEM.
RE: I suppose that is how to get the optimum price.
MG: That is exactly what it is.
RE: Back to the questions, what percentage will solar PV take up of the RET.
MG: I could answer that question if only I knew how much money ARENA is prepared to put towards solar PV. Because that is the driver at the moment, because wind is still a lot cheaper than PV, despite its rapid fall in solar PV costs> If someone in government wants solar PV built, they have to offer something more. Eventually, it won’t need that, solar PV will compete with wind, but in our view that will not happen in relevant time frame for the 2020 target.
MG: It could well happen in 5 to 10 year time frame. But if you assume it will be competitive with wind, it doesn’t leave you time to build much by 2020. So our view is that solar PV in utility scale will not form a big part of the target – maybe a few hundred megawatts, maybe a thousand tops. But where there is an opportunity is in the smaller behind the metre applications, mining sites, industrial centres.
RE: Is that something you are looking at?
MG: Not at the moment. The other area is the small domestic rooftop stuff. That has got to 2GW, and that could be a much greater amount than anyone predicted.
RE: You have a wind farm in NSW where you are talking about the community buying in to purchase one turbine. What’s that about?
MG: We had a talk with Simon Holmes a Court and those involved in the Hepburn wind farm. Part of it was to have people involved, and having the community own the facility , there would be support for it and that would outweight the resistance from the anti-minority. So we proposed it to a group of interested
people near Orange, near the Flyer’s Creek development. A group formed that is interested and we are working with that group to see if we can do something similar for at least one turbine, it depends on how much interest there is.
RE: A lot of the pushback against wind farms comes in areas where there is not much community ownership, whereas in parts of Europe there is a lot of community involvement, and less push-back.
MG: There are a lot of co-operative that own small wind farms in Europe, and it makes sense to us. I can’t promise it will work here, but we’ll try and make it work.
RE: How frustrated are you about the anti wind farm movement. I notice your chairman today saying that perhaps we should be attributing symptoms to areas which don’t have wind farms.
MG: He was trying to make the point in reverse about the sort of things we have to deal with. We fight this constant battle, but we know that in the communities we are in, they are supportive, but you wouldn’t know that from reading the popular press. We ran a fun-run at weekend, at the Woodlawn wind farm, inviting people to get close to the turbines, and do a 8km or 5km course through hilly terrain. We expected a couple of hundred, and we got about 480 people to come along …. It allows people to come close to a wind farm, stand under a turbine, appreciate what the noise and go away not feeling sick. It’s quite hard for the average Joe to get to wind farms, so we trying to make it accessible as possible.
RE: What about the immediate future for Infigen Energy – what’s next on the agenda.
MG: I think it’s likely to be solar PV, the ARENA tender for the Capital solar farm – that is I think the best prospect. As for wind, again Capital 2 which we have development approval for, it is on the list for early starters, and Flyers Creek is going through the DA process. NSW at the moment has more appeal than South Australia because of the transmission issues we have there.
RE: Does the election of Obama have an impact on your US business.
MG: Probably not, because our wind farms over there are grandfathered anyway. It’s really about development and there is probably a better prospect that wind farm development will be encouraged more under Obama than under Romney. The solar incentive is in place until 2016, but generally the Obama administration has a more favourable outlook to renewable energy.