Try not to use the words “boom” and “bust” around a wind farm developer, or a turbine manufacturer, or a nacelle component provider. It’s been the story of their brief history in Australia – and the fear is that the industry could find itself in the midst of another one, anytime soon.
It is only 25 years since Australia built its first wind farm, and just a decade since they were built in numbers. Now there are some 2,500MW of capacity and four times as much in the pipeline. But the investment has and is coming in waves – first when the Howard government introduced its ground braking mandatory renewable energy target in 2000, and then effectively brought it to a halt after the target was met ahead of time, and it ignored the recommendations of the Tambling Review in 2004 to extend it.
Then there was a mini one when the Victorian government decided to fill the gap (at least until the Latrobe valley coal fired generators beat them over the head), and then when the Labor government introduced its 20 per cent target – now known as the LRET – and then promptly neutered the scheme for large scale investment by causing the market to be flooded by certificates from the technology du jour, rooftop solar.
Now it’s at risk of happening again. A brief flurry of activity has come to a temporary pause as the market awaits the outcome of the Climate Change Authority’s review of the LRET. But worse could follow, particularly if the CCA bows to demands from big industry – and much of the established generators and network providers – to change the fixed target of 41,000GWh to a moveable “real”target that would reflect 20 per cent of actual demand, and only about 27,000GWh of actual deployment.
This would have the effect of slashing demand by half, essentially bringing the industry to a halt after a brief flurry of activity in the next three years.
But isn’t that what the wind industry is facing anyway? Isn’t the difference between maintaining the 20 per cent fixed target as is, and the ‘real’ 20 per cent target advocated by TRUenergy, Origin Energy, a bevy of farmers, foresters and manufacturers from the BCA just a matter of degrees, or a few years.
To some extent, they only difference between the two opposing views on the LRET is how long the anticipated boom in wind farm developments lasts and when it will end. Should it go until 2020, or should it be brought to a halt several years earlier?
The next graph – based on estimates prepared by ACIL Tasman, and used by TRUEnergy and its allies such as Origin Energy, farming groups, foresters and the conservative business lobby to argue for a curtailed LRET, suggests that the cliff face be brought forward to 2016. According to these forecasts, wind turbines are installed over the next three years – mostly from projects already financed and approved – and are never seen again, as the way opens up for baseload gas and peaking gas generators to fill in any demand gaps over the following decade.
The wind industry – and other renewables such as solar for that matter – are well aware of the potential for demand for their product to suddenly come to a halt post 2020, but have been so desperate to ensure that the current target is retained that they have hardly broached the subject in their submissions to the CCA – despite the fact that one of the specific issues that the CCA wanted to address was whether the LRET should be extended beyond 2020, or its targets lifted beyond 2020.
Industry executives have told RenewEconomy that there was some discussion about whether the industry should be more ambitious and push for a higher or an extended target, but it was decided that the industry did not want to be seen as “greedy”, and so the negotiating tactic was to seek to maintain the status quo.
Most wind energy developers, in their submissions to the CCA, suggested discussion about that issue should be pushed out for a few years. Infigen and Pacific Hydro, the two largest wind farm developers, suggested the post 2020 environment could be revisited in 2014, but they have also argued that the CCA should abandon the two year timetable for reviews, in the interest of certainty.
“There could be arguments for being more ambitious beyond 2020 but RES is mindful of the importance at this time for policy stability and does not recommend any changes at this stage,” said RES Australia. The Clean Energy Council said any consideration should be deferred until there is “greater clarity” about the status of the energy sector broadly.
Only GE was specific about the need to consider raising the target, noting that Australia risked “locking in” its coal generation – a consequence of rising gas prices, a relatively low carbon price, and the failure of the contracts for closure scheme. Because gas would be unable to replace cheaper coal – unlike the TRUenergy scenario – renewables would likely have to play a greater role than gas in lowering emissions, and therefore a higher target would be needed to ensure that transition.
One of the ironies pointed out by GE was that while the deployment of more renewables under the LRET was likely to force wholesale prices down – and is the chief source of concern for the coal and gas fired generator advocating for the target to be weakened – this could impede further deployment of green energy beyond 2020 without incentives, unless the carbon price was high enough to bridge the difference. Without a high carbon price, and an extended RET, then there would be an open invitation for coal-fired plants to fill in any gaps in demand, particularly if the price of gas rose as many predicted. As Pacific Hydro pointed out in its submission, and Ross Garnaut echoed in his, the LRET is proving to be the most effective tool to replace coal-fired plant in the absence of a strong carbon price and other measures such as the contracts for closure.
Some wonder about the wisdom of playing it “safe”, suggesting the industry is in danger of locking itself into another boom-bust cycle, which would not be helpful in reducing costs. Also, a target beyond 2020 could help ensure additional manufacturing capacity is installed in Australia, something that is hard to imagine with a target that ends in 8 years. But so far only environmental groups such as WWF, and other activist organisations, have spelled out what this means.
The community wind group Hepburn Wind, which has installed two turbines in Victoria, says the LRET as it stands “will deliver no incentive for additional capacity past 2020.” It advocated for an annual increase next decade to 5,000GWh of renewables for each year from 2020-2029, and then 7,500GWh in the 2030s. “The ultimate goal of the RET must be to gradually decarbonise the stationary energy sector at the least cost, not to meet some arbitrary round number target in a given year.” Programming in a boom-bust cycle, it argues, will not deliver the lowest cost alternatives, and will be ultimately counterproductive.