Australia knows how to provide public leadership in the complex coordination of public events. Just look at the recent staging of the opera La Traviata on Sydney Harbour. It was a one-off event that required building a massive stage over the water, with coordination between the NSW State Government, the International Foundation for Arts and Culture, and Opera Australia. It was all carried out efficiently and to perfection.
But when it comes to government coordinating programs for the building of necessary infrastructure, we go from the top of the class to the bottom. The Solar Flagships program is the latest in a series of examples to illustrate this fundamental Australian weakness.
In December 2009 the Rudd government announced its $1.5 billion Solar Flagships program. This was, we were told, the dawn of a new era in serious commitment to large-scale solar in Australia. In the two-and-a-half years since then, not a cent has been spent on construction and not a clod of earth has been turned.
The two projects awarded the “prize” of government grants have not been able to close their financing. In February of this year the first project, involving concentrated PV, was re-opened for tenders. The other project, Solar Dawn, involving concentrated solar power, was given an extension of six months to close financing and take up the offered subsidy from the federal government.
Two-and-a-half years of incompetence, waste and missed opportunities – that’s the sorry story of renewables in Australia.
Meanwhile overseas, concentrated solar (CSP) goes from strength to strength. In Spain, the world’s first commercial-scale CSP towers have been built. They have heat storage that enables them to generate electric power 24 hours a day. In the US, plans are steadily advancing for 250+ MW CSP stations in Nevada, Arizona and California. These will bring CSP to the point of competing directly with thermal power generated from burning coal.
What then has been the problem in Australia – a land where solar energy is super-abundant?
In a word, it has been lack of political will. More to the point, it is lack of seriousness of purpose on the part of the government. They have been going through the motions without apparent commitment to the proposed outcome.
The Solar Flagships program was premised on the government contributing up to 33% of upfront construction costs to ease financing issues. This sounds impressive – but it ignores the reality that financing at this scale always requires a Power Purchase Agreement (PPA) with a retail electricity company. Such an agreement (also known as an offtake commitment) provides a guaranteed level of demand for the power generated. The Solar Flagships tenders were submitted, and awarded, without the requirement for explicit PPAs. (The government’s tender document had a section for “offtake agreement” but this was advisory, not mandatory.) This was a design fault of massive proportions directly attributable to the federal department.
The result is that the selected projects have floundered. In retrospect, it is clear that the existing retail electric power suppliers in Australia (an oligopoly made up of AGL, Origin and TRUenergy, all of whom are committed to their existing fossil-fuelled power generation systems) never appeared to have any intention of providing PPAs to the Solar Flagships prospective producers in its first round. The take-home point is this: by not making the PPAs an essential part of the tenders, the Federal Government virtually colluded in this disastrous outcome.
Surely a government department that believed in its Solar Flagships program would undertake the necessary background research to establish the importance of PPAs in financing such proposals. It would take steps to involve the power retailers in the process. Supply and demand – it’s as simple as that. A smart government – or at least one that was serious about achieving results – would make it clear that continued public support for electricity companies would depend on their cooperating with a “flagship” proposal to accept the power generated.
The latest step in this saga is more promising. The PV projects in the Solar Flagships program have been invited to resubmit revised tenders. Now they can be budgeted at much lower costs (due to the learning curve in PV bringing down costs) and PPAs will be at the core of the restructured proposals. Pacific Hydro, a party to the Moree Solar Farmsproject, has secured a retail electricity distributor license of its own, and can provide a PPA with itself in its restructured tender.
The case for government leadership in introducing large-scale solar thermal power generation is as powerful as ever. It is as a low- or zero-carbon alternative to thermal power generation, and provides the basic infrastructure for the low-carbon economy that we all want – including the government.
The steps required are simple enough. The government will need to select several large projects with proven technology for assistance. This assistance should be government guarantees needed to secure finance, or a tendering process that calls for consortia to provide a business plan and a PPA as a condition of their submission. Successful tenders should be announced every six months, with government support lapsing after six months if the project has not closed its financing. The whole program need cost no more than $1 to $2 billion per year – a level of subsidy much lower than existing subsidies targeted at gas, oil and coal production.
After five years operation, with regular addition of new projects, such a revitalised program would transform Australia from a solar power laggard to a world leader. We could have an energy economy that is well on the way to becoming zero-carbon in the power sector, as well as accelerating progress towards such a goal in the industrial and transport sectors.
If it were combined with a sensible strategy to create new manufacturing value chains to build CSP power plants and components, a revitalised Solar Flagships program would lay the foundations for a low-carbon economy and industrial system fit for the 21st century. Tender resubmission could start a new round of seriousness in building large-scale solar.
Come on Martin, Greg and Penny – let’s get real in our support for a clean energy and low-carbon economy. The relaunched Solar Flagships program provides the opportunity to build an effective CSP and concentrated PV promotion program, with a focus on building an Australian export platform for low-carbon technology as much as on reducing carbon emissions. The exports should grow as the carbon emissions reduce. Nothing else is acceptable.
John Mathews is Professor of Strategic Management at Macquarie Graduate School of Management