Ahead of the opening of the 20MW Royalla solar farm in the ACT, RenewEconomy secured an exclusive interview with Rafael Benjumea, the CEO of Spanish developer FRV, which built the solar farm.
In the interview, Benjumea warned that FRV’s pipeline of projects in Australia would be worthless and the company would effectively abandon the country if the Federal Government implemented the recommendations of the RET Review panel.
He said the RET review – and the extreme views against renewables – had already affected Australia as an investment destination.
“Investors in such a capital intensive industry as ours fear uncertainty and this review, unlike past reviews, has meant that Australia is far less attractive as an investment destination,” Benjumea said.
“We are surprised at the extreme views that have emerged within Australia in areas such as renewable energy and we hope that a sensible outcome will be found from the current review of the Target that will encourage continued deployment of renewable energy.”
But Benjumea said that Australia’s generation mix had to evolve.
“With solar already cheaper than new coal generation, Australia cannot rely on coal to deliver competitive electricity prices to your homes and businesses in future years,” he said.
What is needed for solar farms in Australia to be able to operate without subsidies or policy risk. And how do we get there?
Benjumea: New utility scale renewable energy plants are already cheaper in Australia than new fossil fuel power plants. Schemes supporting renewable energy are only required to overcome the very low cost of fossil fuel generators in Australia, many of which have been and continue to have less explicit subsidies.
Stable cash flows are incredibly important in delivering efficient energy projects, this is derived from stable government policy, such as the Feed in Tariff offered by the ACT Government or a stable renewable energy target, leading to an active power purchase agreement market.
In a capital intensive industry like renewable energy where we essentially have very low operating costs, capital cost reductions are very important. In the past we have seen massive reductions in the cost of major equipment such as PV modules. The cost of PV modules is expected to continue to fall, but at a reduced rate. Many of the future reductions are expected to come from balance of system and construction efficiencies – these falls, as has occurred with modules in the past come from deployment, which creates a market leading to competition and experience, both of which have proven to be very effective at bringing down costs across a large range of industries. PV is no different.
What is potential of large scale solar in Australia?
Benjumea: Large scale solar can play a major part of Australia’s future electricity mix. Costs are falling a lot faster than competing electricity generation sources and we expect to be competitive with wind within the next few years.
Solar’s day time production profile correlates well to electricity consumption in most markets, including Australia so is very effective in that regard.
The deployment of PV has enormous value in providing a diversity of supply, our analysis shows that solar and wind operating together offer a markedly improved generation profile compared to wind alone, significantly reducing the need for “back up” generation that many detractors of renewable energy point to as a reason renewable energy should be stopped.
Australia has one of the leading solar resources in the world so the potential at that level in nothing short of incredible. PV is particularly suitable to meet the challenges that Australia has with such a scattered population and long grid system. As PV is totally scaleable it can be installed at sizes to meet local load and generation export capabilities.
For example FRV has projects within Australia that range in size from 30MW to over 400MW depending on existing grid capability or needing only very minor upgrades to the existing grid. This means PV projects can be incredibly efficient in deployment as they are not constrained by the need to have a coal mine, gas supply or high wind resource nearby or need major grid upgrades.
FRV has a development portfolio of more than 1000MW and in developing that portfolio we identified well over 4000MW of potential sites. We have been fortunate to select the best of those sites to ensure our portfolio is highly competitive in the market.
We believe solar will meet a large proportion of the current Renewable Energy Target.
What are the potential costs of solar in 10-15 years, and how will that compare with other technologies?
Benjumea: Solar is already cheaper than new build coal. FRV experience shows that today the capital cost is 20% of what it was in 2007. Although we do not expect the same reduction we definitely see more reductions in the coming years if the industry is allowed to gain further experience through deployment, which must occur locally to ensure that local contractors and financiers are experienced and comfortable with the technology and its performance.
Any comment on the RET review conclusions? How does this rank Australia as an investment destination compared to other countries.
Benjumea: We commend the (RET Review) panel for recognising that the RET has contributed to controlling wholesale electricity prices and will contribute in the future to reduce retail electricity prices. While we are disappointed this review has made recommendations in direct contrast with all past reviews, we were not surprised, given some of the comments from the Government.
The review itself, and in particular the fact that had been focusing considering and subsequently recommending drastic scenarios such as the abolition of the RET, has already affected the attractiveness of Australia as an investment destination. Investors in such a capital intensive industry as ours fear uncertainty and this review, unlike past reviews, has meant that Australia is far less attractive as an investment destination.
We are surprised at the extreme views that have emerged within Australia in areas such as renewable energy and we hope that a sensible outcome will be found from the current review of the Target that will encourage continued deployment of renewable energy.
Will FRV continue to find Australia an interesting destination if the RET review suggestions are implemented?
Benjumea: Certainly not. Whilst it is comforting that the Review Panel has indicated committed projects will be protected, our investment in a development portfolio will be worthless.
Why is Royalla such a big deal, and what will we learn from it?
Benjumea: The Royalla project has demonstrated what can be achieved with good stable regulatory policy and well implemented programs.
The Royalla project has been delivered in less than 2 years from first inception, which is incredibly fast for an energy project. A wind-farm or a coal or gas power station typically takes 5 to 7 years from initiation to completion.
The FiT scheme established by the ACT Government offers very stable cash flows for a period of 20 years which has allowed very efficient funding of the project which led to much lower cost than I think many were expecting. This was also assisted by the competitive process with many international developers attracted to the program, bringing with them the experience they had gained in other markets and helping to assist local contractors to understand the technology which will bring down further the cost of future projects. We already saw that with subsequent bidders matching or improving on the price FRV bid in the fast tracked auction stream.
Royalla is the first large scale PV project connected to the National Electricity Market and it has encountered many challenges but all of these have bought a better understanding to regulators, market operators, networks, contractors and us as the asset owner and developer, all of these will contribute to bringing down the cost of future projects leading to lower electricity prices for the community.
“With solar already cheaper than new coal generation, Australia cannot rely on coal to deliver competitive electricity prices to your homes and businesses in future years. The importance of projects such as Royalla to the future of the Australian economy cannot be understated. Other countries are continuing to deploy renewable energy as they see it as essential to be competitive in a global market, hopefully Australian governments will also recognise this and not be left behind.”
