CEC says lack of long term policies holding back renewable investment

The Clean Energy Council has warned that a lack of long-term government policies guiding both renewable energy development and electricity market reform are continuing to hold back Australia’s renewable energy industry, as it seeks to meet basic targets.

In a RET status report published on Thursday, the CEC said the sector had started to build up momentum after a “tough 2015,” with a series of project announcements over the last three months serving to increase investor confidence.

But noting the length of time it generally takes to build projects like wind farms, it also warned that activity in the sector must “pick up significantly” over the next 18 months if the 33,000GWh target was to be met by 2020.

“While overall progress toward the target has not been as rapid as many would like, a range of developments have continued to improve confidence since mid-2015,” it said.

“Approximately 700MW has been committed… since the legislative change last year, with approximately 450MW of new capacity committed in the past three months alone. Momentum is clearly building.”

But the industry is not out of the woods yet. The report notes that investment in the Australian market remains “challenged” by a number of factors outside the control of industry, including a lack of guided reform of the electricity market and a lack of longer-term renewables policy.

“A surplus of highly emission-intensive and aged power plants remain in the system due to the absence of a clear long-term policy for the electricity generation sector,” the report says.

“The current RET policy has a target that peaks in 2020 (just four years away) and the scheme ends in 2030, which creates uncertainty with regard to long term merchant LGC prices.

“The CEC has always advocated that the RET target should continue to increase at some level beyond 2020 to provide a stable growth pipeline and to allow the sector to mature and develop,” the report says.

“An increasing role for renewable energy is consistent with emissions commitments from all major parties. For the sector to decarbonise, existing and additional zero-emissions generation will be increasingly important.

“A challenge for investors is how to quantify/access this value when faced with questions over the longer-term policy mix for the sector.”

Labor, for its part, has gone some way to addressing this problem this week, with the release of a proposal to “work with the energy industry” to secure 10-15 year power purchase agreements for new renewable energy projects that would take Australia to 50 per cent generating capacity by 2030.

The CEC, meanwhile, recommends that the RET scheme should continue to remain in place for 15 years after the peak of the target – until 2035 – to provide revenue support for projects committed towards the end of the growth trajectory.

“The longer-term revenue support will generally result in lower LGC prices – because the costs are recovered over a longer period – and therefore lower overall costs to consumers,” it says.

In terms of the current RET, CEC chief Kane Thornton remains fairly upbeat.

“There is no question that 2016 will be a big year for the renewable energy industry,” Thornton said in a statement on Thursday. “At the end of 2015 we were just under halfway towards the delivery of the RET, with 15,200GWh … of the 33,000GWh required to meet it.”

To achieve the 33,000GWh target, the report estimates that around 18,000GWh of additional renewables generation needs to be produced annually by 2020.

“Based on current renewable energy technologies this will likely equate to around 6000 MW of new capacity, depending on the exact mix of technologies that will be deployed. This is likely to be predominantly from large-scale wind and large-scale solar along with commercial-scale solar (100kW to 1 MW behind the meter installations),” the report says.

“There is also likely to be some level of new generation from mini hydro power stations, upgrades and refurbishment of existing hydro power, bioenergy and a limited amount of ocean energy generation by 2020. Above-baseline hydro power generation is also expected to increase after the difficult, low-inflow conditions of 2015.

Here’s how the progress looks in table form:

 

The following tables summarise the total development pipeline, showing 8000MW of wind projects and 2585MW of solar PV projects with development approval. The report notes there is likely to be substantial additional large-scale solar capacity in development, given these projects often do not need to go through statutory planning schemes (and therefore may not be captured in the below analysis).