AGL says new renewable plants hinge on closure of coal generators

AGL Energy has again insisted that the development of new large scale wind farms and solar farms in Australia will depend on the government’s ability to manage the closure of old, high emitting coal-fired generators.

At the opening of the country’s two largest – and heavily subsidised – solar farms in Nyngan (102MW) and Broken Hill (53MW), AGL chief executive Andrew Vesey hailed the “birth” of large scale solar in Australia.

But Vesey said that future development of such plants will depend on two things – a “sustainable” energy market, and the closure of high-emitting coal fired generators.

Vesey did not specify what was meant by a sustainable energy market, but one presumes it means one where wholesale electricity prices are higher than where they are now.

The overbuild of coal and gas fired plants in the past two decades, and now the influx of renewables, is forcing wholesale prices down to record levels, and generators are hurting. Some want the introduction of so-called “capacity” markets, but analysts suggest this is just another form of subsidy.

The second issue, on the closure of coal fired generators is complex. AGL has argued in the past that governments should encourage early closures by helping fund closure costs, up to $200 million in some cases, although it says it no longer pushes this argument.

A proposition by ANU researchers suggesting other coal generators should contribute to fund the closures did not go down well with AGL, which has some of the newest and least emissions intensive plants and doesn’t see why it should pay.

The deadlock over the closure of coal fired generators, the continuing uncertainty over Federal energy policy, the reluctance of banks to fund new projects, and the standstill in the renewable energy target means that things are going nowhere quickly in the Australian renewable energy market.

This is despite renewable energy certificates reaching a new high of $77/MWh this week, reflecting the market’s belief that there will be a significant short fall in new renewable energy targets within a year.

Green Energy Markets says 4,400MW of large scale renewable energy projects need to be committed in 2016, yet only 8.5MW was accredited in the last quarter of 2015.

The interest in construction is clearly still there, because there is $15 billion worth of “shovel-ready” wind projects, and 77 solar projects applied for the latest round of funding from the Australian Renewable Energy Agency, and many others in tenders called by Ergon Energy, and by the ACT government.

AGL received generous support from ARENA in what turned out to be the only projects funded by the ill-fated Solar Flagships program, which went to prove that Labor could be as incompetent as the Coalition when it came to implementing policies to support renewable energy.

The two plants combined will produce approximately 360,000MWh of renewable energy, which AGL says is the equivalent needs of more than 50,000 average Australian homes.

“Adding renewable or near-zero emission technology like our two solar plants is an integral part of our Greenhouse Gas Policy, which will help to reposition AGL as it moves towards a decarbonised electricity generation sector,” Vesey said in a statement.

AGL says the two plants will inject around $137 million in the Nyngan economyand about $85.5 million into the Broken Hill economy. The solar plants are also expected to be a boost to tourism.

Environment minister Greg Hunt, whose government sought to kill the renewable energy target before negotiating a large cut, and also sought to close ARENA, presented Vesey with certificates of accreditation officially recognising the two plants as accredited renewable energy power stations.

“This project is a great example of how federal and state governments can work with industry to deliver innovative renewable energy projects,” Hunt said in a statement.

He added: “The Turnbull Government is investing in large-scale solar to encourage innovation and pave the way for more solar plants to be built across Australia.” Actually, it has no choice, because it does not have the numbers to pass its legislation to close ARENA, and can’t stop it funding such projects.

The AGL plants received $166.7 million funding from ARENA and a further $64.9 million from the NSW Government. The subsidy of around $1.5 million/MW should never be repeated again. If solar is to be competitive with other fuels, the total cost of such projects will need to be closer to $1 million/MW.

ARENA’s Acting CEO, Ian Kay, described the opening of the two plants as a watershed moment.

“In the future, this historic achievement will mark the moment big solar started to become a major contributor to Australia’s energy supply,”Kay said.

He said the latest $100 million round of funding, to be spread over a number of plants, would help make large-scale solar in Australia more competitive with other sources of energy generation. It hopes to see at least 200MW of new large scale solar plants built with that money.

“Ultimately, this momentum will allow us to capitalise on Australia’s world-leading solar resource and speed up the transition to renewable energy for our electricity needs.”

Jack Curtis, First Solar’s regional manager for Asia Pacific says believes Australia is poised to take advantage of low-cost utility-scale solar, and a low cost supply chain for the industry had not been created.

“In many parts of the world, solar energy is already cost-competitive with conventional generation,” he said in a statement.

“Considering the substantial and sustained cost reductions in the solar industry and the lessons learnt at projects like Nyngan and Broken Hill, it is inevitable that utility-scale solar projects in Australia will compete on an unsubsidised basis, in the near future.”

(This article has been modified to say that AGL no longer argues for governments to pay for remediation costs associated with closures of coal fired generators).