Australia wind and solar projects: 2018 starts with a claret run

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About 800MW of utility-scale renewable projects confirmed in the past six weeks. That’s a pretty hot run-rate. And while the excitement has largely been about PV, the growth of wind is quite significant.

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About 800MW of utility-scale renewables confirmed in the past six weeks

Yesterday’s announcements by Powershop of PPAs which will facilitate the 135MW “Crudine Ridge” wind farm in NSW  and the 200MW “Kiamal” PV farm in Victoria can be added to the 250MW NSW “Sunraysia” PV farm in NSW and the Telstra consortium’s 135MW PPA to facilitate the 225MW stage 1  of the Murra Warra wind farm in Victoria to make around 800MW confirmed since December 20, 2017.

That’s a pretty hot run rate.

Around 617-700MW of wind, Hornsdale 1, 2, 3 Ararat, Kiata and White Rock wind farms and the 50MW of Kidston PV have been commissioned since the start of 2017.

That still leaves about 3.2GW of wind and about 2.65GW of PV, let’s call it 5.5GW to come on line. All of that is, of course, in front of the meter (utility-scale).

In particular there is something like 300MW of PV projects in Queensland that might be online by around the end of March. These include Clare, Sun Metals, Lillyvale and Collinsville.

Projects that have started up since about Jan 1, 2017 – and we may have missed a couple of smaller ones – total about 800MW, but the 570MW in Victoria and South Australia nowhere near offsets the loss of Hazelwood and Northern Power Station in terms of energy.

Figure 1 Commissioned. Source: ITKe

It’s not completely straightforward keeping track of all the projects and how far along they are with building. Some projects have changed owners as developers take profit and keep moving.

3GW of wind under construction – more coming

Also we find there tends to be excitement about PV projects, which are newer in terms of their impact on the market, but the growth of wind is quite significant – particularly bearing in mind the higher capacity factors.

The PPA prices for wind came down nearly as hard in 2017 as those for PV; from about $80/MWh or $75 at the very low end in say 2016 or 2015, to $55/MWh in 2018.

We think there are three main drivers of lower prices for wind projects: (i) scale effects, on average wind farms are getting bigger Stockyard Hill and Coopers Gap are big projects; (ii) WACCs are lower; (iii) Chinese turbines have been accepted into the market and everyone else has had to match those prices.

Another thing to note is 669MW of wind development in Queensland, much of this was identified by Windlab software. Lurking in the background is the Kennedy Energy Park 1200MW project. In Victoria there are other projects that will be bidding into Victoria’s reverse auction process.

Figure 2 Wind farms under construction. Source: ITK

2.6GW of PV

There are 27 PV projects on our list, some of which are connected to, or have sub projects. Although Queensland dominates the list, Victoria has a surprising 700MW. We continue to expect that NSW which (i) needs the energy and (ii) is clearly lagging in new investment, will at some point see a large catch up.

By now everyone understands that NSW has a huge PV resource, a good wind resource, is a net energy importer, is close to Snowy 2.0, but has a state government which has a strong National Party component.

Regrettably, the National Party in NSW has managed to paint itself into the silly corner. It looks like an uneducated, ill-informed and stupid party most of the time, particularly when it comes to electricity. As a result they do their constituency a disservice.

As a result NSW has the oldest and will soon have the least reliable generation on the NEM and has done the least to ensure electricity reliability, let alone decarbonise.

On the other hand, this represents an opportunity. And because wind and PV can be built quickly, there is still plenty of time to sort out the mess.

Figure 3 PV farms under construction. Source: ITKe

Trends

Our expectations are:

  1. There will be consolidation in the sector;
  2. The average size of projects will increase;
  3. Eventually there will be more domestic ownership. At the moment there is a very strong component of offshore ownership;
  4. There will be an ongoing stream of investments; and
  5. There will be a gradual emergence of renewable and or gas “firming” investment.

Duck curves

We will return to duck curves later, but the 2.7GW of utility PV is very roughly equal to 5GW of rooftop PV in terms of energy. However the extra energy will be more apparent earlier in the morning and later in the afternoon. Output in the middle of the day will proportionately not be much different to behind the meter.

Even so, and the same will go for wind in South Australia and Victoria, the optionality from being able to add say 1 or 2 hours of storage to access peak prices, expected to be in say the 6:30-8:30 time frame, is going to get looked at more and more.

Investment impact on average prices

Despite what we all want to believe, it’s not clear that any amount of wind and PV investment will necessarily lead to lower average prices than presently exist. This can be seen from the South Australian market where futures prices are still $20/MWh higher than in other states, no matter which year we look at.

Prices are set in the spot market by the last generator bid into the bid stack. Even if 99 per cent of the bids are at zero, if the last bid accepted is at $90/MWh that’s what they all get. Particularly at times when the wind isn’t blowing or the sun isn’t shining, currently the thermal bidders see that as an opportunity to earn a return on their investment.

The lower the average capacity utilisation of a generator, the higher the price it needs to charge when it is dispatched to earn a return. Obviously, if the thermal generators are gas, and there aren’t many of them and the gas price is high……..

So what’s required for lower average prices is sufficient competition in dispatchable energy.

Wind correlations

We are particularly excited to see more wind farms in Northern NSW, because we expect to find that a lower correlation between wind there and wind in, say, South Australia. White Rock, the first of the Northern NSW farms to commission has had 50MW running since mid August 2017, and about 150MW since January this year, so it’s still a bit early to tell.

Nevertheless if we take total half hourly wind output from each of  South Australia, Victoria, Tasmania and NSW over the past 12 months what we see is:

Figure 4 half hourly wind correlation, 12 months to 31 Jan 2018. Source: NEM Review, ITK

It’s probably the correlations of the individual states with total output that are of most interest. Naturally, as South Australia has a 43 per cent market share, it’s highly correlated with total output but it’s interesting that Victoria – which has a lower share of total output than South Australia – is more highly correlated, in the past year, with total output. Generally speaking we expect that wind farms that are less correlated will be more valuable as they offer diversification benefits.

The proof of the pudding is to look at the standard deviation of output (66 per cent of the time the output will be within 1 standard deviation either side of average output) and compare it to the average.

Figure 5 Wind volatility. Source: NEM Review, ITK

We can already see that the variability of the total wind output in the NEM is less than the variability of any of the individual states and as more wind farms are built in northern NSW and Queensland we expect this volatility to reduce further. In fact, as more wind farms are built within states we expect to see the volatility of state output fall as well.

This has implications for the amount of firming investment required.

RenewEconomy & SunWiz’s Large Scale Lookout subscription service is all you need to understand the market for solar farms, and for commercial & industrial PV over 100kW.

David Leitch is principal of ITK. He was formerly a Utility Analyst for leading investment banks over the past 30 years. The views expressed are his own. Please note our new section, Energy Markets, which will include analysis from Leitch on the energy markets and broader energy issues. And also note our live generation widget, and the APVI solar contribution.

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18 Comments
  1. GlennM 9 months ago

    great analysis, very interesting and promising for the next 12 months. It appears that the summer crisis is almost over and that with all this coming online there should never be a tight squeeze again.

  2. Kevfromspace 9 months ago

    David you missed Wirsol’s 75MWac Clermont Solar Farm in QLD which began construction in Jan 2018:

    http://clermontsolarfarm.com.au/
    https://wirsol.com.au/portfolio/clermont_solar_farm/

  3. deadgodstalking 9 months ago

    Thanks David, useful. The correlation issue is a big one – there’s a cottage industry of consultants prognosticating on that as projects try to guess how much they will cannibalize each other and thus their future revenue. The other side of that coin is the economics of adding a little storage.

  4. David Jago 9 months ago

    Thanks for this, David. I’m struggling to understand the stats-speak in the final section.

    What I’m hoping it means is that when wind farms in (say) South Australia are producing less one electricity, wind farms in (say) Queenland are producing more.

    Is that the case?

    • Hettie 9 months ago

      I think so.
      In such a vast country, wind conditions vary hugely from place to place. Dead calm here, blowing like 40 buggers (don’t ask me where that expression comes from. Dunno. Just like it) in half a dozen other places.
      Same with cloud cover.
      The variations cancel each other out, giving an overall continuity of supply apart from overnight for solar, and even that is mitigated by the east/west spread.

      • David Jago 9 months ago

        Thanks Hettie. You have expanded nicely on what I meant. And also, I’m keen to see what the data says.

        • Hettie 9 months ago

          Tried to post a grinning emoji. Disqus won’t have it.
          Colour me grinning.

      • Greg Hudson 8 months ago

        The East West spread also applies to North South, particularly in Winter…

        • Hettie 8 months ago

          Of course. Silly me to forget.

  5. Malcolm M 9 months ago

    Another trend is more curtailment. Nearly all the Vic solar feeds into either the Redcliffe-Horsham line, with a rating of 301 MW, or the Kerang-Bendigo line (306 MW). So far there are 670 MW of large solar under construction to feed into these lines, but also due to start construction soon would be Nowingi (250 MW). At times of high solar and high wind, the Horsham-Ballarat line would become congested, with up to 301 MW of solar from north of Horsham, plus Murra Warra wind farm (262 MW), Ararat (240 MW), Kiata (30 MW), Bulgana (220 MW) and Waubra (192 MW) all feeding into a line rating with a rating of 359 MW.

    The addition of a further 331 MW of wind under construction in South Australia will see more frequent congestion on the Heywood inter-connector. A project to upgrade the export capacity from South Australia from 500 to 650 MW was meant to have been completed by June 2016, but we’re still waiting. Seems it’s much quicker to build a solar farm than to upgrade transmission lines.

    • BushAxe 9 months ago

      The Heywood interconnector is capable of 650MW each way, contingencies elsewhere in the Vic/NSW network have imposed the 500MW export (through Heywood) out of SA unfortunately. No doubt another SA-Vic interconnector will be investigated when the western Vic network is upgraded.

      • Paul Surguy 8 months ago

        There are 2 links to Vic from SA You have Heywood and the Murray link Berri to Redcliff the longest under ground power cable in the world

  6. Rod 9 months ago

    The lack of correlation between SA and Tasmania is VERY interesting. I think there is a strong case for more wind in Tassie.

    • Farmer Dave 9 months ago

      I agree. In addition, Tasmania’s Hydro system has a significant amount of excess power, but often not a large amount of energy in storage, due to reduced inflows into dams from climate change. In this situation, adding more wind to Tasmania will help conserve the water storage, and from the local perspective, it does not matter much when the wind blows, as long as it blows enough to provide the energy needed. The road to 100% renewable electricity in Tasmania is a fairly short and straight one, while the road to 100% renewable energy has not yet been surveyed properly.

  7. BushAxe 9 months ago

    As usual another good analysis with plenty of discussion points David. I think we will see SA become a storage testing ground as it’s clearly the most volatile market. Two hours storage will cover most peaks in SA, output will be determined by the available finance.

  8. Peter Watt 8 months ago

    Interesting article, David. A question: Are the reported correlations (e.g. SA:NSW, .34) the correlation coefficient (R), or the square of the coefficient (R^2)? The latter is usually more useful in understanding the degree of variation between the two series.

  9. Ant.. 8 months ago

    Let’s consider that some people think about the efficacy of PV Solar in terms of Payback. Renewables by any measure is a disruptive technology, It has the capacity to break the cartels that operate in so many industries like Power Generation and to name another Service Stations who’s current preserve relates to dispensing liquid fuel will be decimated. Why simple really if your motor vehicle fuel bill was say $100 per week or $5,200 per annum and you purchase an EV for say $35,000 and did not have to purchase any fuel because you were generating your own power domestically and were getting the shortfall for free then the payback would be $35,000 divided by $5,200 equals 7 years but the annualised return on investment [ROI] would be 14.86% Tax Free. At the moment there is no return on investment for a Vehicle purchased for domestic use. How quickly will the fast food venues install Solar and EV Charging Stations. Gosh at the order counter it will change from ‘Would you like Fries with that’ to ‘Would you like to charge your car with that’ Luddites should stand aside or get run over.

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