Australian wind projects grind to a halt in face of grid hurdles and falling prices

New analysis suggests that Australia’s pipeline of new wind energy projects is drying up, with new projects unable to reach financial commitments as investors become spooked by the combination of lower wholesale electricity prices and ongoing grid challenges.

According to the latest new Global Wind Market Outlook produced by BloombergNEF, not a single new Australian wind farm project has reached financial close so far in 2021.

It follows a subdued year for new investment commitments in 2020, which saw just 449MW of new wind projects reaching financial close, well down from the record peak of around 2,500MW achieved in 2018.

The lack of new investment commitments is in contrast to surging investment globally, with BloombergNEF noting a record 97GW of new wind capacity additions in 2020 and predicting 88GW more newly completed projects in 2021.

The situation in Australia can be confusing to the casual onlooker. There still remains a significant pipeline of wind projects under construction across the country, with 3,600MW of new capacity currently being built. But these are projects that have been under construction for some time, and in many cases facing significant delays.

See also: Large Scale Wind Farm Map of Australia

“The rush of renewable capacity entering the market deteriorated grid conditions, leading to significant project delays during construction,” the BloombergNEF analysis says.

It cites Windlab’s 50MW Kennedy project as an example – still not producing despite starting construction in late 2017 and being completed in 2019. The giant 530MW Stockyard Hill project in Victoria, the largest completed to date, is still not producing despite being mechanically complete in late 2020.

“We have pushed around 700MW from 2021-2022 into 2023 to account for the delays,” the BloombergNEF analysis says.

Two projects are expected to break the drought this year – the massive 1,200MW MacIntyre wind complex in southeast Queensland being developed by Acciona and the 157MW Kaban Wind farm being developed by Neoen.

Both have approvals, and significant contracts with the state-owned CleanCo, but have yet to reach financial close. And BloombergNEF is more optimistic about the medium-term, with investors merely looking to delay their investments while network challenges a resolved rather than exiting the Australian wind market altogether.

The removal of grid challenges and blockages is expected to spark a new surge in investments. Approval for the $2.3 billion Project EnergyConnect link between South Australia and New South Wales is expected to lead to more than $5 billion in new projects ahead of its planned completion in 2024, and new network additions will also free up space for more wind and solar on the Victoria grid.

In NSW, project approvals – apart from a few exceptions like the Collector wind farm which this month landed a contract with Telstra – have been effectively suspended pending the roll-out of the state’s new renewable energy zones.

Those new REZs, however, are expected to unlock more than $30 billion of new projects once the design of network additions and government tenders have been finalised and put in place.

And while the dramatic fall in electricity prices over the last two years – apart from the recent spike following numerous coal plant outages – has dampened new investments, it is helping to lower energy costs for consumers.

“The rapid rise of renewable energy, soft demand and low fuel prices are putting downwards pressure on wholesale electricity prices across the country,” BloombergNEF says.

“In September of last year the average value of wind generation in South Australia was A$10.73/MWh across the whole month. In the National Electricity Market, some states recorded negative prices in over 15 to 20 per cent of dispatch periods across the first quarter.

“While the lower power price environment is making new investors nervous, a relatively healthy power-purchase agreement (PPA) market and the progression of renewable energy zones is expected to continue to push deals to close in 2021 (albeit at a slower rate).”

The analysis suggested that investments in new projects were continuing to be supported by ongoing strong demand for corporate power purchase agreements, such as the Telstra deal with the Collector wind project, as major energy consumers seek out direct access to lower cost and lower emissions sources of power.

“The Australian corporate PPA market continued to gather pace in 2020, with new deals representing over 4GW worth of renewable energy projects,” BloombergNEF said.

“Over 2.9GW of onshore wind projects with PPAs signed with corporate or government-backed entities will be looking to reach financial close over the next two years, and new offtake agreements are expected to be announced throughout 2021.”

BloombergNEF suggested that the efforts of state governments, which are progressing plans for the establishment of more than a dozen renewable energy zones – coordinating investment in new network infrastructure alongside the construction of new wind, solar and storage projects – was a reason for optimism that investment in Australian wind projects would recover over the next few years.

Globally, BloombergNEF said that future growth in the wind power industry was likely to shift to offshore wind projects. The firm predicts that offshore wind installations will exceed 10GW globally for the first time in 2021 and is expected to grow to as much as 30GW by the end of the decade.

Australia currently has no operating offshore wind projects, but developers are progressing plans for the Star of the South project, which is proposing to build a 2,00MW wind project off the Victorian coast.

The analysis comes as the New South Wales government announced a commitment of $380 million to help accelerate the development of new grid connection infrastructure for its first dedicated renewable energy zone in the Central-West Orana region.

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