The Victoria state government has been told by some in the industry that it is better off delivering a late offshore wind funding auction than a failure – but not too late.
The state’s decision to announce eleventh hour delay to the launch of its inaugural offshore wind auction has disappointed the industry, but not come as a surprise, given the uncertainty around key details about the Port of Hastings and transmission infrastructure needed to lodge a bid.
Details of the auction were to be announced this month, but state energy minister Lily D’Ambriosio is now promising an updated timeline by the end of the year in the hope that infrastructure details and a funding agreement with the federal government are locked down soon.
The news has unleashed a wave of uncertainty through the Asia Pacific Wind Energy Summit, where D’Ambrosio chose to break tidings of the delay. It took the wind out of the sails for some.
“It’s really important that we get this right the first time,” Orsted project manager for its Gippsland development, Albert Quan, told the forum.
“If you fail this auction, the first auction, then it’s really going to put a dent in the long term confidence that investors have in the market.”
The offshore wind industry now knows that a failed auction is a real possibility, after recent failures in the UK, Denmark, the Netherlands and Germany.
The auction will award offshore wind projects a contract-for-difference (CfD) – a common government support mechanism for driving early renewable energy development, by providing a generator with a fixed price for electricity over a set period – as well as an availability payment.
Prove you’re serious
Quan and others acknowledged the size of the task in front of the Victorian government as it leads the development of a new port and connecting transmission infrastructure, and the auction itself which is something national governments normally handle.
But they also warned the Commonwealth and Victoria need to show they’re serious by delivering a joint funding agreement and confirming future auctions.
In every other offshore wind jurisdiction, auctions for funding rounds are handled at a national level, says Satya Tanner, CEO of Danish consultancy Lautec Australia.
“It makes sense to look at it through that lens and start thinking about an auction through the federal level, because it is a lot to put on the states,” she said on the sidelines of the forum.
Particularly one as indebted as Victoria, which revealed $155.5 billion in net debt in its May budget, or about a quarter of gross state product.
A bankable auction for offshore wind developers needs to be backed by a real budget, tight commercial terms and confirmation of future auction rounds, Quan says.
“We need to make sure that our regulated revenue is actually underpinned by a budget that we have confidence is available,” he said.
“If there’s no certainty on budget, then it doesn’t provide our broader investor community any confidence that this is actually substantiated by any backing from the government.
“We need certainty that there are subsequent auctions past this one. So with the tens of billions of dollars that we’re investing into the development of these projects, we want to know that if we fail the first option, that there’s a second option here for us to play in.”
He also said later this year “is actually quite a long time” and the industry needs certainty, or at least open dialog, during that time.
Not everyone was happy with the delay. Andy Evans, a pioneer of the industry and shareholder in Star of the South, the 2.2 GW project that remains Australia’s most ready and most likely, says the auction should not have been delayed.
“(Victoria) has timelines of 2032 for first energisation (of offshore wind), so to have delays to the auctions with no certainty on when they will occur is highly deflating, particularly for those developers like star of the South, we’ve been going for 13 years and well and truly ready to go,” Evans said in the latest episode of the Energy Insiders podcast.
“That project really needs to get up for the rest of the industry to progress.” Evans said some companies that are happy with the delay are simply hoping for more time to catch up.
“They’re the ones that are behind. They want to catch up the other leading projects that are out there. We can’t wait forever trying to get things perfectly right.”
Ocean Winds’ Pelayo Rodriguez Alonso says the “ball now is in the governments’ hands” and they must decide on how they wish to move forward.
Noting the initial federal rejection of a sub-par proposal for the Port of Hastings (followed by vastly modified plans being re-submitted), Rodriguez Alonso called for federal and state government to coordinate their offshore wind activities better.
“I think what is key and is maybe not there still, is good communication between federal and state government levels,” he says.
“The capital investment that we need to convince our headquarters to invest in this region is so relevant that we need certainty. And I think that’s what is lacking at this stage.”
Real losers are Gippslanders
Southerly Ten’s Erin Coldham, the head of the company now developing Star of the South, backed Evans’ comments by saying the delays are a disappointment for people in Gippsland who have supported the emerging offshore wind industry, and who are relying on the projects for work.
“[A delay is] not something that Gippsland is wanting here, not something that people relying on new power sources coming in by the time that our coal exits the market, want to hear,” she told the forum.
“I do think we need to acknowledge there is a level of urgency around this and that there are projects that are ready to deliver.
“I think we acknowledge and respect the decision yesterday, while also recognising there is a level of urgency that we need to get on with the next steps, including, obviously the auction, but importantly, the supporting infrastructure.”
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