Collapse in Queensland renewables investment – the canary in the coal mine | RenewEconomy

Collapse in Queensland renewables investment – the canary in the coal mine

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In 2019 construction commitments to large wind and solar farms in Queensland completely dried-up, killing more than 1,000 jobs along the way.

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Kicking off from the last quarter of 2016 Australia has experienced an amazing boom in renewable energy across both rooftop solar and utility-scale projects. Over the space of just five years Australia will have shifted from just 15% of our power from renewable energy (in 2016) to 30% by 2021.

While this year’s megawatts of large-scale commitments are down on 2017 and 2018 levels, at over 2,500MW to November, they stand many times higher than any other prior year.

At the same time, sub-100kW rooftop solar installation levels this year are staggering and on track for comfortably more than 2,000MW.

What has been particularly pleasing to see has been the steadily falling prices of renewable energy under announced long-term contracts. Over the past 18 months we have a seen a steady stream of large corporate entities announcing deals to contract new wind and solar projects to lower their energy costs, not just to burnish the environmental image.

Power contract prices announced for wind and solar projects in Australia since 2012

Source: Green Energy Markets Power Project Database

The scale and speed of what has been achieved can be intoxicating for many of those who have battled over many years to get government to recognise the potential of renewable energy to affordably meet our needs for energy while containing global warming.

Given there is room for plenty of further technological improvement, it can be tempting to believe that those tough times are now all behind us, and we can look forward to year after year of new heights.

Unfortunately you’d be wrong.

While the first chart above shows an aggregate picture that looks incredibly rosy, hidden within it is a canary in the coal mine – Queensland.

If we extract Queensland’s renewable energy commitments out from the aggregate, we see something very troubling. In 2019 construction commitments to large wind and solar farms in Queensland completely dried-up. Investment in LGC-registered projects to November stands at a paltry 29MW and is almost entirely confined to behind-the-meter rooftop solar systems.

The figure below illustrates the implications for employment, providing an estimate of the amount of full-time equivalent jobs engaged in construction of utility-scale (5 megawatts or greater) renewable energy projects. The renewable energy project commitments since 2016 led to a surge in construction activity and employment which likely peaked in November 2018 at about 2,900 full time equivalent jobs.

Since then employment has fallen precipitously as solar farms in particular, have reached completion. As of November this year we estimate employment will have dropped below 1,000 full time equivalents. Once Coopers Gap Wind Farm is likely to be completed around April next year, employment will have fallen to zero unless we see a complete turnaround in investment commitments.

Queensland utility-scale (5MW+) renewable energy construction jobs by month January 2016 to December 2020

Source: Green Energy Markets estimates based on renewable energy job creation factors per megawatt of capacity as detailed in our Renewable Energy Index. Construction jobs are distributed equally across the months of each project’s respective construction period.

What’s behind this collapse in investment and is it likely to spread?

The first thing to keep in mind is that the boom in large-scale renewable energy investment in Queensland was part of a broader national trend. In 2016 prices for renewable energy certificates (known as LGCs) had surged above $80 per MWh reflecting the fact that we were a long way short of having enough projects to meet the Australia-wide 2020 Renewable Energy Target. We have now put in place so much new capacity that the Renewable Energy Target will be substantially oversupplied by 2022.

Consequently the price for renewable energy certificates have collapsed and those scheduled for delivery in 2022 are changing hands at $15, while 2023 certificates are worth $10. Nothing is traded beyond that year but you could confidently expect they’d be worth even less.

The reality is that if you’re considering construction of a new renewable energy project, by the time it is likely to be built you’ll receive little to no financial benefit from the fact that it reduces Australia’s emissions, unless policy changes.

Massive 1,200MW Wide Bay wind farm gets kick start from state government

The second part of the equation comes down to electricity prices. Since 2017 wholesale power prices have been very high, indeed substantially higher than the contract prices that renewable energy projects have required to proceed. This has helped fuel optimism that renewable energy investment could continue to boom even if we had no meaningful emission reduction policy.

What many may forget is that it wasn’t all that long ago that federal government politicians, electricity companies and even AEMO’s former CEO Matt Zema complained that we had too much electricity generating capacity.

In 2015 power prices in Victoria used to average just $34 per megawatt-hour (time-weighted) and in NSW they averaged $39. At that time Queensland actually had the highest power prices of the NEM states at $52, although this is still very low compared to 2017 and 2018.

The chart below details the average price solar generation in each state would receive for its power relative to the 24 hour average on the wholesale market for that state. It shows power price leapt incredibly after 2016. Across NSW, Victoria and South Australia prices since 2017 are well above the kind of prices we are hearing about for recent solar power purchase agreements. Even in the case of Queensland we see that the average price received up to September this year at $60 sits above recent PPA prices.

Solar generation average wholesale market price relative to overall market 24hour average

Source: Green Energy Markets Analysis with NEM Review source data

This would seem to suggest all is rosy. But if you delve into wholesale power price data over the last few months you see something suddenly change.

Below is the average Queensland wholesale price by hour of the day (24-hour clock) covering January until July across each year since 2015. 2019 is shown in red and it looks very similar to 2016 and 2018 and is well above the depressed prices of 2015 shown in dark blue. So seems like not much to worry about.

Queensland Wholesale Power Prices by hour of the day averaged across January to July

Source: Green Energy Markets Analysis with NEM Review for source data

But since August, during the middle of the day when solar power output peaks Queensland appears to have gone back in time to market conditions akin to or worse than the oversupply conditions of 2015.

Queensland wholesale power prices by hour of the day across the months of August to November

Source: Green Energy Markets Analysis with NEM Review for source data

Victoria and NSW over these same months have not experienced this same solar-generation price depression effect but South Australia most definitely has. In addition, Western Australia’s Electricity Market is experiencing a similar effect in its short-term balancing market as shown by comparing 2018 prices by hour versus those of 2014. For 2019 up until mid-September Western Australia’s balancing market had recorded negative prices between 10am and 2pm for slightly more than 1 in every 7 days (44 days out of 254).

Average Western Australian STEM prices by hour – 2014 vs 2018

Source: Green Energy Markets Analysis with AEMO for source data

Queensland, South Australia and Western Australia are at the leading edge of this solar price depression effect because solar capacity represents a larger proportion of electricity demand in these states, compared to Victoria, NSW and Tasmania.  But NSW has now overtaken Queensland in terms of solar farm and rooftop solar capacity additions. Victoria has also substantially stepped up its level of rooftop solar installations.

At present these two states don’t have the same level of excess coal generating capacity that Queensland has, but they are adding a lot more wind generating capacity. Ultimately they too will see depressed prices in the middle of the day. Victoria (and South Australia) will also see an increasingly significant wind generation price depression effect.

This is great news for electricity consumers.

Unfortunately though, it means NSW and Victoria will likely follow Queensland’s footsteps of a renewable energy investment collapse in a year or so’s time. The one caveat is that maybe our governments’ will take their climate change commitments seriously, or another coal generator calls it quits.

Tristan Edis is Director – Analysis and Advisory at Green Energy Markets. Green Energy Markets assists clients to make informed investment, trading and policy decisions regarding energy and carbon abatement.

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9 Comments
  1. Tom 7 months ago

    Great first graph. QLD peak 2017, VIC peak 2018, NSW peak 2019?

  2. Doctor Strangelove 7 months ago

    In Queensland it is only coal mining jobs that matter it seems. Vote for a few hundred Adani jobs while letting thousands of jobs go in the renewable sector for want of a federal government with a national carbon emissions reduction policy!

  3. Pete 7 months ago

    Then add MLF factors and commissioning issues, it was probably appropriate to sit back an understand the implications of further investment. It is also worth also reflecting that AEMO’s ISP “Step-change” scenario assumes average growth of ~2.3 GW/year of new RE capacity. Comparing that to your first graph, that scenario is far slower than the past three years. I wouldn’t be surprised if in an earlier draft of the ISP the Step-change scenario ran at a higher rate reflecting recent history but it wasn’t politically palatable. The upside of Queensland’s example is it demonstrates that any progressive government can bust open the floodgates to RE very quickly if they put in place favourable policies. It makes the risks for a new coal plant impossibly high.

  4. JackD 7 months ago

    And this is before any LNP state government re-appears in Queensland!!

  5. Jon 7 months ago

    Qld needs more wind and transmission into NSW to make any more solar viable.
    And move off peak to the middle of the day.

  6. Honest Mike 7 months ago

    to be fair to the Qld government ……..the female premier is more than a little busy tasking her 70% female public service to find creative ways of keeping tertiary educated male voters unemployed so that she can create employment for male foreign nationals and union protected male electricians on the cross river rail….. she is probably has a cunning plan to wait for public desperation on renewables so that she can help union protected electricians earn $100/hr whilst polishing hold down bolts

    the rumours of a “do nothing premier” are grossly underexaggerated

  7. Ken Blackmore 7 months ago

    It has long been said that the early installations of RE were akin to picking low hanging fruit. There has been plenty of room for adding RE without the need for storage, extra transmission, line upgrades and grid stability services. Those days are slowly coming an end and adding more RE will get significantly more expensive across the grid. What is really needed now is a price on carbon to stop CO2 emissions and force more change.

  8. corolla sedan 7 months ago

    Why don’t we make bio diesel from from deceased to fire our power stations instead of using energy to cremate them or burial,which are costly.Tibetans are more forward thinking then us,they have sky funeral for their dead.No cost to them and vultures are happy.We prefer to feed human vultures.

  9. Seriously...? 7 months ago

    So RE is getting in RE’s way. Should that surprise us? Negative prices at solar peaks are a problem. The solution is for high cost generation (coal) to butt out at those times.

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