Up to three gigawatts of large scale wind and solar projects could be delayed in Australia as a result of the Covid-19 pandemic, and its impact on the local currency, debt markets, and appetite for new investments.
The Norway-based global energy analyst group Rystad says it had expected 2GW to 3GW to reach financial close or begin construction in 2020, mostly large-scale solar, and while 530MW of solar PV capacity and 210MW of wind capacity has reached financial close so far this year, it didn’t expect much else to do so.
“Covid-19 has hit the Australian renewables industry hard,” Rystad said in its analysis – and NSW, trying to catch up as it seeks to prepare for the retirement of more coal generators in the next decade, could be the hardest hit.
“The delays and cancellations are largely the result of the falling Australian dollar, which has plummeted 20 per cent relative to the US dollar since the beginning of January.
“This has resulted in capex increases for both utility PV and wind projects, making once viable projects no longer economical.
“New South Wales will be the biggest loser, as 65 per cent of solar PV and 67 per cent of wind projects which are expected to, but have not yet reached financial close in 2020 are located in the state.” The report cites developers such as UPC, Neoen, Wollar Solar and Canadian Solar, along with Tilt and Goldwind, as being the most impacted.
The Rystad report follows a similar analysis earlier this week from the Australian-based Reputex, which also warned of the impacts of the falling dollar and rising equipment costs, which it said would likely tilt the market in the favour of so-called “mega-projects – like the 1GW MacIntyre project in Queensland – that can be funded by deep-pocketed internationals that can control their own equipment pipeline and currency risk.
Rystad notes the Australia renewable energy industry already faces a host of grid challenges, including network capacity availability, commissioning issues, Marginal Loss Factors (MLF) and system strength variability, which had slowed the pace of new projects.
“With the additional challenge of Covid-19, the pace of construction has only slowed further since the end of the first quarter and developers now face a quagmire of infrastructural and economic obstacles,” it says,
The majority of capital expenditures for utility PV and wind assets are for hardware, comprising about 60 per cent of expenses for PV and 75 per cent for wind. As hardware is typically priced in foreign currency, the plummeting value of the Australian dollar has had a substantial impact on project economics.
Rystad says the increase in pricing – largely due to supply blockages and current changes – may cause problems for delivery against agreed long term power purchase agreements, which have been steadily declining in recent years along with falls in technology costs.
The graph above shows the fall in solar PV capex compared with power purchase agreement (PPA) pricing, which has followed capex down the cost curve.
“However, as capex has increased with rising hardware costs, developers will be challenged to profitably meet PPA pricing,” Rystad says.
“Furthermore, securing debt will be an obstacle in the short term, given that cash is now a scarce commodity; financiers are unlikely to lend cheaply.”
