Origin Energy shelves $5 billion PNG hydro project

Origin Energy appears to have put its grand plans for a $5 billion, 2,500MW Purari River hydro electric project in Papua New Guinea on the back-burner, after deciding to write down the value of its investment in the project.

Origin Energy had touted the Purari hydro project as a possible source of baseload renewable energy that could supply Papua New Guinea, but also much of north Queensland through a transmission link to northern Australia.

To make the project viable, however, it needed to be able to tap into carbon credits, either in the form of international credits such as the Clean Development Mechanism, or Australia’s renewable energy target.

Origin Energy executives spent some time lobbying the federal government to allow the project to be included in Australia’s RET, saying it could be the first project to deliver “year-round baseload renewable power energy” into mainland Australia.

It argued that certificates could be awarded for megawatt hours sold in Australia, while the wind energy industry insisted it should only be for megawatt hours generated in Australia.

As recently as 2012, Origin Energy CEO Grant King had argued that Purari hydro baseload could address the problems of “intermittency” from wind and solar before the end of the decade.

“You can’t move the sun, can’t move the wind, can’t move the water, so you’ve got to move the electricity,” he told RenewEconomy in an interview at the time. “Our view of the world is that what solves the puzzle is actually baseload hydro towards the end of the decade.”

In any case it became a moot point, because the value of CDM credits have fallen to virtually zero, and the value of Australian renewable energy certificates have also halved.

That’s because Origin Energy and other generators and retails and industry lobby groups look certain to be successful in diluting the renewable energy target – meaning there was little likelihood that the hydro project could have gotten enough certificates under the scheme. The fall in wholesale electricity prices will have also dampened its enthusiasm.

Analysts say that the decision by Origin Energy to “impair” its investment in Purari – and write down the value of its investment by $51 million – was based on uncertainty around ultimate ownership structures. They say it will not affect Origin’s equity stake in the project, but it will delay any potential development. Analysts had already considered it to be “highly uncertain and long dated.”

However, Origin Energy appears to be maintaining interest in a $3 billion, 1,000MW hydro project in Chile. In 2012, it bought a 51 per cent stake in the 1000MW project, called Energia Austral, from mining giant Xstrata, in return for spending $US150 million over the next three years, half on completing a feasibility study and half towards a final investment decision.

Chile sees increasing hydro as an essential part of its strategy to meet its burgeoning energy needs. Its government recently released an energy strategy out to 2030, which  laid out its plans for a significant increase in clean energy sources over the next 20 years.