Plunging cost of renewables: ACT wind auction goes at $81.50/MWh

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ACT confirms winners of 200MW wind energy auction with projects to be built in Victoria and South Australia at record low prices.

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The ACT government’s ground-breaking wind auction has elicited prices as low as $81.50 per megawatt hour, believed to be the lowest wind energy prices ever obtained in Australia.

As predicted by RenewEconomy a month ago, the three winners of the 200MW capacity of wind energy were the Hornsdale wind project in South Australia, and the Ararat and Coonooer Bridge wind projects in Victoria.

From our story on January 14 …..

wind break

The Coonooer Bridge Wind Farm, a 19.4MW facility to be developed west of Bendigo by Canberra-based Windlab, bid the cheapest rate of $81.50/MWh. Coonooer Bridge is also expected to have a ground-breaking community ownership component of the wind farm, as we discussed here.

The second cheapest was the Ararat Wind Farm, an 80.5MW facility to be built by RES Australia west of Ballarat. It will get a fixed feed-in tariff of $87/MWh.

The third winner was the Hornsdale wind farm, a 100MW facility to be built south-east of Port Augusta, by the French controlled Neoen and local group Megawatt Capital, who bought the project last year from Investec Bank. It will get a feed-in tariff price of $92/MWh.

The prices announced have stunned some observers, including rival bidders such as AGL Energy, which had hoped to kick-start it Silverton project. The prices are even lower than they appear, because the ACT tariff is fixed for 20 years, and it does not rise for inflation.

So to allow for the “discount rate” – or the time value of money – the tariff bid by Coonooer Bridge is equivalent to less than $70/MWh, possibly as low as $62/MWh.  The Hornsdale tariff is equivalent to less than  $80/MWh, according to Neoen’s Australia chief Franck Woitiez. The difference in prices, he said, could be due to suppliers, connection costs, and corporate structures.

Woitiez underlined the fact that the rest of the 270MW Hornsdale project would not go ahead without certainty in the renewable energy target.

The three projects outbid 15 other projects, totalling more than 1,000MW, that were bid into the auction. These include the Capital wind farm Bungendore, other wind projects near Collector, Yass and Crookwell, and the Silverton wind farm near Broken Hill.

(Wind auction prices in the US and Brazil are lower, around $US40/MWH) but that is due to lower labour costs, the absence of local manufacturers – the Howard government killed that off a decade ago – and the lower cost of finance).

Perhaps controversially, none of the winning projects will be located anywhere near Canberra.

However, ACT energy minister Simon Corbell said the ACT would still benefit, with $50 million in direct investment as Windlab grows its base, and runs operations for both Coonooer Bridge and Ararat from Canberra; and Neoen would establish its Asia-Pacific wind energy headquarters there.

There would also be a new national trades training centre, an innovation fund for small Canberra renewables businesses and a $7 million investment in new courses at the Canberra Institute of Technology and the ANU. He estimated the total economic benefit at $240 million.

The results will disappoint those companies who had hoped to build wind farms in the region around the ACT, but not those Conservative state and federal MPs who had campaigned vigorously against it, including NSW Planning Minister Pru Goward and Federal MP Angus Taylor, and other state MPs.

Corbell denied suggestions that the ACT had deliberately dodged a confrontation with local MPs. “That is not the case. I reject that,” he said, noting that the ACT had clearly set rules which would allow remote wind farms to bid, as long as there was an element of local content.

The wind energy capacity will add as much as $1.79 to consumer bills per household per week in 2020 before declining after, Corbell says. The estimated total cost of reaching 90 per cent renewables is expected to peak at $4.67 per household per week in 2020 before declining after. The ACT government argues that this cost will be offset by energy efficiency measures.

Corbell said the results of the auction would secure Canberra as the “renewable energy capital” of Australia.

Large-scale wind and solar projects in the rest of the country are at a standstill as a result of the Abbott government’s attempts to slash the renewable energy target. The 200MW of wind – which will be built by 2017 – will supply the equivalent of 33 per cent of Canberra’s electricity needs. It is on top of 40MW from the ACT’s first series of solar auctions, and another 44MW of rooftop solar installed in the ACT.

Roger Price, the head of Windlab, lamented the state of policy at the federal level. “Over the last four years despite significant local investment, we have generated very little revenue in Australia, thanks to Federal Government inaction and deliberate nobbling of the renewable energy industry.

“Our business has only survived due our ability to successfully generate export revenue. I find it frustrating to keep hearing phrases from the Federal Government like “supporting small business” and “creating sunrise industries” when their actions are clearly inconsistent. If they are genuine they need to support a substantial and ambitious renewable energy target.”

An auction for 50MW of “new generation” solar – possible solar tower plus storage or PV with storage – will be held later this year, before a waste-to-energy auction next year, and more wind energy auctions after that. The ACT aims to source 90 per cent of its electricity needs by 2020. It says it is already at 80 per cent of household needs.

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25 Comments
  1. Rob G 5 years ago

    Next stop Queensland, thanks to the change of government.

  2. KD 5 years ago

    Giles, I note you give three reasons why wind output prices are higher in Oz than in a couple of other countries. These seem reasonable. By inference these higher costs are not fully offset by any output gains (i.e. load factor) from our “world-class renewable energy resources”. This suggests that Ross Garnaut’s claim that we will have some sort of competitve advantage in energy-intensive industry down the line when the world has largely decarbonised is overoptimistic to say the least.
    that’s not in itself an argument against RE, but against the sort of boosterism many advocates seem to indulge in. these are no more helpful to the debate than the economic apocalypse claims of some anti-RE commentators.

    • Giles 5 years ago

      Er, most of these things can be addressed with a bit of certainty and clarity on policy, particularly the key aspect of finance. That would reduce costs considerably. It is the major frustration of developers here.

      • KD 5 years ago

        Giles and Peter F,
        There seems to be some confusion. The comparison of international prices was to the price of these projects. They are being offered a guaranteed $/MWh by the act government. So federal policy uncertainty is irrelevant. It may well be affecting the cost of other projects of course. As for the rest of “these things” I don’t see how a more stable policy environment would suddenly lead to a turbine manufacturing industry springing up in Australia or have much impact on labour costs, which are surely impacted by the broader economic and legislative environment. Perhaps an idea for another article, giles, if you think differently?

    • Peter F 5 years ago

      The biggest differences between us and the US are
      a) the wind energy production tax credit which is about $23 per megawatt hour
      b) cost of capital which is interest rate differential + risk margin both are higher under the current Australian Government together that adds about $4-6 per MW.hr

      c) state government mandates and subsidies which add further but wildly varying subsidies which are not disclosed in the power price
      d) transmission from the wind farm which is not included in many of the published US tenders or in fact in the NEM price

      All of these costs are paid by someone so the ACT scheme has to be praised for its high transparency. As noted elsewhere a new coal or gas plant with CCS will be much more expensive. Alternatively adding the health and environmental costs to current thermal prices will give slightly higher total cost even for existing coal

      • Bob_Wallace 5 years ago

        Peter, 4 cents for US wind is the non-subsidized prices. In 2013 the average PPA contract was 2.5 cents. It will likely be lower for 2014 as one contract was signed for 1.5 cents.

        The 2.3 cent PTC applies to the first ten years of production. Since most PPAs are 20 to 25 years that makes the average subsidy over the life of the contract 1.15 cents or less. 2.5 + 1.15 = 3.65. Less than 4 cents in 2013.

        • Peter F 5 years ago

          Thanks for the update I suppose at least that explains why the US has such a strong wind industry. However given that the tax credit applies from the start of construction the NPV of the tax credit is worth probably 50% more than your figure. As I said there are also state and even county subsidies and in some cases there are price inflation clauses

          • Bob_Wallace 5 years ago

            Are you talking about the ITC? If so are you sure it is applied starting at the beginning of construction? I’ve never see a tax credit paid out prior to investment.

            Since the PTC is paid out during the first ten years of production it would have a bit more value compared spreading over 20 years. But 50% more? That seems extreme.

            The US has a strong wind industry for a number of reasons. One is that we started over 30 years ago. Our oldest wind farm is now over 30 years old and undergoing refurbishing. The old smaller turbines are being taken down and replaced with larger turbines on taller towers.

            We also have excellent wind resources in the middle of the country. And with new turbine/blade designs and taller towers we’re able to harvest wind in every region of the country.

  3. Paul McArdle 5 years ago

    Congrats to the winning tenderers – definitely things to update on the “Power Supply Schematic” next issue – they were shown in 2014 in the list of prospective plant:
    http://www.MarketMaps.info/2014-pss.htm

  4. Blind Freddy of Cairns 5 years ago

    How do you reconcile the lowset price of $81.50 per MW/h to the current AER spot average price of $35? Does this mean that consumer prices will rise because ACT went green?

    • Giles 5 years ago

      Hi Blind Freddy. I’m still adding to story. Just inserted costs – peaks at $1.79 per ACT household per week by 2020. They argue offset by EE measures. Even without, it’s equivalent to a new set of bicycle clips for the Abbott household every few months.

    • john 5 years ago

      I will graph out the figures and post as soon as I do the work.
      I expect that the ACT will be like the rest of the eastern grid which has shown a narrowing between the peak and base price over the last few years especially.
      Two factors have caused this, lowering demand and contribution from RE at peak demand times.

    • john 5 years ago

      Ok the nearest I can get is NSW from 1998 to just before Dec 2014
      Notice the low price in NSW in the last few years no longer a peak in the high area.
      The average low RRP price is $39.87 the average peak is $52.01 or 3.9 and 5.2 cents.
      This of course does not show the amount purchased at a higher peak which in one 30 minute period may be 25% of the expend for a whole day.
      The take out is simple the price is levelling due to RE and lower demand.

    • Oliver Scheidegger 5 years ago

      Blind Freddy, wind farms gain income from sale of wholesale electricity (say ~$35 per MW/h) and also sale of LGCs (say also ~$35 per MW/h). I don’t think any wind farm in Australia could be built with just the income from selling the electricity.

      • john 5 years ago

        However remember the historical cost of the generators was paid for by taxpayers and if one was to build now a new generator you would not go thermal coal.
        I seem to remember 5 gen sets have been shut down due to falling demand.
        Every review has found that in the long term that RE has a positive downward beneficial result for the economy.

        • Oliver Scheidegger 5 years ago

          That’s a very good point. Long term RE will keep prices down as global prices rise for finite resources such as gas and coal.

          • john 5 years ago

            Well yes however I think the real point is that the energy supply cost is low.
            Externalities are not factored in which as you notice in China is a pretty important aspect.

          • Oliver Scheidegger 5 years ago

            Definitely! If we factored in externalities (bring back the carbon price please!) and slam gas and coal with extra costs AND remove any fuel subsidies, RE would immediately look more attractive!

          • john 5 years ago

            Very true.
            However how exactly do you work out how to remove the fuel tax removal for mining in a farming situation.
            In some parts of Europe the diesel is coloured one for road one for off road this is very difficult to put into practice.
            Perhaps just remove it completely then allow those in the farming area to claim in their tax return not insurmountable.
            Tax claims for exploration Tax claims for development this is not a simple exercise however it has to be looked at.

          • Oliver Scheidegger 5 years ago

            Makes sense to me! I would support it.

          • john 5 years ago

            I have just graphed out the last few years where RE has had an effect for NSW.
            Notice how the coming together of the Peak price and the RRP price; what this means in real terms is that power cost factor is going down even though there is a rising in the underlying trend.
            Just click the graph and have a look I have added trend lines.

        • KD 5 years ago

          was it, or was it recovered via user charges?

          what reviews are you talking about? few of them have attempted to capture the overall economic effect. I can only think of the Deloitte report for the BCA in recent years, which concluded: “Deloitte estimates the cost to the economy of the current RET remaining in place at $28 billion and over 5,000 jobs.”

    • Peter Campbell 5 years ago

      The ACT has the lowest retail prices already and the feed in tariff is fixed for 20 years.

      • john 5 years ago

        Yes Peter I am very aware of that and the reason is because the ACT has not had a big expend on poles and wires.
        The forward forecasts were taken as gospel for the eastern grid and $45 Billion was spent with a guaranteed 10% return which has resulted in higher end user price of power.
        Qld is second to the ACT however if they go private they will go the way of higher price to consumer that is a no brainer.

        • KD 5 years ago

          John, no it isn’t and no it won’t. Regardless of ownership, network revenue is regulated under the same rules by the AER. Any available evidence points to the privately owned networks as being more efficient than the publicly owned ones, so it’s likley that over time, privatisation would lead to lower prices.
          As for the past, the forecasts weren’t taken as gospel – the AER simply didn’t have a better forecast to substitute in. Most of the expenditure that has been carried out would have been required even under lower demand forecasts. In some cases, expected investment was not required and so the money hasn’t been spent. The savings get shared with consumers at the next price control in line with the rules.

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