Offshore wind developers working in the country’s first dedicated zone in Gippsland are warning governments that the business case for what they’re doing is still not clear, and asking for more “support” from the top.
The problem worrying developers is that they are paying a lot of up-front costs to advance their sites, at a time when budgets are tight, yet there is no clarity yet over what price they will be paid for the electricity at the other end.Â
“We are many things, but we’re not a non-profit organisation. We need steady returns,” RWE’s Jens Orfelt told the Australian Wind Energy 2025 industry forum in Melbourne on Thursday.
“That’s a bit of a challenge for someone like (developer Ocean Winds) and myself to deploy millions of Aussie dollars without visibility. Where’s it going to end? Where’s my off-take? What’s it going to look like? How is my business case?Â
“What we’re being asked by our boards at the moment is, what is the business case? How do you secure your revenues, and please show us that before you can spend money.”
Orfelt praised the government for avoiding “the trap” of designing “crazy bidding machines” to set up its offshore wind industry, but says the Danish experience is a wake up call for emerging markets like Australia, as even mature markets are now struggling to present a strong business case because building wind farms are more expensive than in the past.
In May, the Danish government repeated an auction for 3 GW of offshore wind with a government revenue guarantee, via a contract-for-difference (CfD), of 27.6 billion Danish kroner ($A6.5 billion).
The auction failed in December with no bids, prompting the Danish government to step in. It’s now consulting with industry to work out how to run the next auction.
And the Netherlands is considering its first subsidised offshore wind auction in eight years, partly to account for the rising cost of construction.
The offtake question will be partially resolved for some when Victoria launches its first offshore wind auction in September, which will award projects with a CfD and an availability payment.
Orfelt’s views were reiterated on the same panel at the Australian Wind Energy conference by Ocean Winds’ Japan representative Pelayo Rodriguez Alonso.
“Importantly, from an investor point of view, is what we call the commercial challenge,” he says.
“We need to have a business case [and] that is not clear as of today in Australia. Offshore has a lot of potential… but we need that little push… from the government, both federal and Victorian.”
Without that “little push”, the Gippsland offshore wind projects will be “very difficult to move ahead”, Alonso told the today.
Toe the line
If developers are now pressing governments to provide clarity about who is going to pay, they’re also nudging them to bring agencies into line, even if those agencies are doing their job.
In January last year, the federal EPBC agency rejected the preferred Victorian port of Hastings for posing “clearly unacceptable ” risks to the nearby internationally protected wetlands.
But the rejection wasn’t a final no and the port recently went back to the EPBC with a revised plan.
The original rejection appears to still be shaking developers in Gippsland’s offshore zone, however.
Orfelt says that decision is an example that state and federal regulatory agencies “are not quite there yet” in terms of coming in behind a national approach to birth the admittedly complex industry.
“What we’ve seen in other governments in the world… is that you get a clear signal from the top. This is what we want. Because I think any novel industry… requires the level of sort of involvement from different government agencies,” he says.
“What’s lacking, maybe a little bit, is that coordination between the Treasury and the environmental agencies and port authorities.”
Orfelt believes time is running out as the Gippsland projects begin to compete for the limited providers of specialist services needed to set up and build offshore turbines.
“We really need to sort of make sure that there’s an aligned approach, and we’re all walking in the same direction,” he said.
