Utilities told capital strike worked once, now they have to build wind and solar

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Environment minister Greg Hunt says the Renewable Energy Target is ‘rock solid’ and Australia’s energy majors have “no excuse” for not investing in large-scale renewables. The problem is, right now there are no investments, and no commitments by the utilities.

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The renewable energy industry walked away from the All Energy conference in Melbourne this week feeling a little more positive about the future. The battery storage market appears to be on the verge of something big, and the large scale renewable energy developers hope that the two-year capital strike that brought the sector to a halt might soon be over.

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And, for the first time, the industry has the two mainstream political parties competing to impress. Bill Shorten became the first Opposition leader to address a major renewable energy conference, hailing the muzzling of the “far right” attack dogs and promising his party would introduce a 50 per cent renewables target for 2030 if it got into power, although it was a policy short on detail.

Then Greg Hunt became the first Coalition front bencher to talk to a major renewables conference since his then junior off-sider, Simon Birmingham, promised the Clean Energy Week conference in Brisbane in 2013 that the 41,000GWh target would not be changed.

We all know how that worked out. The Coalition got into power and promptly appointed a climate denier to head a review of the target. There was a major push from the right wing to kill the target altogether. Only the Senate stopped that, and the industry and the government settled on a 33,000GWh target, neither of them particularly happy about it.

Hunt, now environment minister, admitted this week that the reduction of the former target was largely a result of lobbying by the vested interests in the fossil fuel industry, the coal-fired utilities in particular.

Perhaps a better word would be industrial blackmail, ripping up nearly signed contracts and refusing to negotiate others. “The majors were on a capital strike … they were simply not investing,” Hunt conceded this week.

He pointed to the threat of falling demand and an overhang of renewable energy certificates, but it was pretty clear that the utilities were emboldened by the ideology of the incoming government, and their belief that they could force the government to the table, if the government didn’t beat them there.

As Bernie Fraser, then head of the Climate Change Authority, had foreshadowed when completing his review of the RET, and rejecting the utilities plea to cut the target:

“I feel sure, well I expect, that the Opposition Coalition parties will be swayed by the lobbying to reduce the figure to an updated 20 per cent figure.”

Hunt insists those days are over. The current target, he says, is “rock solid”, and he, the energy minister and the prime minister are right behind it.

“Right now, there is no excuse for people not proceeding,” he told the conference. “You can have absolute confidence that that renewable energy target will not change.”

The problem is that, right now, there are no investments, and no commitments by the utilities. This is despite the fact that the price of renewable energy certificates, known as LGC’s, rose this week to just short of $65. That is equivalent to the penalty price they will pay for not building enough large-scale wind and solar plants, although the lack of tax deductibles on the penalty means that the effective price is $93.

Still, $65 should be enough to get some wind farms, and maybe even some solar farms in Queensland, where the sun is brighter and wholesale power prices higher, financed and built.

Those in the industry say there are signs of movement. There is certainly no shortage of projects – more than 10,000MW of wind projects are said to be “shovel ready”, and new proposals for large-scale solar farms, tipped to account for most of the new build, are being made each week.

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But there is no finance. Utilities are talking about signing some power purchase agreements, but only for a relatively short period, around three to five years. That is not enough for the bankers to get over the line, there is still too much uncertainty for 25-30 year assets.

The only projects going ahead are those that have solid contracts with the ACT government, under their auction program. Some states are talking higher targets, but as Hunt pointed out himself, those lack the mechanisms.

“This is the real world. We have said to the majors there is no excuse for not writing PPAs.” Time will tell whether the majors such as AGL – which said only a few weeks ago that there was still not enough policy certainty to invest in large-scale renewables – buy that argument.

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21 Comments
  1. Richard Johnston 4 years ago

    Hi Giles

    I was at Greg Hunt’s session at All Energy. I commend Greg on attending the event. While Greg did say ” “You can have absolute confidence that that renewable energy target will not change.”, he also made a far more cryptically equivocal statement later “You can have absolute confidence that that Renewable Energy Target, in my judgement, will not change between now and 2020”.

    Teh statement is at 22:22 in my scratchy recording of the speech here: https://www.dropbox.com/s/ukj9kkmsabvurzx/151017%20Greg%20Hunt%20All%20Energy%20Speach.wav?dl=0

    Sadly the opinion of a government minister is not bankable. The Government MUST make the RET bankable. Renewable energy investors need certainty that they will be provided financial compensation if they are affected by adverse changes of government policy, similar to the compensation paid to fossil fuel generators adversely affected by the carbon tax.

    • JeffJL 4 years ago

      Did anybody question Greg about what was is the difference between the statements he made at All Energy and the ones prior to the previous election?

    • Colin Nicholson 4 years ago

      They could always put the RET back to the 41 TWHr as an act of good faith

      • RobS 4 years ago

        Turnbull has sold his soul and his political ideals in order to satisfy his ultimate desire, to be PM. The only reason so many conservatives voted for him is because he has promised not to make any substantive changes to any conservative policies. He can change the rhetoric and try to breathe a little life back into thngs but the stifling regressive Abbott policies will stay

        • Alastair Leith 4 years ago

          the recent appointments to the CCA is evidence for what you are saying, sadly. calling David Karoly and Bernie Fraser “partisan” and then appointing anti-climate-action Kate Carnell to a body whose raison d’être is to go up against massively powerful vested fossil interests is the height of talking out both sides of his mouth. something Hunt has become especially well trained for.

  2. Rob S 4 years ago

    I am still wondering what happens to the large solar/wind/renewable generators when people start defecting from the grid as network costs aren’t going away as they are sunk costs and will have to be paid for.

  3. KD 4 years ago

    actually there is an excuse for not writing PPAs – “I don’t want to”. the RET only places an obligation on retailers (and other liable parties) to procure the necessary number of certificates. It does not place an obligation on how those certificates are to be procured. So there is a mis-statement of the problem. The problem is that no party wants to assume the risk associated with building new assets. except possibly the odd kind government who is happy to stake taxpayers/electricity consumers’ money.
    Despite the more favourable wholesale prices in Queensland, I’d think twice before committing to a large-scale solar project where the state government has ambitions to see a million small-scale schemes – which will effectively be up to 3GW of new competitors for a utlity solar project. you would want your financials to be robust to the impact of those on the wholesale price you can expect.

    • frostyoz 4 years ago

      Actually the RET does NOT place an obligation on retailers and other liable entities to procure the necessary number of certificates. The only obligation under the RET is to pay the shortfall charge if they elect not to surrender sufficient certificates.

      The principal issue is that retailers do not want to assume the liability and regulatory risks of 15 year PPAs, when their customers are contracting on 24 month contracts. Retailers would prepare to buy certificates on a short-term basis that is matched with their customer contracts.

      The days of developers financing these projects on minimal equity with fully underwritten off-takes are over. Developers will need to put their money where their mouth is, and take merchant risk.

      • eddierothmanisatool 4 years ago

        spot on. why lock in 20 year prices when who knows how cheap solar combined with storage will be in that timeframe (i would say a lot cheaper than the retail tariff in any state its already around 40c/kwh assuming installed costs of 1500/kwh for storage and 1.90/watt for solar). large wind seems dead to me. i certainly wouldnt assume the risk associated with it.

        • RobS 4 years ago

          $1.90/watt solar? I paid $1.50 2 years ago.

          • eddierothmanisatool 4 years ago

            for what kind of quality/what are your components?? this is for LG panels and euro or israeli inverters and high quality BOS. i could install stuff $1.50/watt, but would be back in 5 years to upgrade to quality product. also this is installed price/watt. its actually pretty good when you check solarchoice

            http://www.solarchoice.net.au/blog/residential-solar-pv-system-prices-may-2015

          • RobS 4 years ago

            SMA sunny boy inverter and Sun Earth panels. They’re going to have fully paid for themselves in under 5 years, they’ve returned 45% of their purchase price in the first 2 years. No quality or performance concerns so far. Regardless they have a 10 year manufacturing warranty on both panels and inverter and a 25 year 80% output warranty. so if the “only” pay for themselves 2 times over before I’m up for replacement cost then I think I’ll cope

        • Alastair Leith 4 years ago

          Large wind compliments solar, when the sun isn’t shining wind tends to peak. Chemical batteries are still way off competing with wind in the sense that they obliterate the case for wind power. It’s still the cheapest RE generation in Victoria and will be for a few more years yet.

          SolarCST with thermal storage could still play a vital dispatch role, there’s a large part of demand, i.e. industry and land transport that can’t access rooftop PV and local storage.

          • Calamity_Jean 4 years ago

            Liquid fuel? Well, there’s this:
            http://www.nrl.navy.mil/media/news-releases/2012/fueling-the-fleet-navy-looks-to-the-seas
            The US Navy would use electricity generated from their atomic power plant, but electrons are electrons. There’s no reason a land-based facility near an ocean couldn’t use the same technology to consume excess renewable power to make fuel. The output of the process is 75% jet fuel and 25% methane.

          • Alastair Leith 4 years ago

            I’m still waiting to see the energy costs on that process. They forgot to mention that bit. I know ethanol is another fuel being proposed by French researchers who wrote their 75% and 100% RE plans. And Prof Lovegrove has mentioned other options being investigated.

          • Calamity_Jean 4 years ago

            “I’m still waiting to see the energy costs on that process.”

            The NRL page I linked to says $3 to $6 per gallon. Is that what you meant? Or were you looking for kWh per gallon?

            If the process was on shore and using surplus electricity that would otherwise make electric prices go negative, it might be less $$. In order to have an electrical system that was completely free of fossil fuels, it would be necessary to overproduce power for a significant fraction of the time. Using the excess to make jet fuel or anhydrous ammonia would allow the power to be stored for non-electrical uses.

          • Alastair Leith 4 years ago

            that article was written by someone who didn’t even bother to mention that the power source was a nuclear power plant. and the page is owned by the Navy. I wouldn’t put much store in the cost speculation mentioned there. Plus the cost overruns they might endure are much more offset in that scenario because the jet fuel, if this scales, will be produced at location required not trucked then shipped by supply vessels. Also means they don’t have to keep as much stored at any one time if they can produce it. So yeah, I wouldn’t be putting this up as proof of a viable wind2fuel technology yet.

          • Calamity_Jean 4 years ago

            “that article was written by someone who didn’t even bother to mention that the power source was a nuclear power plant. and the page is owned by the Navy.”

            Which article? The one at nrl.navy.mil? It mentions the Navy in the first sentences of the first and third paragraphs, plus it’s right there in the URL. The Naval Research Laboratory is a shore-based facility, and as such they use ordinary electrical power from the same wires as everyone else on shore. If the process was used on shipboard of course it would use power from the same nuclear power plant that the atomic aircraft carrier uses to propel itself, but the chemical reaction doesn’t care where the electricity comes from. It only cares that it gets the electricity. The same chemical reaction could be run at a land-based plant near a seashore using excess solar or wind power. You originally said, “If a liquid fuel conversion process becomes available….” and the US Navy is working on converting electricity to liquid fuel.

            If you don’t like jet fuel, Google “fuel ammonia” for a different liquid fuel. You’re welcome.

  4. Ian 4 years ago

    Ours is a small country in terms of population and the market is dominated by house holds and businesses. The technology improvements and price declines in solar and batteries could quickly make large scale power generation and storage irrelevant . Already big box shops like IKEA and shopping centres are installing solar to cover much of their needs. Imagine that, any sort of large scale development may not be competitive with the distributed variety. More stranded investments, albeit of a renewable kind. There might be a complete reversal of roles from big bad coal and solar underdog, to big clean green machines, and distributed petrol generators and fuel cells! A plug-in Prius could conceivably not take power from the house but give overnight power to the house using its modest batteries and little petrol power plant.

  5. Alastair Leith 4 years ago

    thanks for the great write up Giles.

  6. Mags 4 years ago

    We very badly need a government that will enact a policy to move us through a transition from ff generation to renewables, over a reasonable time, and protecting our economy as much as possible and retraining for the workforce etc… There doesn’t seem to be anyone in sight who has the vision and courage to do this, so Australia is heading for a mish mash of renewables, that will probably leave others will super high bills. The public are taking this into their own hands, and that will mean chaos.

    This is poor government in the extreme. The writing has been on the wall for a while now and yet no one is acting…….

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