WA urged to treble renewables and phase out coal

Western Australia has been urged to lift its renewable energy target to 30 per cent by 2020 – above the national goal – and close its oldest coal-fired generators within three years.

The call from Danish company Vestas, the world’s largest manufacturer of wind turbines – comes as the WA government signals that it is looking to do exactly the opposite – curbing the development of renewable energy projects in the state and investing instead in its ageing Muja coal fired plant at Collie.

Vestas, however, argues that the WA economy is badly exposed by its reliance on fossil fuels, citing the costly impacts of the Varanus gas pipeline explosion, the disastrous upgrade of the Muja coal fired power station, and the difficulties sourcing fuel for the Bluewaters coal generator.

“The truth is that fossil fuels are more expensive than most people understand, and the cost reductions and business case certainty of renewables are here to stay,” Vestas wrote in a submission to the Economic Regulation Authority micro-economic reform inquiry.

“WA might have an island grid, but it is not an island economy. The rest of the world has headed towards renewables in a big way over the past decade and it would be folly to ignore this or resist such a trend.

“WA should take active steps now to protect its economy and hedge against the horrendous and often unforeseen costs of being so reliant on fossil fuels.”

It may seem obvious for a major wind turbine manufacturer to push for increased investment in renewables, but it has been quite rare for a private company to push for policies over and above those that exist in Australia.

This, however, is a strategy that now has the renewables industry in trouble in the eastern states as they seek to forge a compromise in an over-supplied market.

The Vestas submission was written about the same time as WA energy minister Mike Nahan made the first of a series of speeches where he said WA might prefer to invest in renewable energy projects in the eastern states rather than in their home state.

Although this would mean money and jobs going elsewhere, Nahan reasons that it would protect the state-owned generators from further losses of revenue. Instead, the WA government intends to take its investment in the 47-year Muja coal-fired generator up to $330 million, and extend its life for another 15 years, in the hope of attracting a buyer.

WA currently sources a little over 10 per cent of its electricity needs from renewable energy. A 30 per cent target for 2020 would require it to effectively triple its deployment of wind and solar energy, and other renewable energy sources, over the next 6-7 years.

The debate in WA about energy supply choices is a microcosm of the debate in the eastern states, where state governments in Queensland and NSW – neither of which have hosted much investment in renewables – are pushing for the renewable energy target to be diluted or removed.

The renewables industry, fearful of seeking a compromise deal that may involve seeking payments for some coal fired generators to exit the market, to reduce the amount of excess capacity. However, that strategy has been questioned by a study from UNSW.

Vestas is also seeking to reshape the debate around energy choices away from a “green” only debate, to one about fuel risk and future costs. This is an argument that appears well understood by many Australians, who continue to invest in solar, despite the removal of generous feed-in-tariffs, because they see it an effective hedge against future bills.

State and federal governments are having more difficult seeing this. Vestas suggests that it is because state governments have an inherent conflict of interest in owning generation and network assets and seeking to frame policy and regulatory decisions around them. Even in the US, where gas prices are much lower than in Australia, utilities are choosing wind energy because it offers the most cost-effective option.

“The conflict of interest is not simply a perceived one; it is a real one that has an impact on investment attraction in WA,” the Vestas submission says.

Vestas urges four actions by the WA government:

• Do a proper cost/benefit analysis of WA moving towards its own target of 30% renewables by 2020 and exiting from coal-fired power as soon as possible.
• Work with industry to secure access to state-of-the-art and proven weather forecasting software to maximise the predictive capacity of the Independent Market Operator (IMO) and System Management to integrate renewables at a low cost.
• Fully write down its investments in its oldest coal-fired plants and shut them by 2016.
• Give renewable energy generators priority access to the grid, forcing other generators to adjust their output accordingly.

The wind forecasting technology is a particularly crucial one given that the IMO has complained that predicting wind farm output is difficult. Vestas appears to suggest they should invest in the same forecasting technology as the Australian Market Operator, which has found forecasting to be remarkably accurate in both 5-minute ahead and 24-hour ahead intervals.

Vestas warns that the write-down of the ageing coal assets may have an initial cost, but it would avoid future impacts.

“Those assets have already been a financial disaster, and an unplanned one at that. It makes little sense to plunge further into government-owned coal-fired power in 2013, even though it looks like the carbon price is set to be removed.”

The global move towards greenhouse gas emission reduction means that WA has a significant “carbon risk” and would do well to diversify into other forms of electricity generation before this becomes a forced choice.

“Even in the absence of greenhouse gas emission reduction targets, the fact that coal and gas have provided low-cost electricity during the previous century does not mean that this is likely to continue in this century. Labor costs, extraction costs and pollution costs are all relevant factors to consider in moving away from such a heavy reliance upon coal and gas.”