Wind energy to fall 40%, coal to grow with Abbott policy changes

Despite having one of the lowest-cost and least subsidised wind energy resources in the world, Australia’s wind industry looks set to bare the brunt of the federal Coalition’s plans to axe the carbon tax and scale back the Renewable Energy Target, with a new report predicting this scenario would see large-scale renewable generation 40 per cent lower in 2020.

The report, released on Wednesday by energy and environmental market analysts RepuTex, warns that the removal of the carbon pricing mechanism and a reduction of the RET would significantly change dynamics in the NEM, skewing the market in favour of black coal generators.

In such a scenario, black coal generators could capitalise on lower competition from low carbon sources to increase generation by as much as 9 per cent (13 GWh) by 2020, the report says.

Large-scale renewable generation, meanwhile, would fall from 41,000GWh in 2020 under the existing Large-scale Renewable Energy Target (LRET), to 24,600 GWh – a reduction of 40 per cent.

“Should the LRET be reduced, we would see fewer new on-shore wind energy projects, resulting in less supply of renewable energy, and less competition from new large-scale renewable development,” said RepuTex Head of Research, Bret Harper.

“Subsequently the downward pressure of wind on wholesale electricity prices will slow, which is welcome news for incumbent black coal generators, which have experienced large losses due to an oversupplied electricity market.”

Welcome news, indeed, with a recent report revealing Australia has one of the lowest rates of subsidy of wind energy in the world, and one of the lowest costs of wind energy.

The report, prepared by Frontier Economics for the UK government last year, assessed and compared 26 leading wind countries, and found Australia had the cheapest wind power based on “purchasing power parity,” and one of the cheapest based on market rates.

As we wrote back in January, the findings are not such a revelation, considering even the government’s economic advisor, the Bureau of Resource and Energy Economics, has conceded that wind power was now competitive with new build fossil fuel plants.

But with the market skewed in favour of fossil fuels, and without additional wind capacity, Reputex’s Harper warns that “idle coal-fired units will quickly take up any recovery in grid demand expected over the next five years.”

The report also warns, however, that this relief for fossil fuel generators may be temporary, with large-scale renewables facilities likely to continue to experience cost reductions, while the government’s new ‘baseline and credit’ emissions policy, the Direct Action Plan, may further dampen the electricity demand outlook for coal generation.

“The final design of the government’s Direct Action Plan will be critical for coal generators, with potential for emissions baselines and penalties to curb growth prospects, while large-scale efforts to improve energy efficiency via the Emissions Reduction Fund will spell trouble for coal generators if electricity demand continues to decline and places further pressure on profit margins,” Harper said.

The government’s Direct Action Plan-Emissions Reduction Fund White Paper is scheduled for release in April, while the government’s Renewable Energy Target Review expert panel will report to the Prime Minister by mid-2014.