The Guardian - Adam Morton
Solar and wind projects are transforming Australia’s power grid, but unclear policies will slow new investments
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| Stage 1 of the Bungala Solar Farm, outside Port Augusta in regional South Australia.
Photograph: Che Chorley for the Guardian |
The relentlessly corrosive nature of political debate about climate
change can sometimes mask that this is a golden moment for the clean
energy industry in Australia.
A near-constant stream of investment announcements suggests a barrier
has been knocked down such that leading renewable technologies, so long
dependent on public subsidies, have assumed market supremacy.
In the Pilbara, Macquarie Bank has joined a
proposed $22bn project
that plans to use solar and wind to run local mines, create “green”
hydrogen energy for north Asia and possibly export electricity to
Indonesia. In regional South Australia, the
British billionaire industrialist, Sanjeev Gupta,
has said he considered building a coal plant to run the Whyalla
steelworks he bought last year, but decided it was cheaper to throw
roughly $1.5bn at solar, pumped hydro storage, battery storage and
co-generation (creating energy from waste gas) as he adopts his “green
steel” model. Outside Townsville, zinc refiner Sun Metals recently
opened Australia’s first large-scale solar farm built by a major energy
user
to service part of its own needs and feed the grid.
The Clean Energy Council
lists 69 large-scale projects
across the country that have recently reached “financial close” and are
either under construction or presumably about to be. They should mean
$15.6bn investment and add 10,978 megawatts of renewable energy capacity
to the system. These projects – just those the council knows of – are
in addition to the 30 new clean energy plants that started operating in
the first nine months of the year. Contracts are being signed at
historically cheap prices – a reported
$52 per megawatt-hour for the giant Stockyard Hill wind farm in central Victoria, for example.
Meanwhile, rooftop solar panels are being installed at an astonishing
rate. In May, the head of the Australian Energy Market Operator, Audrey
Zibelman, said
six panels were going up across the continent every minute,
adding the capacity of a large coal power station each year. The
consumer watchdog recently recommended incentive schemes for small-scale
systems
be wound back. Some in the energy industry have suggested there will soon be more solar power coming into the grid
than Australia can use
but a new study by consultants Green Energy Markets, which examined the
amount of solar power expected every 30 minutes out to 2021, rejects
this idea. The energy minister, Angus Taylor, says the
federal incentive scheme will stay.
The investment avalanche is driving an unprecedented transformation
of the electricity grid. At the time of writing, clean energy
had met 21.8% of national electricity market demand
over the past week, suggesting the country is on the cusp of meeting
the 2020 renewable energy target of about 23% ahead of schedule. The
Clean Energy Council’s chief executive, Kane Thornton, says the momentum
is massive;
Green Energy Markets suggest it could mean
renewable generation hits 33.3% by 2020.
Analyst and advocate Simon Holmes à Court says it is likely as much
clean energy capacity will be built over the next two years as over the
previous 40.
In July, the market operator found a business-as-usual path, without policies ramping up, was likely to lead
to about 46% clean energy by 2030. It underlined the hollowness of the government’s
now-dumped pledge to introduce a national energy guarantee to reduce greenhouse gas emissions from electricity by 26% below 2005 levels over that timeframe, and implied
Labor’s 50% renewable energy target would take little effort. (Both targets are less than the
change in coal use the Intergovernmental Panel on Climate Change suggests is necessary for Australia to play its part in limiting global warming.)
But while the direction is clear, the picture is murkier than this
moment suggests. There are signs investment may soon slow markedly.
Most of the investment is being driven by the renewable energy
target, which peaks in 2020 and stays at that level for the following
decade. The spending to meet the target has come in a rush lately,
mainly because then-prime minister Tony Abbott commissioned a review by
businessman and climate sceptic Dick Warbuton,
who wanted to end it. The uncertainty triggered an investment strike that lasted the better part of two years before the target was
ultimately reduced.
But the target has done its job. With no policy to replace it, the
incentive to build clean energy plants is expected to fall off
significantly. This is already being seen in wholesale energy futures
markets, where it is playing a role in prices trending upwards again.
There is consistent evidence,
from the market operator down,
that it is cheaper to build variable clean energy with “firming”
support than alternatives. New performance standards requiring investors
in areas flooded with renewable energy
to install expensive grid-stabilising technology needed to smooth the transition are not expected to change this. But demand for electricity
is barely growing.
Without a policy that gives the industry a map for when new clean
generation will be needed, new plants are unlikely to come online until
coal plant owners announce more closures.
There are exceptions. Tristan Edis, a Green Energy Markets analyst,
points to companies signing contracts with state governments: Victoria
recently announced
six wind and solar farms had won contracts
under its first renewable energy tender after a similar round for
battery storage, and Queensland has promised to soon follow with the
result of its auction. Also, some large energy users with deep pockets
may build or fund their own generation needs to hedge against market
costs, as Sun Metals did in Queensland. But these are investment spikes,
not maps.
“Beyond that there is no appetite for the major energy retailers to
do deals, so I expect we’re not going to see the large-scale
investments,” Edis says. “Instead of seeing thousands of megawatts of
new capacity a year we may see a few hundred.”
Other energy system experts agree. Holmes à Court, from the
Energy Transition Hub
at the University of Melbourne, says it is little understood that
consumers are no longer subsidising new developments under the renewable
energy target through their bills. Long-term pricing contracts being
signed between wind and solar farm owners and energy retailers are now
setting such low prices that large-scale generation certificates –
documents that retailers must buy and hand in to the government as proof
they are meeting their renewable obligation – are effectively being
thrown in for free. The target’s role recently has been to provide
investment confidence to ensure that long-term contracts are signed.
Holmes à Court says without it or a new policy to replace it uncertainty
associated with selling electricity on the spot market could increase
the risk margin on finance or make a project “unbankable” until the next
coal plant closes and pushes up the wholesale electricity price.
AGL has announced it will
shut and replace
its Liddell black coal plant in NSW in 2022 (and copped no shortage of
opprobrium from the Coalition for doing so). Yallourn, a brown coal
station in Victoria, could be squeezed out by the large-scale solar rush
already announced in that state. But in terms of closures that will
spark new investment the timeframe is unclear, especially given the
government
hopes to extend the life of existing coal plants and possibly
underwrite new ones.
This is why interested parties from across the spectrum – the energy
industry, business, consumer and welfare groups and climate activists –
have been united in calling for a bipartisan policy. While Taylor has
dismissed claims the government should try to eliminate uncertainty as
naïve, and the gap between the major parties has widened to a gulf since
Scott Morrison replaced Malcolm Turnbull, those invested in the debate
want the best chance for the transition to happen as smoothly and
cheaply as possible for everyone.
“Basically, as Audrey Zibelman says, we can have a managed transition
or a chaotic disruption,” Holmes à Court says. “In a chaotic disruption
people get hurt, whether they are consumers, employers or prime
ministers.”
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