Renewable energy targets ~ll doubt as expensive wind power runs out ~fpuff • . J' t: "f.. ,

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megawatts of new wind farm "(I • I

triple to justify new wind capacity, from a current price of about $35 MATTCHAMlHmS

gov~mment's l1enewable energy price. Moves have been made to are still too many RECs floating energy capacity will need to be certifiCate (REC) scheme, which which costs about $2.5 million per per megawatt hour (MWh). rectify this, with a new scheme to around the place, so as a result, the.

TRACY tEE built by 2020 to satisfy the govern- _ acts.1ike a subsidy, as wind farm megawatt. to build. In 2009, the federal govern- start from January 1. However, the REC pr!ce is still too low to justify ENERGY ment's objective to source 20 per operators can sell them to retailers Some analysts and industry ment issued the certificates to lasting impact of excess energy neweapacity."

cent of the nation's electricity who buy electricity from them. sources say most of the required households for small investments _ certificates continues to dog pro- Yet wind faFm operators such ABOUT $18 billion is needed for from renewable means. The subsidy is key to the econ- capacity will not be built in time such as solar panels, and the seem- ject economics. -as Roaring 40s, Verve Energy and wind farm construction in Austra- That represents a fivefold in- -omics of wind projects, and the because an oversupply of certifi- ingly generous rebates prompted "There is a huge oversupply of Infigen Energy continue to push lia to meet government renewable crease on current capacity levels. variability in REC prices since' cates will continue to depress _ a rush of installations by home RECs because the government ahead on project expansions and energy targets, but weak elec- King has plans for about half - their introduction in 2009 has prices and mean wind farms re- owners. started debasing the REC cur- new development, albeit at a tricity prices and a troubled sub- that himself, but the company ap- affected investment time lines for main uneconomic for the next This led to households gaining rency by allowing solar to get 5 slower pace and with greater scru-sidy scheme threaten to jeopard- pears only willing to proceed with major c'ommercial operators such four or five years. five times as many certificates as RECs per megawatt hour, instead tiny on returns. ise returns on projects, these plans if cOhditions become as Origin and A G L. For wind farms to be viable at large-scal~ operators of projects of one (per MWh) for wind," UES "We were seeing low REC

According to Origin chief more attractive. Without subsidies, current current electricity prices, certifi- such as wind farms, creating a sur- utilities analyst David Leitch says. prices as a result of the flood of executive Grant King, about 7000 The key hurdle is tied to the electricity prices would need to cate prices would need to double feit of RECs that torpedoed the "Most people are worried there Continued on Page 22

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Targets in doubt as wind runs out of puff

Experts fear we will not meet wind power targets by 2020 because of the current unecopomic price

Continued from Page 21

those credits from solar hot water and panels in the market, and that meant the price of the underlying REC wasn't then supporting the required offtake we needed to make the economic return," Roaring 40s managing director

. Steve simons says. He estimates tfie long-term av­

erage REC pnce needs to be be­tween $50 and $60 to ensure solid return on capital for projects.

The largest four wind farm owners in Australia are Infigen Energy, Pacific Hydro, Acciona and Roaring 40s, which account for 63 per cent of total operations greater than lOMW.

These companies will end up selling their certificates to major electricity retailers such as Origin and AGL, where it's hoped demand created from the govern­ment's mandated 20 per cent tiJ.rget will drive up demand and prices.

Industry sources say new wind capacity needs to return $100 to $120/MWh to recoup develop­ment and operating costs, com­pared with industry estimates of $40 to $45 for new coal-fired capacity. Therefore, to justify the wind spend, the electricity price received, plus the price of an REC, which is for IMWh, needs to be at

least $100. With electricity fu­tures tipping prices of $37 IMWh in NSW next year, and a certifi­cat.e price of $35, wind farms are far from economic.

But electricity futures prices are showing a price increase to $60/MWh in 2014 and ifthe REC work'S" tpeivfJ , itJ~ sBPP1>\~~ .to, demand co"hld sendpritesintothe DlacR.f0Jf~d f~.qwn,(s arlt

Ttiis ou)o 'lSenkrit -an wind farm owners and those with an eye for new developments.

"AGL would tell you, and I think I would agree with them, that there is not going to be enough (wind capacity) in 2020. But despite this, no one is actually building any more right now be­cause there's not a clear enough price signal." Leitch says.

There is also a cap on the REC . price, given the government fines retailers who don't buy certifi­cates.

With a $65 fine per REC, when retailers take into account tax im­plications, there is no point buy­ing an REC if the price is above $93.

But operating wind farms don't all work under the same econ­omics. Many have signed sweet­ened deals, such as AGL's $200m Oaklands Hill wind farm that will supply Victoria's $5bn desalina­tion plant.

STUART McEVOY

But the challenges for wind farms are not just on the econ­omic front. Many communities do not want them in their back­yards and have opposed the pro­jects on aesthetic, health and en­vironmental grounds.

Symons acknowledges there is sometimes resistance to wi.nd farms' J ,

But'he says his company fre­quently tries to engage with the community and commissions re­search into the impact of the project on the area,

There are also those pushing for a greater focus on gas over re­newables as a way to focus on re­ducing greenhouse gases.

According to Origin, the cost of reducing carbon through wind is in the order of $40 per tonne more expensive than simply sub­stituting gas for coal.

AGL fast-tracked the $lbn Macarthur wind farm in Victoria in June, straight after the federal government fixed the small REC problem, but there has been little new investment since,

"The electricity market de­mand growth on the east coast has flattened off since late 2007," , says Ross Gawler, principal con­sultant on electricity markets at Sinclair Knight Mertz.

"This reflects the effects of the financial crisis."

Wind farms built or under construction The new large-scale renewable (estimate) energy targets

MW Share % GWh 45,000

34 40,000

Infigen 278 140 89 507 23 35,000

Pacific H.Ydro 57 202 259 12 30,000

Acciona 192 192 9 25,000

Roaring40s 20,000

66 140 206 9 15,000 , TSr 105 21 79 205 9 10,000

Trustpower 99 99 4 5000

Total 02 04 06 08 10 12 14 16 18 20

1018 745 140 140 168 2211 100 Source: Company reports, Macquarie Research