Published on October 27th, 2018 |
by Joshua S Hill
October 27th, 2018 by Joshua S Hill
Members of the Australian Government revealed in the middle of September that there are no plans to revise the country’s renewable energy target “with anything” after 2020 — a target which, as it stands, is relatively toothless, to begin with. Unsurprisingly, therefore, questions have been raised about the future of Australia’s renewable energy sector.
Australia’s Energy Minister, Angus Taylor, revealed in Parliament on September 18 that the current government — under the leadership of Liberal Party leader Scott Morrison — would not be replacing the country’s current 2020 renewable energy target “with anything.”
“The truth of the matter is the renewable energy target is going to wind down from 2020, it reaches its peak in 2020, and we won’t be replacing that with anything,” Taylor said. His reasoning — such as it is — states that Australia will reach its 26% emissions reduction target without further policy intervention, so why bother?
Australia’s current renewable energy target sits at a paltry 33,000 gigawatt-hours (GWh) by 2020, representing approximately 23.5% of the country’s electricity generation. What’s even more galling, however, is that this is the amended version, reduced from 41,000 GWh. Australia’s Government has also recently abandoned plans to have the current Paris Agreement target written into legislation, and blocked efforts to have climate change considered as part of the framing of the country’s energy agenda.
Doom & Gloom
It is unsurprising, therefore, that further questions have been raised about the strength and future of Australia’s renewable energy sector.
“The Australian government’s recent decision (Sept 2018) not to revise the country’s renewable energy target (RET) after 2020, in addition to scrapping the National Energy Guarantee (NEG), which aims to reduce emissions by 26% by 2030, has brought about a certain degree of investment uncertainty in the Australian renewable energy market,” explained Arkapal Sil, Power Analyst at GlobalData, in a recent analyst note. “As a result of this uncertainty, we may see Australia increase its conventional power capacity in order to maintain its annual base-load power requirements.”
For Sil and GlobalData, the concern is that the political uncertainty from a Federal level will not only hinder the renewable energy industry, but it will simply result in companies reverting to business-as-normal, i.e., fossil fuels — which, in Australia, traditionally means coal, but has also come to refer heavily to gas.
“Owing to policy uncertainty and a lack of clarity on the future direction of the national energy sector some large international players are looking to exit the Australian renewable market,” Sil continued. “The Chinese wind turbine supplier and project developer Goldwind is reportedly looking to move out of the market by offloading its wind and solar assets. This is a significant development as the sector needs private investment to kick-start projects with the high nature of their initial capital funding requirements. This is also despite the fact that the country is expected to exceed its 2020 renewable energy generation target of 33,000 GWh.”
Goldwind announced in September its intention to sell its Australian portfolio of over 1 GW worth of wind and solar projects, heralding its sale as a “unique opportunity to invest” in Australia’s renewable energy industry.
However, highlighting Goldwind’s desire to exit the Australian renewable energy industry as proof of its demise hides a larger story. Two pieces of news from October alone show that, while the Federal Government remains violently against renewable energy, the same cannot be said for others. Australian banking giant Macquarie Group announced in early October that it had joined a consortium of renewable energy leaders including Intercontinental Energy, Vestas, and CWP Energy Asia in investing in the Asian Renewable Energy Hub, a wind and solar hybrid power plant set to be built in Australia’s northwest which has been expanded once again to over 11 gigawatts (GW) in planned capacity. Only a few days later, the Australian Renewable Energy Agency (ARENA) announced that it would invest in the country’s first Business Renewables Centre which will aim to help businesses and local governments procure 1 GW of renewable energy by 2022 and 5 GW by 2030.
GlobalData wasn’t entirely dismissive of Australia’s renewable energy industry, with Sil explaining that, “Whilst the current uncertainty is limiting investment funding for large-scale renewable projects, smaller state-funded projects have largely been unaffected as they strive to achieve their renewable energy targets. Victoria, has a renewable energy generation target of 25% by 2020 and 40% by 2025, while Queensland’s target is 50% renewable energy by 2030. Companies like Windlab, Tilt Renewables, Genex Power, Kalina Energy and others continue to work on state-funded renewable energy projects like the 336 MW Dundonnell wind farm in the State of Victoria.
‘‘Any sort of regulatory intervention needs to be carefully thought through so as not to affect the commercial viability of the smaller players which could lead to reducing market competition.”
Darren Miller, CEO of the Australian Renewable Energy Agency, speaking at the announcement of its investment in the Australian Business Renewables Centre, echoed a similar line of thinking: “The future for energy is a large number of smaller renewable generating facilities often developed by non-generating entities,” he explained. “The Business Renewables Centre will help in that transition in using its vast expertise in running programs, entrepreneurship, innovation, education and other sustainability objectives to make it easier for companies and councils to enter into the renewables market.”
As a result, “According to GlobalData, 30% of Australia’s total installed energy capacity in 2017 was generated from renewables, including 10% from solar and 7% from wind power. By 2030, this figure is estimated to be 57% with a compound annual growth rate (CAGR) of 19.5%. However solar PV capacity is likely to decline by a CAGR of 5% to 2030 while overall power demand is expected to increase by 20% from 2018 to 2030.”
The Decline of Fossil Fuels
Not everyone is on board with the doom and gloom of Arkapal Sil’s forecasts, however, and there are those working across the Australian renewable energy industry who believe that it has the opportunity to grow significantly.
“Australia has a golden opportunity to play a leading role in delivering a clean economy – RE100 companies are seizing the chance to invest in low-cost renewable electricity because it makes business sense,” said Sam Kimmins, Head of RE100, The Climate Group, speaking at the first RE100 meeting in Australia, held in late-October. “Australia’s lack of clear energy policy direction has led to inflated costs and reliance on antiquated power sources, but forward-thinking businesses are planning for the long term – they want to be competitive globally.”
Confirming Kimmins claims, Barry O’Sullivan, the General Manager for Mars Australia said, “The rise in electricity prices last year accelerated our plans to join Mars sites in the US, UK and 9 other countries in moving to renewable electricity. We acted quickly because the price volatility of energy in Australia made renewables the best option for our business, in addition to getting us closer to our commitment to eliminate greenhouse gasses from our operations by 2040.”
This, in particular, speaks volumes against the vitriolic propaganda being spouted by members of the current Australian Government, who continue to claim that any focus on or increase in renewable energy will only serve to drive up electricity prices. In actual fact, it is the backward thinking and obstructionism of the Liberal Government that is and has been causing electricity price increases. One need only look back to the decision by then-Prime Minister Tony Abbott, another Liberal PM, to scrap Australia’s carbon tax in 2014, which led almost directly to a 70+% decrease in renewable energy investment. If we were to reverse the clock, keep the carbon tax, and support renewable energy investment, would we be in a position where the renewable energy industry has to fight on its own?
Regardless of the past, however, there is evidence to suggest that the future of renewable energies in Australia is brighter than what some may have us believe.
“[The Institute of Energy Economics and Financial Analysis] is firmly of the view that thermal power generation capacity across Australia will progressively and inevitably continue to diminish over the coming decade, as it has been doing since 2010,” said Tim Buckley, Director of Energy Finance Studies, Australasia, for the Institute of Energy Economics and Financial Analysis (IEEFA). “There is no real business case for either new coal nor gas-fired power capacity, the escalation of fuel costs alone make both power sources for new capacity uncompetitive against new solar and wind at AU$40-50/MWh.
“AGL [one of Australia’s largest generators and retailers of electricity] this month confirmed that absent a major reduction in domestic wholesale gas prices, new gas peaking capacity is uncompetitive vs the combination of low-cost variable renewables firmed by a combination of grid interconnection, pumped hydro storage, DRM, and batteries,” Buckley continued. “AGL mothballed its phase II gas peaking plant development program to 2022 this month for that very reason. The Federal Government’s unwillingness to unwind some of the market power of the gas cartel across Eastern Australia means a sustainable reduction in domestic gas prices is unlikely. The only obvious solution to a clear case of sustained market failure would be the implementation of a domestic gas reservation policy. Meanwhile, 6,000 kcal (kilocalories) coal export prices have doubled since the start of 2016.
“Even acknowledging the clear failure of Federal electricity policy development with the collapse of the NEG, the investment flows into ever cheaper renewable energy infrastructure development across South Australia, Victoria and Queensland, plus maybe 1-2 GW of new renewables in NSW means close to $10 billion of new renewables generation investment is now well underway. Regardless of the RET, with wholesale electricity prices of AU$70-80/MWh, renewable energy projects are clearly cost competitive even when firming costs are added on. What Australia needs is an orderly transition and phased renewables investment working in conjunction with AEMOs NEM grid mapping program to drive a least-cost, planned transition rather than the disorderly transition that comes with the Coalition’s energy policy chaos.”
Similar hope is held by those working outside the energy sector. “WWF believes the future of renewable energy in Australia is very strong because it makes business sense,” said Monica Richter, Senior Manager Low Carbon Futures, WWF-Australia. “The cost of renewable electricity is coming down significantly. When WWF started the Renewable Energy Buyers Forum over four years ago the price of large scale solar PV was over $120/MWh and now only four years later we are seeing prices for solar PV at less than $70/MWh. And big businesses are seeing the real advantages to them of committing to long term corporate renewable energy Power Purchase Agreements (PPAs) to secure a long term reliable renewable electricity supply.
“Experts are saying that well-negotiated PPAs can deliver significant cost savings in the order of a 15-50% reduction on electricity bills,” Richter added. “You’d have to be mad or deluded not to see this as a significant business opportunity. The fact of the matter is that the electricity grid is decarbonising and the price of renewable energy will soon outcompete coal-fired electricity, and governments can either stand in the way of this progress or help it through smarter government policies that a support a smooth transition.”
The Future Is Hazy
In the end, it seems that it could be anyone’s guess as to how the future of Australia’s energy industry plays out. The state of play has been further thrown into chaos following a by-election result which lost Scott Morrison his majority in Parliament. Not only will this make governing difficult for Morrison and the Liberal Party but, as it stands, it makes it incredibly difficult for them to hold on to power after a national election in May of next year.
If the Liberals are shunted out of power, what then? The Labor Party, the second of Australia’s big-two political parties, has made several promises as part of its Climate Change Action Plan, including:
- Ensure that at least 50% of the nation’s electricity is sourced from renewable energy by 2030
- More certainty and flexibility with less red tape and more technology options for the Clean Energy Finance Corporation
- Invest $206.6m in ARENA to support a specific Concentrated Solar Thermal funding round
- Invest $98.7m to establish a Community Power Network and Regional Hubs
- Ensure the Federal Government leads by example as a direct purchaser of renewable energy
Whether or not a Labor Government comes to pass — and even if it does, whether or not they bother to follow through with their promises — Australia’s State Governments are already on a path to ensuring a renewable energy future for the country. South Australia and Victoria are making significant strides, and are slowly being joined with other states as the business case for renewables is revealed.
In the end, a lot will come down to the next seven months as the country gears up for another election. Climate change and renewable energy will be big cards for both parties, and only a result in favor of the Labor Party has any real hope for political certainty for renewable energy.
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