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Australia

Australia

Interest revives in domestic market

AUSTRALIA: Two major Australian wind energy developers have announced a renewed focus on their domestic market despite continuing uncertainty about existing and proposed market mechanisms designed to support low-carbon energy generation.

Pacific Hydro has sold its stake in a Philippines renewable-energy project and will re-orient toward Australian, Brazilian and Chilean prospects. Meanwhile, CBD Energy has finalised a A$6 billion (US$6.4 billion) joint venture with two Chinese partners to establish the AusChina Energy Development Trust. Established in conjunction with China Datang Renewable Power and Tianwei Baobian Electric, the trust will seek to "become a significant participant in the Australian energy market".

The two announcements are particularly welcome as they follow a decision in February by Australia's largest energy retailer, AGL, to shelve A$2 billion worth of investment in new wind developments. Explaining its decision, AGL said it would not proceed with new wind developments until there is more certainty about the introduction of a carbon price as well as a rebound in the price of renewable energy certificates (RECs) under Australia's Renewable Energy Target scheme.

Retreat from wind

AGL CEO Michael Fraser said his company's decision to retreat from wind was influenced by a 3.7% decrease in underlying profit for the six months to December 31 2010 compared with the second half of 2009, the result of spending almost A$100 million on the purchase of RECs.

In contrast, Pacific Hydro's general manager for Australia/Pacific, Lane Crockett, says that the company is very confident that there is "a strong and substantial market in front of us" in Australia.

To this end, Pacific Hydro will sell its 50% stake in the Luzon Hydro Corporation joint venture, which owns and operates the 70MW Bakun Hydro plant in the Philippines.

Crockett also argues that energy retailers should move "reasonably quickly" in order to ensure they meet the 20% renewable electricity target by 2020, as it requires "a significant amount of investment" in new infrastructure. If retailers delay too long they will "stress the resource base that's going to deliver it", making new development more expensive.

Uncertainty

Although Pacific Hydro will consider investing in new wind developments, long-standing uncertainty in the market means it already has a "mature" A$2 billion pipeline of projects ready to be progressed through the commercial, investment approvals and construction stages.

Meanwhile, CBD Energy's joint venture with its two Chinese partners also reflects renewed optimism in the Australian market.

The joint venture will initially focus on Australia, with a starting development portfolio of up to 500MW, the majority of which is expected to be wind, a CBD Energy spokesperson says.

The joint venture enables CBD to take advantage of lower-cost equipment as well as established banking relationships and funding to give it a significant cost advantage in the Australian market, says the spokesperson.

CBD Energy believes that financial parity with traditional coal-fired energy is "not too far off" and, with a higher REC value, it can be competitive not just in the renewables sector but in the energy sector overall.

With REC prices recovering slowly, investors are waiting for further details about the federal government's proposed carbon price scheme, set to begin in July 2012. The opposition has said it would repeal any carbon price legislation if it wins the next election, due in 2013.

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