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Australia

Australia

Support snowballs for mandated target

As leading politicians in Australia's states recognise the economic benefits that wind power can bring to depressed rural areas, their support of the federal government's mandated market for green power certificates is gaining momentum. So too is their understanding of the need for grid and transmission upgrades if Australia's wind industry is to live up to its full potential. Much now hangs on the outcome of the current review of the mandate

As far as it goes, Australia's Mandated Renewable Energy Target (MRET) has shown itself to be a good instrument for driving wind development. Projects approved, out to tender or under construction amount to a combined capacity of 1025 MW, another 1767 MW is well into the planning stage, and around 14 international wind companies have entered the market, with others on the way. As environment minister David Kemp said earlier this year, there has been a "veritable explosion of activity in the domestic renewable energy sector." MRET is just over two years old, he continued, "but is already delivering significant investment and jobs -- a situation that we hope to see continue."

But just as the industry was getting into its stride late last year, the Council of Australian Governments (COAG) called for the legislation -- designed as a 20-year program -- to be scrapped, complaining that it was a costly way of reducing greenhouse gas emissions. Kemp's arguments that MRET will "deliver low cost greenhouse gas emission abatement in the longer term" apparently fell on deaf ears, throwing the fledgling wind market into a turmoil of uncertainty ahead of the federal government's long planned review of the two year old MRET, which is now underway.

In the long term, the review just might turn out to be a good thing. Submissions to the review panel are revealing a surprising level of widespread support for MRET, much of it from state governments which have already seen the wind industry boost local economies. Furthermore, a coalition led by the Australian Wind Energy Association (AusWEA) is campaigning strongly for a far more ambitious MRET outcome. Instead of the government's cautious target for 2% of Australia's electricity to come from renewables by 2010, the coalition is calling for 10% by 2010 -- a so-called10x10 target with the expectation that wind will meet 50% of it, requiring construction of 5000 MW.

Originally announced just over five years ago as part of the government's climate change strategy, MRET came into force in April 2001. The legislation is a hybrid of a regulated but market-based system, where the cost of meeting the mandated target on power retailers is left to market forces. The non-tax deductible penalty, or shortfall charge, for failing to meet targets is a fixed A$40/MWh (Windpower Monthly, March 2002). Generators accredited under the legislation are required to submit renewable energy certificate (REC) generator statements to the energy regulator and are charged with issuing one REC for every MWh of renewables generation sold. Retailers buy the RECS and can then surrender them to meet their targets, or sell them to another party -- either via a bilateral agreement or on the internet-based spot market, known as the Green Electricity Market.

While the legislation's primary objective is to reduce greenhouse gas emissions, that is not its sole purpose. It is also designed to foster industry investment and development. Announcing the appointments to the MRET review panel earlier this year, industry minister Ian Macfarlane stressed the point: "A key objective of MRET is to drive the development of Australia's renewable energy industry and leverage investment in renewable energy technologies."

Indeed, it is the potential economic benefits, particularly for rural areas, rather than the greenhouse gas abatement credentials of renewable energy, that lie behind much of the support for MRET. State governments are keenly aware that a thriving Australian wind industry will bring jobs and major investment. It is also this aspect which has caught the imagination of members of the broad-based coalition calling for 10% renewables by 2010 -- among them representatives from industries as diverse as the medical profession, engineering and tourism (box).

"Anything less than a 10% MRET would be holding Australian industry back," says AusWEA. "The 10% target is easily achievable and Australia can deliver renewable energy at much lower cost than other countries." But the leadership of the federal government will be critical to maintaining current momentum in the wind industry, which under MRET has led the way in creating jobs to become Australia's fastest growing energy sector. "The industry already has A$4 billion worth of projects on the books, three factories in train and is well positioned to be a highly competitive mainstream Australian energy provider," says AusWEA. The association's Karl Mallon argues that a "ten-by-ten MRET will deliver investment of nearly A$10 billion and more than 9500 new jobs, a good portion in economically hard-hit rural areas. If the MRET target is not raised to international levels, these jobs and investment dollars will be jeopardised." The cost to Australians would amount to just A$0.30 a week for the average family, says AusWEA.

The cost of wind power has dropped from A$320/MWh in 1981 to $80/MWh today. And while installed capacity is just 105 MW, most of it developed in the last three years, Australia's southern states say they can deliver 5200 MW to the national power system before 2005 -- exceeding AusWEA's target.

States support MRET

That can only happen, however, if the federal MRET legislation survives. Of the six Australian states and two territories, five are pressuring for its retention, led by South Australia, Victoria and Tasmania, where most wind power is planned. The message being sent to the Canberra seat of government, however, is mixed, revealing not so much different levels of enthusiasm for renewables, but different constraints in the individual states, particularly lack of sufficient grid and transmission capacity.

Most bullish is South Australia. The state government wants the MRET raised to 5% by 2010, increasing to 10% by 2020 at the latest, while several of the state's local authorities have joined the call for a ten-by-ten target. While the state has less than half a megawatt of wind so far, it has by far the most wind power in planning, with 270.25 MW approved or under construction and a further 656 MW proposed. Much of that may not go ahead without an increased MRET, but with MRET the state's estimated potential is for 2000 MW of wind capacity by 2007.

South Australia's district council of Grant is one of several in the state backing the 10% target. Grant has several wind projects planned for its area, including Babcock and Brown's 80.5 MW Lake Bonney wind farm near Millicent, to be supplied with Vestas 1.75 MW turbines for operation by 2005. The council's Russell Peate points out that Grant's economic development strategy identifies a number of significant opportunities for the wind industry in particular, including possible future manufacturing of wind energy components, which could be lost without a stronger MRET.

Putting a gentle lid on Grant's enthusiasm, state energy minister Patrick Conlon says a 5% by 2010 target is more realistically achievable in the short term. A 10% target, he notes, could only become truly economically viable for the state if a new interconnector was built linking South Australia with New South Wales.

Outspoken Victoria

In Victoria -- Australia's leading wind power state with 39.26 MW -- politicians have been some of the most outspoken in their support of MRET. "The energy industry is ready to expand but it cannot do so without a substantial increase in the MRET," says Victoria energy minister Theo Theophanous. His view is backed by environment minister John Thwaites. The two have slammed COAG's call for MRET to be scrapped as "half baked and damaging" to the development of an Australian renewables industry "able to deliver cost-effective greenhouse gas abatement in the long term."

The current MRET target is not high enough for Australia to have a competitive renewable manufacturing industry in the long term, argues the Victoria state. "In particular, the development of the Victorian wind industry would not proceed without the incentives of the MRET," it says in its submission to the MRET review. Victoria has approved 232.5 MW of wind projects, including Pacific Hydro's 180 MW Portland Wind Energy Project, which led Denmark's NEG Micon to establish a manufacturing plant in the state. A further 260.5 MW of wind projects are in planning.

The Victoria government has promised to meet a target of 10% of the state's energy supply from renewables by 2010, up from today's level of 4%. But it is not backing a 10x10 MRET. Such a big increase "should be justified by a broader analysis of the environmental, social and economic benefits of price reductions in renewable energy technologies, replacing imports and developing Australia's export markets," it says. A more sensible strategy, in Victoria's view, is a doubling of the MRET from 2% to 4% -- a goal of 19,000 GWh a year from renewables by 2010 instead of today's national MRET goal of 9500 GWh.

The government does concur with the demand by the 10x10 coalition campaigners for the duration of the target to go beyond 2010, although only if the environmental costs of fossil fuel energy generation are not internalised by then. At present, MRET legislation contains annual interim targets which ramp up each year until 2010. After 2010, the target is to remain at 9500 GWh a year until 2020. "As 2010 approaches, new renewable energy projects will find it increasingly difficult to obtain financing to proceed due to the decreased time period for investors to include the price of RECs into their investment decisions," it notes.

More state backing

Tasmania and Western Australia, where wind development has also taken a serious upturn, are also in the pro-MRET camp. Tasmania's 11.33 MW of installed wind plant is set to rise to at least 441 MW and Western Australia's from 25 MW to 250 MW if all projects currently proposed go ahead.

Hydro Tasmania is behind Tasmania's massive leap in planned wind power capacity with five projects with a combined capacity of 428.7 MW planned for the state. Denmark's Vestas is the supplier to all the projects and is setting up a nacelle assembly plant in the state. "Vestas believes that there is capacity for Tasmania to be its principal supplier of assembled nacelles in the region," says the state's deputy premier, Paul Lennon. "This new facility at Wynyard will deliver more than 60 new jobs and $15 million in new investment."

The approval of the Basslink interconnector, linking Tasmania to the mainland, has opened up the opportunity for windy Tasmania to serve the mainland with a steady flow of green power. Again, it all depends on MRET. "A major issue is the need for an extension of the commonwealth government Mandatory Renewable Energy Targets," says Lennon. The life of the legislation should be extended to 2030 and all projects, even beyond that date, should be promised a 20 year MRET framework, he advocates. Furthermore, the target should be amended to "achieve at least a real 2%" by 2010 which takes account of growth in consumption. At present that requires a target of 13,500 GWh a year in new renewable generation by 2010, not just the stipulated 9500 GWh.

Western Australia (WA) is more cautious in its support of MRET and opposes an increase in the target. It points out that its isolated transmission and distribution system tends to push up the costs of wind power. "Private renewable generators have been confronted with onerous balancing and load following requirements and have not been able to secure financially viable arrangements for the purchase of spill electricity. Like all private generators in WA, they also face the impediment of the high price of standby power," says the state's Chamber of Commerce and Industry (CCI) in its review submission.

"It would appear, in the context of WA, premature to increase MRET. The wisest course of action would be to expeditiously reform the sector to remove the structural barriers that exist for renewable generators," says the submission. "Once this is done, a more objective assessment could be made of the need to increase MRET and its effect on prices and the technical management of the WA electricity system."

The Northern Territory, even though it has no wind power to speak of as yet, is also supportive of MRET for its jobs potential. Aside from network and transmission constraints, the main obstacle to wind, says the state's Green party, is the sparse population and low energy consumption, which makes the state reliant on national trends A higher target, they argue, would enable economies of scale, which in turn will increase the viability for local manufacturing.

Scary grid stuff

All the MRET submissions reveal that bubbling beneath the calls to retain or strengthen MRET is a clear awareness that lack of sufficient grid access and poor transmission networks and policy rules are the next major barrier to be overcome -- and not just in the more isolated regions of Western Australia and the Northern Territory. Unless the Commonwealth government's general energy review results in major investment to update the country's grid infrastructure and improve access for renewable generators, the aims and potential for wind capacity could be no more than a "pipedream," warns Michael Vawser of Wind Prospect, a wind project developer active in South Australia. He argues that the potential for 2000 MW in South Australia outlined by the state government does not take account of the region's low electrical load -- 1500 MW on average -- compared with eastern states. Balancing large amounts of wind power on such a constrained network would be enormously costly, requiring dedicated back-up. Constraining wind to 10-20% of grid penetration -- an international rule of thumb for the amount of wind power allowable on an isolated network to maintain a secure supply -- would mean potential for no more than "a paltry 150-300 MW," he says.

With further interconnectors to the eastern states, more wind capacity is feasible, he concedes. "Nonetheless, getting 2000-3000 MW of wind developed in South Australia is a pipe dream, but few in the wind industry seem to understand this," continues Vawser. "Developers are continually finding sites in South Australia and developing them, with not much thought about the low probabilities of success. Just Wind Prospect alone has about 1000 MW of sites that we are monitoring currently, with 200 MW approved. If I consider other developers' sites, I would estimate an additional 2000 MW of projects are currently being monitored. Scary stuff, given that at least two-thirds of the sites are likely to miss out in the foreseeable future."

Less concerned

Other industry players are less concerned about the long term issue of grid access. Greg Jones of Hydro Tasmania says his company is looking at network integration issues. "There are technical challenges but all issues are technically solvable," he says. "Stage one of our Woolnorth project, which is 10.5 MW, has been connected to Aurora's 22 kV distribution line. However, the next stage, 64.5 MW will have to go through their 100 kV transmission line and we are quite positive about integration." In its submission to the MRET review, the company argues that strategic network development is needed. A national transmission development strategy should be established to "inform transmission regulators of the public good of regional network upgrades," it says.

The terms and conditions of network access are also causing problems for renewable generators. In Western Australia it is seen as the main constraint. Here segregation of the network and wires from the rest of Western Power and the establishment of an access code administered by an independent regulator would, says the Chamber of Commerce and Industry, ensure renewable generators are in a competitively neutral position when seeking access to the network. "The growth of renewable energy has been stifled not by the lack of suitable regulatory incentives, but rather through poor market structure and the absence of independent access regulation," it says.

Without regulatory change in all states, says AusWEA, the 5000 MW of wind energy it anticipates will come from a 10% MRET target by 2010 may well not happen. "Despite the excellent natural wind resource Australia has, much of the best resource is in remote locations and away from load centres. In many cases the cost of grid connection at these otherwise highly viable sites is prohibitive unless such costs can be shared with other wind developers, but in the absence of strategic development policies in National Electricity Market structures, such co-operation is impractical and frequently at odds with competitive market frameworks," it says.

It is confident, however, that the ongoing national energy review will rectify the problem -- and that confidence may be well founded. The Ministerial Council on Energy, comprising energy ministers from commonwealth, state and territory governments, has begun negotiating agreement on a new energy framework with a stronger national focus and has just approved the formation of an independent Australian energy regulator to oversee the country's electricity transmission and wholesale energy market -- including price and enforcement of market rules. The aim is for improved planning and development of electricity transmission networks, "creating a stable framework for efficient investment in new generation (including distributed) and transmission capacity."

It is the first part of a major push to streamline energy regulation in Australia. "There are profound implications for the role of renewable energy," says AusWEA's Rick Maddox, welcoming the news. "We're looking forward to a positive approach, leadership for the renewable energy market and a co-ordinated national approach that will boost the uptake of renewable energy in Australia." Victoria's Theophanous says it represents "a sea change in the way energy regulation is conducted in Australia," offering "a more predictable, certain and transparent regulatory framework." Assuming the MRET is strengthened, this sea change then appears to be blowing firmly in wind's favour.

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