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Australia

Australia

Great expectations for Australia renewed -- Government review firmly behind strengthening renewables law

The Mandatory Renewable Energy Target (MRET) should remain in place and be strengthened, recommends a panel selected by government to conduct a review of the three-year-old law. The strong case for retaining MRET outlined by the panel is in stark contrast to the situation a year ago. Investment in hundreds of megawatt of wind development was abruptly put on hold in late 2002 after the Council of Australian Governments called for MRET to be scrapped saying it was "poorly targeted" and imposed "significant and unnecessary costs on the Australian community".

Australia's trail blazing renewables legislation is back on track after a year of uncertainty. The Mandatory Renewable Energy Target (MRET) should remain in place and be strengthened, recommends a panel selected by government to conduct a review of the three-year-old law. The strong case for retaining MRET outlined by the panel is in stark contrast to the situation a year ago. Investment in hundreds of megawatt of wind development was abruptly put on hold in late 2002 after the Council of Australian Governments called for MRET to be scrapped on the basis that it was "poorly targeted" and imposed "significant and unnecessary costs on the Australian community" (Windpower Monthly, January 2003).

The MRET is legislation obliging sellers of electricity to submit tradable Renewable Energy Certificates (RECs) each year to demonstrate they have met their share of the law's target. Failure to meet the target triggers a shortfall penalty of A$40 for each green megawatt hour not delivered. The legislation has sparked strong wind power growth. Installed capacity has gone from 10 MW in 1999 to 195 MW today, another 227 MW is being constructed and 67 MW is out to tender, reports the Australian Wind Energy Association (AusWEA). A further 2789 MW has been proposed. Without MRET, AusWEA argues, the wind industry would effectively collapse.

The panel appointed by the Commonwealth government to review MRET agrees. It has spent well over a year examining submissions to its review from a wide range of interested parties on both sides of the debate. The panel strongly recommends retaining the current MRET target for a 2% increase by 2010 on the 10.5% share of power supply held by renewables in 1997, to be achieved by securing an average 9500 GWh of additional green electricity a year. But the 9500 GWh a year until 2020 should be higher beyond 2010, says the panel, increasing steadily and stabilising at 20,000 GWh a year.

Of crucial significance to the wind industry's ability to finance its projects, the panel also calls for MRET to be extended beyond 2020. The extension means projects proceeding after 2005 will be eligible to earn RECs for a full 15 years. With project financiers often wanting a minimum of 15 years pay-back for their investments, this will enable projects to proceed, it says.

The panel further supports another key request of the wind industry for increasing investor confidence: linking the A$40/MWh shortfall charge to the inflation index from 2010 until 2020. If the government accepts that recommendation, it will reduce the risk of power retailers opting to pay the charge rather than buy RECs, it points out. If indexing is not introduced, "the target of 20,000 GWh would not be met."

Environmental groups have strongly criticised the panel for not immediately increasing MRET's cautious target for only a 2% increase in Australia's renewable energy supply. They are campaigning for a target increase to 10% additional renewables by 2010 and 20% by 2020.

The panel argues, however, that raising the target earlier than 2010, or higher than it suggests in the years up to 2020, will place unreasonable pressure on industry players and unacceptable cost increases on consumers. The industry "would have a hard time meeting an increased target because of the lengthy processes to get the necessary planning and environmental approvals," it maintains.

Criticism and support

Ric Brazzale of the Business Council for Sustainable Energy, who expressed "extreme disappointment" in the report, refutes this. "They've got it wrong. The report fails to take into account the current pipeline of projects," he says. "An increase in the target could easily be met. Of the more than 2500 MW under development at present, nearly 40 per cent already has planning approval."

The wind industry is more pragmatic in its response. "It is as we anticipated," says Miles George of Babcock & Brown, the investment bank behind one of Australia's biggest wind developments, the 200 MW Lake Bonney wind farm in South Australia. "The target has been substantially increased and the sunset date is effectively extended. That there is no change between now and 2010 is disappointing, but realistically it takes time to get projects up and running and so it's only the period between 2007 and 2010 which is potentially an issue." He adds: "It is good that the commitment is there for an on-going MRET."

Gareth Johnston of JG Service agrees: "That the MRET is being retained does provide some security to 2010 for existing projects which is welcome and the industry can achieve a lot of goals."

Wind project developer Pacific Hydro concurs that if the government accepts the panel's recommendations it can move forward on more than 300 MW of permitted wind development and a further 500 MW it says could be developed by 2007. But it, too, would like to see the 2% target increased, arguing that the case for a 10% target has been proved and it should be adopted. Indeed, a multi-party House of Representatives Joint Standing Committee report on Employment in the Environment, published in November, advises government to increase the MRET target to 10% by 2010 saying it was "realistic, viable and achievable." The report "sends a far more compelling message to government that a 10% MRET would result in more meaningful cuts in Australia's greenhouse gas emissions while creating thousands of jobs," says Pacific Hydro's Jeff Harding.

Karl Mallon of AusWEA agrees. "Wind industry investment will hit a glass ceiling in three years unless there is a major increase in the target," he insists. "The timeframe is too slow." Wind power, he says, could meet half a 10% target, equivalent to around 5000 MW of capacity.

Wind benefits

Some state ministers, keen to attract the wind industry and its jobs to their regions, have also reacted with disappointment. "This is a do nothing report and should be rejected because it threatens the future viability of green energy in this country," suggests South Australia's environment minister John Hill, who believes the MRET target should double to at least 4.5% by 2010.

The panel counters that under its proposals, growth in the renewables sector and increased investor confidence for the long term will be ensured. The wind sector will see greatest growth, rising from 11% of renewables capacity today to 41% by 2020, supplying 8200 GWh of the 20,000 GWh a year recommended target to 2020. That would happen with or without indexing of the shortfall charge. With indexing, the 20,000 GWh annual target can be exceeded, with generation from renewables rising to around 36,700 GWh a year by 2031. Wind power would supply around 64.5% of this, 23,671 GWh a year, the panel estimates.

Specifically, it points out that "a target of 20,000 GWh in 2020 could also be expected to justify the significant investment required to establish local manufacturing facilities for renewable energy equipment." It cites AusWEA, which says a market of 85-170 MW a year is the minimum to make blade manufacture in Australia viable.

No action danger

If the panel's recommendations for strengthening MRET are not adopted by government, "investment is expected to fall away rapidly," says the report, adding, "under current settings, MRET will not achieve its industry development policy objectives." It points out that the current target for an average 9500 GWh a year by 2010 will most likely have been reached by 2007, with the industry left to fall off a cliff unless action is taken. Its recommendations for a 2020 horizon are modest. Based on forecast growth in Australia's electricity demand, the recommendations do no more than ensure that renewables contribute an additional 2% of green power to that demand -- the original goal when MRET was launched in 2001. The panel strongly recommends: "The continuation and refinement of MRET, not only to sustain the industry's further development beyond 2007, but as a sensible insurance policy against significant greenhouse gas abatement measures being introduced in the future."

The government's response to the report is not expected for several months.

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