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Australia

Australia

Pulling back from the cliff's edge

While the support of several state ministers could prove a critical lifeline to the Australian wind industry, danger still lurks on the horizon and there is much to be done if its future is to be assured. New legislation is being hotly debated and vital network expansion is on the drawing board, but while the signs for success are encouraging, the industry is still

teetering precariously close to disaster

Although continuing its efforts to persuade the federal government that legislative improvements are required to ensure long term wind development in Australia, for now the industry's main hope for a lucrative future beyond 2007 appear to rest largely on state plans. As the states identified with the greatest potential for wind power, New South Wales, South Australia, Tasmania and Victoria are perhaps the most proactive of Australia's seven states.

Following federal government refusal to increase the Mandated Renewable Energy Target (MRET) last June (Windpower Monthly, July 2004), the governments of these states joined forces to form an inter-jurisdictional working group to develop a state-wide approach to achieving higher renewable energy targets. Combined, these states already have around 337 MW of wind power installed and thus 89% of Australia's total installed capacity and over 5350 MW, or just under 92% of capacity, proposed for development. Their concern is that without higher targets and an improved MRET type legislation, the bulk of that proposed capacity will simply go undeveloped and with it potential jobs and revenue for their local economies will be lost. It is a fear the Australian wind industry has repeatedly warned will become reality if the status quo prevails.

MRET has been the driving force for wind development in the country, with installed capacity rising to just under 380 MW from virtually nothing prior to the legislation's introduction a few years ago. Without an increase in the target from its existing 9500 GWh of new renewable energy a year by 2010, refinements to the legislation or an extension to its lifespan, the industry warns there will be little if any new wind development beyond 2007. Quite simply, at current installation rates there will be sufficient installed generating capacity to meet the current MRET within the next year or so. Even the government's own review, The Tambling Report, acknowledged this, recommending as it did major increases in MRET to 20,000 GWh a year and an extension of the scheme to 2035, by which time the MRET would have resulted in the delivery of over 30,000 GWh a year. Generally targets of an increase to 5% and 10% over 1997 levels, to be delivered by 2010 and 2020, respectively, have been argued for by the wind industry and others.

Lifeline

Without changes, around A$5 billion in proposed projects could be lost, warns the Australian Wind Energy Association (AusWEA). Hence the reason that once again, strategies for achieving these more ambitious targets are being thoroughly debated with state authorities. For the industry, the intervention of state ministers is thus not only timely, but critical if it is to flourish. "In the absence of an improved federal MRET, a state based MRET is essential for the long term viability of the renewable energy industry in Australia," says Michael Vawser of developer Wind Prospect. "There is a real cliff edge which is going to be extremely difficult to overcome without alternative support."

AusWEA's Ian Lloyd Besson concurs. Many developers and wind farm component manufacturers "are already looking overseas for future wind farm development, especially considering there is a far greater number of projects in the feasibility stages of development than can be supported under the current MRET," he says. "Developers need long term market security to ensure their projects get off the ground." However, he stresses, the immediate future of the Australian wind industry "remains positive." He adds: "Global momentum means a state-based MRET is not the be all and end all, and AusWEA is exploring other options both federally and with individual states to ensure we have market security."

The energy ministers of the four states in the working group are, however, keen to pre-empt possible federal inaction. All too aware that companies are already preparing contingency plans to look elsewhere to further their businesses post-2007, they are keen to act. So, with MRET having been an unquestionable success to date, it's little wonder that they are investigating the options for a similar state level program. Significantly, the possible targets being discussed establish those in the Tambling review as a minimal requirement.

state level MRET

The role of government is to assist industry to become more competitive and to reduce prices, says Victoria's energy minister, Theo Theophanous. A state level MRET program could be the answer. "We will be looking at how, in co-operation with other states, a state-based Mandated Renewable Energy Target would give the industry a better result," he told delegates at the Tradewind forum hosted by AusWEA in Melbourne in December. If it happens, the most likely outcome is that targets would be apportioned to states based on their share of the national electricity market while the basic structure of the program would be based on the existing federal MRET.

Since MRET uses a system of renewable energy certificates (RECs) which have an independent market, it would in principle be possible for a state-based system to operate in parallel with the federal MRET using the same RECs and a set of state-based obligations, suggests AusWEA. RECS could be sourced from any state, while the preferred option would be to hold the target to 2035 to "remove any boom-bust effects or effects of compressing project implementation time frames." Moreover, the cost of a cross-border states system would, adds Besson, be reasonable. Referring to a recent report published by the association, Cost of Federal and State Renewable Energy Targets, a 5% increase in the market share of renewable energy would cost consumers just A$1.33 extra a month, he says. "A ten per cent target would be worth about the same as a bag of chips per month for the average household, which is a small sacrifice to make to accelerate the growth of the clean energy era," he adds.

Danger

While enthusiasm among the energy ministers of the four key states is high, the practicality of making it a reality and gaining the support and co-operation of the remaining state governments of Western Australia (WA), Northern Territory and Queensland may not be as easy to obtain. Speaking in the WA Parliament on behalf of energy minister Eric Ripper, local government minister Nick Griffiths has ruled out any commitment by WA to a state program just yet. "A state-based requirement would not be considered until all other options for implementing renewable energy targets at a national level have been explored," he says. Meanwhile the Northern Territory has no wind projects to speak of and appears content to rely on its vast coal reserves, and much the same can be said for Queensland. In contrast to the states in the working group, the proverbial carrot, which in this case are jobs, revenue, and emissions reductions, seems little incentive for these states to increase attention on renewables at present. Rather they seem content to implement the minimum action driven by the stick that is federal legislation.

This lack of initiative on their part could, in the end, be the biggest obstacle of all. Quite simply, opposition from these states could crush any hopes of a country-wide state initiative getting off the ground. Theophanous stresses the danger. "Getting all the states in is critical," he warns. "A state MRET scheme must be accessed across all states and there are administrative and constitutional issues to address."

Persuading them to join their colleagues is likely to be an uphill struggle. The problem is compounded by the simple tyranny of distance. Australia is a vast country, thus grid connection and transmission expansion to link all states and accommodate new capacity, vital if a state system is to work effectively, is an appropriately costly task. The New South Wales, Queensland, Victoria and South Australian electricity grids are all already connected to each other. Tasmania will be connected too, via the Basslink interconnector, later this year. Thus if any of these states has excess capacity, it can sell and export electricity to a neighbouring state. But while connected there are limitations and it is widely acknowledged that to meet forecast increases in electricity demand most existing grids and transmission networks throughout the country need improvements, be it expansion or a strengthening of ageing infrastructure.

integrating wind

Even so, according to a report prepared for the Australian Greenhouse Office by Hugh Outhred of the University of New South Wales, with the right incentives to build and with minor grid improvements, significant amounts of power from wind projects proposed could be "readily integrated" into the existing network. Indeed, without any changes at all and without the need for additional back-up, up to 2200 MW of wind power, it says, could be integrated into the principal Victorian electricity grid alone within the next ten years. This amount would rise if improvements to some sections of the grid are made and some additional back up provided. The only obstacle, it reiterates, is providing the right incentives to build in the first place.

Meanwhile, Western Australia and the Northern Territory remain relatively isolated in terms of cross-border transmission, although opportunities for wind power in WA should start to open up thanks to the recent completion of a new transmission line within the state. WA's wind capacity is set to rise from its current 33 MW, with its largest wind farm, the 90 MW Alinta project in the mid-west, now under construction. The Alinta project is one of around ten wind projects either in the feasibility, planning or construction phase within the state that are more likely to proceed now thanks to changes in energy legislation and the new transmission line.

"Wind power is an abundant renewable resource in WA," says Ripper. "The Mid-West is well placed, because the government has built a new A$60 million transmission line from Pinjar to Eneabba which will be the backbone for new renewable energy projects." Without this 200 kilometre transmission line, "development of the region, including the construction of new wind farms, would be in jeopardy," the minister notes. "The two existing transmission lines between Geraldton and the metropolitan area are overloaded." The addition of the new line boosts the state's transmission capacity from 64 MW to 103 MW. With the addition of the new line, the government is confident the state can make its expected contribution to meeting targets under the existing federal MRET.

further investment

The wind industry's hope is that as new projects come online, the WA government will see the economic benefits of wind development and additional investment in transmission results over the next few years, particularly with a view to connecting it to other regions.

Improvements in general energy legislation to enable fairer and cheaper access to the grid for embedded generation such as wind farms are also necessary for sustained wind growth in the long term. Australia's grids have been designed to deliver power from large centralised power plants such as those fuelled by coal or gas, rather than smaller and more remote decentralised plant such as wind farms. As a result, wind farm developers have often had to bear the high additional costs of building transmission systems in order to deliver their power to the grid. Even then, they have often been paid less for the electricity they sell into the grid on the basis of wind power's intermittency and poor ability to forecast generation in advance. Already work is underway to bring about a fairer and more level playing field in these respects. Bringing about change at a national level is proving difficult.

Both grid access and transmission costs are among issues being considered as part of the overhaul of the National Electricity Market (NEM), which is being overseen by the Ministerial Council on Energy. Both state and federal governments will have to implement electricity transmission reforms and a national approach to energy access over the next two years with a view to providing more favourable conditions for embedded generators. However, a proposed new National Electricity Law was recently put out for industry comment and already concern is mounting that it will bring little positive change for wind power developers. "It is of concern that the Ministerial Council on Energy will not be able to initiate a rule change proposal in relation to a wind farm because that is not an interest recognised within the NEM objective," explains Besson.

To address these concerns the council's wind energy policy group is now working with the National Electricity Market Management Company to clearly identify impediments to large scale wind farms and find solutions. It is due to release its preliminary report to industry for comment this month. For now it seems positive action could depend largely on independent state level initiatives.

Victoria, for example, has introduced a specific wind energy bill designed to help the industry overcome some of the key cost and transmission access issues. It has been designed to encourage future investment in small wind farm sites in areas of high wind speed in Victoria, previously considered unviable because of the large set up costs associated with connecting to the electricity grid. "The Victorian government has made a significant commitment to wind," says Theophanous. "The wind energy bill, which has now gone through Parliament, will allow industry to share the cost of transmission lines which will mean costs are not just borne by the wind farm."

new market rules

Similarly, the WA government has introduced new "top up and spill" market rules which give renewable energy generators more equitable terms for balancing energy supply and demand. Generators can now buy power shortfalls (top-up) or sell power that has been contracted for, but is surplus to requirement (spill). "It is good for the economy and good for the environment that we have a thriving, diverse and innovative renewable energy industry operating in a free and open energy market," says WA Ripper. " The new rules will mean cost savings of about A$2 million a year for a large wind farm, making many more green energy projects financially viable."

The other state governments, notably SA and NSW, are also considering similar options. SA has already produced a "Planning for wind farms" package which is considered by industry players to be the benchmark for planning guidelines in Australia. "The SA government wants South Australia to become a leader in the new green approach to the way we live and is a strong supporter of renewable energy," stresses Vince Duffy from the state's treasury and finance department.

The NSW government, meanwhile, has just published an Energy Directions Green Paper, inviting comment by the end of this month. The state is 90% reliant on coal. Unsurprisingly, emissions have doubled in the last ten years as electricity demand has soared. Demand is forecast to continue increasing at a rate of four per cent a year for the foreseeable future and new capacity will be required to meet that. The issue debated in the government's paper is whether to build new coal power stations, expand transmission links with adjoining states and import more electricity or invest more in green power. As long as it refrained from importing cheap coal-fired electricity from a state such as Victoria, either of the last two options could be a win-win for wind. A combination of both options is the likely outcome, especially in light of the government's interest in joining a state level MRET system and its aim for reducing emissions.

And it is this need to reduce emissions that is, of course, the main environmental driver across all states when it comes to encouraging renewable energy development. While the introduction of a state level MRET will undoubtedly work towards reaching that goal, other options to cut emissions include introducing a greenhouse intensity limit on all new power stations and on all proposals to refurbish existing power stations. Alternatively, introducing a carbon levy or tradeable emission permits of the cap and trade type implemented jointly with other states could be a viable solution, according to the Clean Energy Group, an initiative of the World Wildlife Fund, the Business Council for Sustainable Energy, AusWEA and Environment Victoria.

Its recent report, Towards Victoria's Clean Energy Future, notes that if Victoria, or any other state for that matter, is serious about reducing its greenhouse gas emissions it needs to address the coal question. Virtually 100% of Victoria's exported electricity is coal-fired. Until this changes and the state government takes tough actions on limiting coal use and introduces effective legislation to encourage significant renewables development, the fight against emissions is a losing battle, it says. While this may be true as electricity demand continues to rise, when it comes to the matter of increasing green power development there is every reason for the wind industry to be optimistic. For this sector at least, Victoria and most of its adjoining states, seem ready to find a way to safeguard the industry's future.

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