Little in the ground but big plans ahead -- Australia faces benchmark year

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On the surface, 2002 looks like it was a damp squib for Australian wind power. A meagre 30 MW was installed, bringing the country's installed capacity to 103 MW by the end of the year. It was, however, a year of major announcements and project approvals.

Some 2000 MW of development, driven largely by the Mandated Renewable Energy Target (MRET), is in the pipeline, including Pacific Hydro's 180 MW Portland Wind Energy project in the state of Victoria. One of the largest wind power developments in the world, it will also be Australia's largest to date. Moreover, NEG Micon -- supplier to the Portland project -- and Vestas are setting up turbine manufacturing plants, NEG Micon in Victoria and Vestas in Tasmania. Many view this start to an Australian industry as truly heralding wind's arrival down under.

On this basis, the outlook for 2003 should look rosy. The reality, however, is that the year got off to a shaky start after an influential energy market review, published by the Council of Australian Governments (COAG), delivered the worst kind of Christmas present to the industry in calling for MRET to be abolished. The legislation sets a target of 9500 GWh from renewables by 2010.

A scheduled review of MRET is underway with the industry lobbying for the target to be increased, but the controversial recommendation of the COAG report has left a dark cloud of uncertainty over the industry. If MRET is removed, hundreds of megawatts of planned development could be shelved.

The federal government appears to be listening to industry fears. Sources close to the renewable energy regulator reveal that MRET is likely to remain in place, with the federal government believing there is too much invested in it to just abandon it after a few years. But it is likely to be modified. The 9500 GWh by 2010 target is expected to either remain unchanged or increase only slightly, but the penalty paid by retailers for failing to meet their mandated targets for electricity production from renewables -- currently A$40/MWh -- is likely to be strengthened, probably by indexing it to inflation. "This would be good news for the industry as it would provide a stronger incentive for investment," is the comment of one potential developer. If a carbon emissions trading scheme is also introduced, which is currently being debated and widely called for, prospects for wind power development would only improve, he adds.

Market reform

Getting the environmental policy aspects right is only half the battle as Australia prepares for full scale reform of its electricity market. There is widespread consensus amongst market players (fossil fuel and renewables alike) that the country's fragmented transmission system requires a major overhaul. Not only are new transmission networks required and many existing ones in need of strengthening, but the rules governing the operation of the system have been called into question. Many renewable energy developers and embedded generators argue the system is biased towards large centralised generation power stations (typically fossil fuelled) and penalises embedded generators because of their intermittent nature and inability to produce the required output forecasts.

"The single biggest problem for wind power development in Australia is transmission," says one of the country's newer players. "Australia has a very weak grid system and this problem needs to be rectified if the wind power market is not to be stalled."

The issue was highlighted by the Australian Wind Energy Association, amongst others, in its submission to the COAG review as "one of the major market constraints facing wind power." The final COAG report acknowledged the need for an overhaul. A series of recommendations, aimed at improving the management and operation as well as strengthening of the grid to ensure it becomes a wholly national, fair and effective system, are now widely expected to be acted upon. With this as part of the overall energy market reform, the MRET review taking place, and 2000 MW of wind development planned to get underway, 2003 looks set to be a benchmark year.

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