Wind industry turbulence

– Navigating a path for wind farm project development

in changing wholesale electricity markets

By Warwick Forster

Energy Markets Manager

Union Fenosa Wind Australia

18th November 2013

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Renewable Energy Target history The Renewable Energy Target (RET) was introduced in 2001

with the modest goal of 9500GWh by 2010.

Tambling review in 2003-4 recommended (amongst others)

the following scheme changes that were not implemented:

Extend scheme to 2020 and increase to 20,000GWh.

End date to be beyond 2020 so that renewable energy from

projects commencing after 2005 receive REC’s for a full 15 year

period.

Shortfall charge in 2010 of $40/MWh to be indexed until 2020.

A review of the act if a “defined, economy-wide greenhouse

abatement scheme” or more than 15% of the liability for two

consecutive years made up by shortfall charge.

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Renewable Energy Target history In the 2007 federal election, the Liberal party promised 15%

renewables by 2020.

The Labor party won the 2007 election with a 20% renewables

target.

The ERET (Expanded Renewable Energy Target) was passed in

2008 with a 2020 Target of 45,000 GWh flat lining until the

scheme end in 2030.

Shortfall charge was increased to $65/MWh (~$93 post tax).

Demand side measures including solar hot water and PV were

deemed for 15 years.

Solar multiplier of 5 was added.

Rooftop PV boomed with additional subsidies such as FiT’s.

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Renewable Energy Target history REC production up to 13/11/2013 *

4

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Waste Coal Mine Gas

SWH - solar

SWH - heat pump

SGU

Photovoltaic/Solar

Landfill & sewage gas

Hydro

Agricultural, bagasse, wood waste

Wind

Target

Renewable Energy Target history In early 2010, a review of the target was instigated due to

booming solar REC production.

Roughly 180% of the target in 2010 was met by solar.

Scheme was split into LGC’s (Large-scale Generation

Certificates) and SRES (Small-scale Renewable Energy

Scheme).

2020 target for LGC’s was reduced to 41,000GWh and SRES

target of 4,000GWh was established.

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Renewable Energy Target history Largest contributors*2013 figures incomplete

6

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Wind

Agricultural, bagasse, wood waste

Hydro

Landfill & sewage gas

Renewable Energy Target history At the moment there are approximately 37m LGC’s in the

registry.

Production at the moment is around 10-12m per annum.

Likely that the 2013 production will be high due to hydro

running during the carbon price period from July 2012 when

they get increase in pool revenue plus LGC’s for exceeding

baseline.

The 2013 target is 19,088 GWh and the 2014 target is 16,950

GWh.

Target has always and should always be in surplus BUT this

lasts until at least 2017. Retailers won’t need to commit to

PPA’s until 2015 or later.

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Renewable Energy Target history LGC Surplus

8

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020 -2030

Surplus

New target

Energy Demand Demand for grid electricity in the NEM (national Electricity

Market) has declined since 2008.

Most of the time prior to 2008, annual load growth for the

NEM was around 2%.

Embedded generation growth, energy efficiency (“pink

batts”) and declining industrial consumption such as the

closure of Kurri Kurri smelter have all played a part.

AEMO predicting load growth of only 1.3%.

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Energy demand -AEMO

10

150000

160000

170000

180000

190000

200000

210000

220000

230000

2013 High Annual energy consumption(GWh)

2013 Medium Annual energyconsumption (GWh)

2013 Low Annual energy consumption(GWh)

Actuals Annual energy consumption(GWh)

Energy Demand It is likely that the 2020 target will supply around 26-27%

rather than 20% based on revised forecasts.

Suggestions have been to revise the target to 20% of actual

i.e. a percentage target rather than a fixed target. Despite

the fact that many of those who previously argued for a fixed

target are now asking for a floating target.

The main challenge at the moment is that renewables

including both wind and PV are displacing rather just growing

generation.

In the absence of a carbon price and without an increased

renewable target, additional growth will rely on being

competitive with fossil fuels.

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Network constraints Many prospective wind farm sites need additional costly

network infrastructure to connect to the transmission

network.

Any new generator project regardless of the technology, be it

renewable or fossil fueled needs to factor this cost into the

investment decision.

Many existing generators are effectively subsidised for these

network costs as they are levied through existing transmission

charges.

Additional issues with congestion such as the case with high

levels of wind farm capacity and limited network are a

problem such as the case with South Australia.

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Planning restrictions

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* www.yes2newewables.org

PV growth Large scale PV is predicted to become competitive with wind

as panel prices fall.

Currently most wind farm LCOE’s in Australia are between

$80-$100/MWh.

Royalla PV solar farm in the ACT signed at $186/MWh with no

escalation, equivalent to around $150/MWh.

Solar is peak, rather than flat so the difference in pricing is

not so large.

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Storage One solution for the issue of intermittency in renewables is

storage. This can be pumped hydro, flywheels, heat capture

or others but battery storage is the technology which has

great scalability.

Presently, the economics for storage are more compelling at

the retail level for 2 reasons:

Avoided network charges

Arbitrage between peak and off-peak prices

The cost of storage ($/MWh) is the capital cost/energy cycled

but limited by technical issues including battery degradation,

# discharge cycles, charge/discharge rate. Economic if

storage cost less than energy arbitrage or market price of

energy.

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2020 target and beyond The annual targets in the RET do not increase after 2020 and

the legislation only lasts until 2030.

The intention was that the 2020 target was to be maintained

and not increased as a carbon price would factor in the

externality of pollution such that renewables would be more

competitive than fossil fueled technology.

It must be noted that most utility scale investments have at

least a 15 year investment horizon so it becomes more

difficult after 2015 under the current legislation.

Most private investments in fossil fueled generation since

deregulation such as Milmerran, Kogan Creek etc have relied

upon a known cost advantage in fuel and LRAC.

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2020 target and beyond One potential hypothesis is that given it is unlikely that new

coal fired power stations will be built, that gas fired CCGT’s

will determine the new entrant price of generation. With

rising gas prices wind + back up could be more economic.

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0

20

40

60

80

100

120

140

1 2 3 4 5 6 7 8 9 10

WIND w CCGT

CCGT

$/MWh

$/GJ *prices for descriptive purposes

Key points Wind is still the most economic form of clean energy at present.

Solar has boomed due to generous subsidies, falling prices and the

avoidance of network costs.

Large scale solar PV may be a competitor in the medium term with

falling prices.

Falling prices for storage may make the case for storage investment

but this will happen at the retail level first.

Increased storage may make the value of storage fall and reduce the

value of peak energy.

The issue with the RET is that the subsidy is transparent (even

though it is often overstated in its impact) whilst others such as off-

peak hot water heating to subsidise coal are hidden.

The goal of energy policy should be to reduce emissions in an

efficient manner.

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Sources of Information

AEMO, www.aemo.com.au

REC registry, www.rec-registry.gov.au

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