Smaller renewable energy developers and operators, especially those in the wind farm industry fear the privatisation of the power stations and retailers in NSW and QLD. Those in the industry say it will weaken competition in the electricity market and hinder their capacity to construct projects and contribute to the federal government’s 20 per cent by 2020 renewable energy target (RET) sheme.
Retailers are required to purchase or create renewable energy certificates (REC’s) to offset a percentage of the electricity sold. Each REC represents one mega watt hour (MWh) of renewable electricity generated.
AGL and Origin currently hold the power in the Eastern Australian electricity retail market. Because they are generators as well as retailers, AGL and Origin have recently been generating their increased REC requirements through wind farms they have constructed themselves.
As a result independent wind power companies such as Infigen Energy, Pacific Hydro, WindLab, UFWA, Westwind, Acciona, Epuron, Investec and RES, can have difficulty getting long term contracts for the RECs they produce. Generally for a wind farm project the RECs and the electricity generated are bundled up into a power purchase agreement (PPA).
Banks will not project finance the construction of wind farm projects without a long term PPA contract, as this secures the revenue of the wind farm over the duration of the contract.
Recently we have been seeing a lot of small wind farm developers struggle to secure a PPA from the top two retailers for their proposed projects. These projects are then either put on hold until they can secure a PPA and project finance or sold.
With only two doors to knock on for a PPA contract for wind farm projects in the east, both AGL and Origin are in the buyers seat and the retailers have benefited from this power in the market and have recently acquired their own wind farm development pipelines from acquisition of various projects under development.
To secure their required RECs, both electricity retailers can choose between the cheapest options of 1) offering a low price PPA for a new external wind project, 2) building one of their wind farms, 3) buying RECs from the market, 4) paying the penalty price under the RET scheme.
The lack of competition in the retail market has led companies such as Infigen Energy to purchase a retail license allowing them to supply electricity direct to large electricity users. Infigen now plan to expand the licence into other states.
The industry is also aware that the power of AGL and Origin in this market could increase if they secure a large share of the generation and retail books for sale in the NSW and QLD electricity privatisation proposals. The majority of the generation players would be hopeful of more retail entrants into the market to increase competition.
There is another concern that is creating development and investment risk in the renewable industry is the proposed changes to the RET scheme, to offset the effects of the governments solar rebates and REC multiples for small scale household renewable generation. The senate must pass the crucial changes to the renewable energy target scheme in the next few weeks, amid speculation parliament may not sit again before the federal election.