Apr 02

Duopoly

General, Sun, Wind No Comments »

A buyers strike by the country’s top two energy retailers is stalling the growth of the renewable energy industry just weeks after the government supported the sector by committing to leave the Renewable Energy Target (RET) relatively untouched.

Power Purchase Agreements (PPA’s) are not being signed or offered to wind and renewable projects with some saying that the retailers will wait for the September election before committing to anymore renewable PPAs.

Many renewable projects under development (especially windfarms) have stalled at the PPA stage because they can not secure an agreement to sell the forecasted power to be generated from the proposed project (or negotiate a PPA to provide sufficient return on investment).

Without a PPA the projects can not secure project finance, reach financial close and construct the renewable project. The majority of the developers do not have the balance sheet to build the project without debt, nor the ability to trade 100% of what they produce (black & green energy) on the nation electricity market.

With the major retailers developing their own renewable projects, it is a buyers market for the top 2 or 3 with choices of developing their own renewable projects, offer PPA’s to other renewable project developers or buy RECs in the market to cover their requirements under the RET scheme.

Origin’s last renewable PPA was signed in May last year for the 270MW Snowtown II wind farm.

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Jun 23

Deal reached on renewable energy scheme

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PROJECTS such as wind farms and solar power stations are set for a boost after the federal government, the Coalition and Greens struck a deal to fix Australia’s renewable energy scheme.

Under a deal reached yesterday, reviews will be put in place that could mean households will get less money from the government to install solar panels in an attempt to limit the amount of renewable energy generated by small-scale renewables under the target.

Those reviews include potentially lowering the fixed price of renewable energy credits generated by solar panels and hot water systems - currently $40 - and giving households less credits than currently offered for their renewable energy generation.

The changes to the renewable energy target is expected to pass the Senate today, with a number of additional amendments from the opposition and Greens also up for voting.

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Jun 15

REC prices could stay in the doldrums

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As early as this week, the Senate will vote on amendments designed to restore confidence in the RET, which requires that 20 per cent of energy come from renewable sources from 2020. The government wants to change the scheme so large-scale investments such as wind farms are treated differently from residential-scale renewable energy.

It is the main incentive for building wind farms - a big growth market for the utilities AGL and Origin Energy.

large wind farm contruction

Macquarie analyst Gavin Maher said REC prices could stay in the doldrums under the new RET because excess credits already created by a solar energy boom would carry into the new scheme. He said this could keep REC prices near their depressed level of $40, well below the $65 that small players need to justify new wind investment.

”There won’t be sufficient investment in renewables to meet the [large-scale renewable energy target] until the REC price is closer to $65,” Mr Maher said.

Big players such as AGL have signed large-scale power supply deals that factored in a REC price near $65. But Mr Maher said smaller players might struggle to find these long-term contracts in the future, making them more dependent on the REC price.

The changes to the RET legislation are expected to pass through the Senate after signs of support from Coalition politicians. A Senate committee has been examining the amendments and is due to report today.

RET scheme RET graph

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Jun 09

The growing problem for wind farm developers

Bio Energy, Earth, General, Sun, Water, Wind No Comments »

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.

suzlon wind turbine construction

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.

pacific hydro condrington wind farm

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.

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Jun 02

Green Power Scheme

General, Wind No Comments »

The renewable energy industry is increasingly confident that the Senate will pass critical changes to the renewable energy target (RET) this month.

Industry delegates inc AGL and TRUenergy executives visited Canberra on Monday to stress the need for legislation to be passed to unlock an estimated $20 billion in investment over the next decade.

Most of the coalition are on board including Ian Macfarlane and Greg Hunt, however Ron Boswell could spark a revolt.

wind farm construction utility scale renewables

The bill before the Senate aims to fix a glitch in the 20 per cent RET scheme under which demand for household level renewable technologies, such a solar hot water heaters and rooftop solar PV panels, has been crowding out the investment in utility scale projects like wind farms.

The Government’s medaling in the scheme with large feed-in-tariffs and renewable energy credit (REC) multiples for small scale household generation lead to a large fall in the REC prices which can make up to 60% of the revenue for a wind farm project.

The government remedy is to split the scheme in two, removing large scale generation from small scale generation to give some certainty back to the REC market.

The Bill does not have a total generation limit for small scale household generation. Senator Boswell is considering urging the Coalition party to demand that the amount of power generated by small scale units be capped at 4000 gigawatt hours.

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Feb 26

Changes made to renewable energy scheme

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The federal government has made changes to its renewable energy target scheme, saying doing so will enable it to exceed the 20 per cent target by 2020.

Market demand for the scheme from new large-scale projects, such as wind farms and solar energy plants, has stalled partly because the government used it to reward households installing rooftop solar panels with an $8000 rebate.

The government intends from January 2011 splitting the scheme into two parts: one for large-scale projects and a second for small-scale technologies such as solar panels and solar hot water systems.

Small-scale projects will be covered by an uncapped fixed price - $40 per megawatt hour of electricity produced - scheme. But with the details still to be clarified, important questions remained about how the scheme would now operate.

See the SMH online for the full article.

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Oct 27

Green Energy Handouts Backfire

General No Comments »

The strong demand for the Rudd governments $1600 solar hot water subsidy and the small scale household PV scheme have slashed REC prices, putting at risk billions of dollars in near term investment in major climate change initiatives such as wind power.

The government initiatives have resulted in a much higher than anticipated demand for solar hot water and a strong take-up of household PV. This has flooded the REC market with solar hot water credits water units and the phantom credits created from the 5x REC multiplier for small scale solar installations.

Although major utility scale renewable projects such as wind farms, rely on a strong REC price over the life of the project (up to 25yrs), the drop in the REC price has stalled investment in such projects. This can be seen by the possibility of only two large wind projects reaching financial close by 2010 and the fact that the major wind turbine tower supplier Keppel Prince may have to layoff up to 250 jobs through lack of wind projects reaching the construction stage.

Rob Grant, managing director of PacHydro said “unless there’s a short term fix by the government, there won’t be any investment in large scale renewable energy for the next two to three years”.

See the AFR 27th Oct 09 for the full article, and see the EPi discussion below (26th Oct).

Solar Hot Water RebateWind Turbine Tower Manufacture

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Oct 26

Have Your Say - Why are REC prices going down?

General No Comments »

Start a discussion on why REC prices are falling? Feel free to comment on the post.

At around $28 dollars, the answer is that it’s extremely difficult for us to tell, as the price is likely to remain under pressure until we see a better balance between the demand and supply for RECs. This means a probable reduction in the number of renewable projects reaching financial close and construction stages.

REC spot price graph

The REC requirement with the RET scheme does increase sharply from 2014 onwards (see graph below), so we should see stronger commitment for new renewable generation investment before then in order to meet the increasing targets. In the mean time we have market tension between a short term over supply and a longer term deficit.

However as the REC price falls we can expect large electricity companies and traders to come into the market and buy cheap RECs to meet future requirements, which potentially puts a floor on the REC price.

MRET Target Graph
New RET Scheme Targets.

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