The next 12 months will be of critical importance to the Australian wind energy industry.
The coming year may well be a watershed for the renewable energy industry. A federal election will be held; a process (regardless of which party wins national government) towards a national emissions trading scheme will almost certainly begin; if Federal Labor wins, whether to expand the Mandatory Renewable Energy Target (MRET) may be revisited; and the New South Wales Government is expected to proceed with foreshadowed legislation and policy for new investment in that state's generation capacity, following Professor Tony Owen’s report.
Like a power-curve test on a wind turbine, all this activity follows a bell-curve ride of acceleration, cruise and decline for the wind energy industry.
The ride has often been exciting. However, Australia is yet to deliver a renewable energy industry capable of making a substantial impact for sustained investment in generation capacity.
At a recent Madgwicks Energy Forum, Brett Thomas, Managing Director of Acciona Energy, highlighted the fact that Australia needs a national approach to encourage more investment in wind energy and other renewable power sources. And policy, he observed, does not represent the only hurdle: transmission connection issues, the limited scale of the Australian market, rising development costs, the changing scale of the global wind energy market (and, in particular, current pressures on wind turbine supply in the face of greater global demand) do not create an encouraging environment.
As a form of clean energy that needs no further magical technological breakthroughs, one would expect wind power in Australia to have a bright future. But targeted industry development measures are needed if wind power’s contribution is to assist in meeting increasing demand for electricity.
Looking back at wind energy developments since the introduction of MRET, and after providing legal advice to project developers, investors and wind turbine suppliers, Madgwicks regards the early immaturity of the project finance market as one of the industry’s most significant past hurdles.
At the time, both foreign wind energy developers and wind turbine suppliers complained that Australian banks did not have a full appreciation of wind energy technology and its associated financial and construction risks. After the 2003 construction of the first project-financed Challicum Hills wind farm near Ararat in Victoria (in which Madgwicks represented Danish wind turbine supplier NEG Micon), it seemed there was interest from all quarters – government, financial institutions, superannuation funds, international developers and the construction industry – and projects aplenty followed in Western Australia, South Australia, Victoria and Tasmania.
However, in 2004 and 2005, wind energy project development began a downward slide in Australia. This was despite a global boom in the wind energy sector. The opportunity to meet demand for thousands of megawatts of wind power in countries such as the US, Canada and China, and with better electricity prices than those offered in Australia, helped the negative Australian trend. Even New Zealand, despite transmission grid problems for developers and generators, was (and still is) a more attractive market, generally offering better electricity prices and returns on investment.
Although the commitment by state governments – notably Victoria, New South Wales and South Australia – to restore the momentum of wind power development through target-based policies is to be welcomed, the real need remains a national approach that provides long-term certainty for investors.
Wind farm investors and developers remain interested in Australia. The current project development scene, largely a result of state government-inspired stimulus, is proof of this. Many projects have been put forward for approval and many others are being processed. Sophisticated developers with a proven track record and a high level of technical expertise – in contrast to the ’land-grab-and-sell’ entrepreneurs prominent after the introduction of MRET – now feature strongly in the market. Many of these developers are European, such as WestWind Energy, Pro Ventum International and Epuron.
Some Australian developers and generators are pursuing wind energy projects overseas (for example Roaring 40s in China). But it is clear that projects in several Australian states have not been written off, but placed on hold until a better investment climate emerges.
Australia, both politically and in terms of community attitudes, is undergoing a paradigm shift in climate change thinking and the measures required to enable an Australian contribution to an international response.
Wind power technology is also continuing to develop strongly. Acciona's Brett Thomas notes that turbine tower heights have moved from 40 metres to 80 metres in the past decade; he expects to see 100 metre towers being a feature of future farms.
Accessing a more consistent wind resource with higher turbines is one development that will enhance competitiveness for wind energy compared with other forms of generation. But this development is tempered by Australian construction infrastructure and methodology; for example, there are very few large construction cranes available in this country, and they are expensive.
The cold reality for the Australian sector is that, despite the initial optimism of MRET, barely 1,000 MW of wind power will have been installed by the end of 2008. This capacity will enable farms to supply only around 3,200 gigawatt hours of power to consumers out of a demand exceeding 200,000 GWh.
On the other hand, wind power has no fuel supply risk – a substantial commercial advantage going forward against most other technologies.
The key to the wind energy sector achieving much stronger growth in the next decade is an energy policy that recognises and rewards value in a carbon-constrained electricity supply environment.
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