By Rob Taylor
BUNGENDORE, Australia, May 27 (Reuters) – On a line of low
hills standing sentinel beside a dry lake bed near Australia’s
capital, giant turbines turning slowly in a chill winter breeze
give no hint of a multi-billion-dollar storm building around
renewable energy.
Infigen Energy’s Capital Windfarm, built five years
ago, was a vanguard for wind power as Australia sought to wean
itself from cheap fossil-fuel power in the face of climate shift
blamed in part for Lake George’s transformation to a vast plain.
But big plans to expand the Infigen renewable energy project
near Canberra and others like it have been put on hold awaiting
the outcome of an election in September.
The ballot, which opinion polls show the opposition
conservatives winning, along with an economic slowdown and
rising home energy bills have put the brakes on Australia’s
decade-long clean energy push.
At stake in the Sept. 14 vote is a controversial carbon
trading scheme championed by ruling Labor to curb greenhouse gas
emissions, with a $20 billion pipeline in renewable investment
largely on hold as nervous companies sit on their hands.
Infigen for one has not decided whether to go ahead with a
A$180 million expansion of the Capital wind farm, despite having
local planning approval, or with a A$150 million joint venture
solar plant with U.S.-based Suntech Power.
“We expect changes. We don’t know what they’ll be. But the
uncertainty is having a crippling effect on the market,” says
Nathan Fabian, head of a group of institutional investors with
$900 billion in funds under management and worried about the
looming climate fight.
The conservative coalition has pledged “in blood” to scrap a
carbon tax and cut power costs in a country with plentiful
supplies of cheap coal, while reviewing policy on renewable
power.
But how they may do it is unclear.
“We don’t see any clear long-term policy direction on the
climate or energy sector from the opposition,” says Fabian, of
Australia’s Investor Group on Climate Change, which includes
pension funds and major international banks. “And until that is
clear, capital is sitting on the sidelines.”
WORLD FIRST
Reversing renewable momentum would be politically risky for
opposition leader Tony Abbott, not only because of electoral
concern about climate shift and the billions of dollars at
stake, but also because the push to cleaner energy was born in
conservative politics.
In 2001, with scientific warnings of global warming and
growing public pressure for action after a decade-long drought,
the former conservative government put in place a world-first
mandatory target for renewable energy.
That grew with Labor’s election in 2007, and laws were
passed requiring 20 percent of power to come from renewable
generation by 2020 under a fixed Renewable Energy Target (RET)
of 41,000 gigawatt hours from solar, geothermal and wind.
Backed by tradeable certificates to make renewable power
more competitive against coal generators, the RET was to drive
clean investment while scrubbing 41 million tonnes of greenhouse
gas each year from national emissions.
Wind energy’s share of total generation is projected to
shoot up from 1.5 percent in 2007 to 12 percent in 2029, growing
by nearly 70 percent annually along a breeze corridor wider than
Western Europe blowing across Australia’s southern latitudes.
But big power generators and utilities like Origin Energy
and EnergyAustralia, as well as gas producer Santos
, are now pushing for the RET to be wound back or
scrapped, along with the carbon price.
Origin’s CEO Grant King says renewable power is more
expensive and intermittent than gas and coal-fired generation.
Large energy companies also argue the renewable target will
overshoot its aim, as electricity sector emissions are at a
10-year low due to the carbon price, falling demand and a
manufacturing slowdown as a China-led resource boom retreats.
That argument has sympathy even among senior government
lawmakers like Martin Ferguson, Labor’s Energy Minister until
March when he resigned.
“The RET is not 20 percent and nor is it 25 percent as some
in government will admit. I think due to the real reduction in
demand for energy, reflected in the work of the energy market
operator, it is more like 30-33 percent,” Ferguson said.
Large industry players are pushing opposition climate change
spokesman Greg Hunt to consider a target of around 27,000
gigawatt hours instead of 41,000, which would drastically change
the viability of some renewable projects in the pipeline.
CONSERVATIVES VOW CHANGES
While Hunt has said he is “very much aware of the importance
of providing certainty for the renewable energy sector” and that
changes will “create sovereign risk”, he has promised to review
the scheme next year.
Lawmakers on both sides of the political divide say a
conservative government will have no choice but to bring in
changes.
“Why saddle industry which is struggling? Industry is saying
take the pressure off,” says a senior Canberra lawmaker who
asked not to be named because of political sensitivities.
Last week, Hunt warned a conservative government planned
changes to grants for renewable projects and that it would look
to back out of contracts signed pre-election by the government’s
A$10 billion Clean Energy Finance Corporation, set up to help
commercialise wind and solar ventures.
Adding to political paralysis, banks are also unwilling to
loan money for new renewable projects not underpinned by
industry-standard power purchase agreements signed with energy
retailers – often the same power utilities opposed to the
current renewable target.
Pacific Hydro’s Australian general manager Lane Crockett
says the political uncertainty around the RET has stalled plans
to expand. “I’m sentiment unsure. I’ve never seen the crystal
ball more hazy,” he says.
After a decade of building, only two wind projects are going
ahead at the moment: Meridian Energy’s Mt Mercer wind
farm in Victoria state and TrustPower’s Snowtown 2 wind
farm in South Australia.
Meridian’s project is one of a few going ahead without an
underpinning sale agreement. The company will not comment on its
reasons, but rivals say the decision to go ahead points to an
“unusually bullish board”.
Infigen Energy Managing Director Miles George says
bigger energy companies arguing against the 41,000 Gwh target
are motivated by self interest, with Origin looking to protect
multi-billion dollar gas investments.
Infigen, which has six wind farms in three Australian states
and another 13 largely on hold, says experience in the South
Australia state shows wind generation is starting to depress
wholesale electricity market prices.
Wind now accounts for 21 percent of installed capacity in
the state against 13 percent for coal and 47 percent for natural
gas, and supplies over 25 percent of electricity.
“There’s no fuel cost, so they can actually come in cheaper
than coal. And now they are becoming large enough that they are
actually becoming a threat,” says Brett Harper, of carbon and
energy research firm RepuTex.
