The Renewable Energy Target (RET) legislation was passed in August last year, with an aim to derive 20 per cent of Australia’s energy from renewable resources by 2020. Although placing Australia on the right track for a transition to a low carbon economy, the design of the RET, namely the inclusion of small-scale installations such as solar panels and solar hot water systems in the target, along with the REC multiplier, has seen a flooding of the market, and a fall in Renewable Energy Certificate (REC) prices.

Low REC prices in turn meant that many projects were not viable for major renewable energy developers, with wind farm developers hit particularly hard. Following the market slump, Roaring 40s’ Musselroe Wind Farm was placed on hold, and Pacific Hydro announced a halt to all of its proposed Australian projects.

Fixing the RET

In February, the Federal Government announced proposed changes to the RET that would see the target split into two separate parts: the Small-scale Renewable Energy Scheme (SRES) and the Large-scale Renewable Energy Target (LRET).

The LRET would make up the vast majority of the RET, while the SRES would be uncapped, and provide a fixed price of $40 per megawatt hour (MWh) of electricity produced, freeing small-scale projects from the market.

Large-scale projects get a second wind

Not surprisingly, since the announcement of proposed amendments to the RET, there has been an increase in activity in large scale renewable energy projects. The spot price has risen to $45, from a low of $27 in October 2009, while many wind farm developers are announcing new projects, and moving forward with previously suspended projects.

While the separated RET is still in the consultation stage, the confidence restored to the market is such that AGL has announced recent developments on several wind projects. This includes the 63 megawatt (MW) Oaklands Hill Wind Farm in western Victoria, which is due for completion in late 2011, and the 365 MW Macarthur Wind Farm, also in Victoria, which has entered into a conditional arrangement for construction. AGL has also moved forward in the construction of 52.5 Hallet 5 Wind Farm, in South Australia, with the purchase of 25 Suzlon V3 turbines.

Plans have also been approved for Acciona Energy’s Allendale Wind Farm, southeast South Australia, while Pacific Hydro has opened a 56.7 MW wind farm in Clements Gap, South Australia.

Good news for project developers

In addition to enhanced project activity, the proposed changes have been met with enthusiasm by wind farm developers.

“The establishment of the LRET is welcomed and will unlock billions of dollars of projects across Australia and protect thousands of jobs,” says Pacific Hydro’s General Manager for Australia Lane Crockett.

“Importantly, this proposal will unlock low cost utility scale projects which are essential for Australia’s clean energy future while continuing the rollout of household renewable energy options.”

“This change will allow us to invest in the Australian market with confidence [and] we will prepare more wind power projects for construction in a shorter timeframe,” concurs Windlab’s Luke Osborne.

Mark Schneider from Investec also agrees, saying that he has noticed a “definite upturn in sentiment” across the industry following the proposed changes. He also believes the prospect of the new legislation may be sufficient to warrant the resumption of activity “in earnest”.

Challenges ahead

Although developers are optimistic about the proposed changes, many companies are awaiting the final version of the proposed changes before total confidence is restored.

“I think people are optimistic – as the proposed changes make sense for the large scale end of the market – but cautious as there is limited detail around the small scale scheme,” says Ross Edwards, from TRUenergy.

As wind farm developers see it, there are still problems with the current RET, and it is still unclear whether or not these will be resolved. Mr Edwards says network access and stability are some of these challenges.

“Current network planning processes and approaches don’t appear sufficient to ensure there is a strong and stable network that can absorb the scale of intermittent generation within the target timeframes,” Mr Edwards says.

“There have been some positive moves in this area, but there remains a risk that it could become a bottleneck constraining the market’s ability to hit the targets.”

Many developers also see the demand and supply of renewable energy as a difficult balancing act.

“The fact that there are a small number of electricity retailers who are potential buyers and that many of them are active in the sector as project developers and owners in their own right adds complexity to the task facing a developer,” says Investec’s Mark Schneider.

Mr Osborne agrees, saying that the ‘elephant in the room’ is the fact that it is hard for independent power producers to operate in the Australian market.

“This is because the RET is an obligation on retailers and there is not enough of them,” he says.

“The government has demonstrated that a feed-in tariff is acceptable by introducing it for the small scale technologies and we should now be moving toward something similar for large scale technologies.”

The fact that the proposed changes have followed the initial legislation so quickly is also cause for alarm, says Mr Edwards.

“The regulatory environment for wind needs to stabilise,” he says.

“Given [that] 50 per cent of the revenue streams for a project rely on the value of RECs, there cannot be changes every six months that have a significant impact on the value of the RECs.”

A discussion paper on the proposed changes to the Renewable Energy Target was released by the Federal Government, Submissions closed on 14 April 2010. For further information visit the Department of Climate Change and Energy Efficiency website.

Contributors to this article will be speaking at the Wind Farm Development, Design and Construction event, to be held in Melbourne in August 2010. For further information visit www.windfarmdesign.com.au