ROUNDTABLE | The renewable energy construction boom is upon us, with an estimated $7 billion in projects underway or about to start this year. EcoGeneration spoke with three of the biggest companies involved in building out the nation’s transition to clean energy – ACCIONA, RCR Tomlinson and Elecnor – about the task ahead and the challenges along the way.

Do you think you’ll have trouble finding workers to build projects this year and next? If the market is tight, what strategies do you have for finding skilled workers? What are you hearing from subcontractors?

ACCIONA Energy Australia managing director Andrew Thomson.

Andrew Thomson, ACCIONA Energy Australia: As the demand for renewables increases, we see the market tightening. However, we spend a lot of time planning and gearing up to deliver our projects. We have good relationships with suppliers and contractors and invest a lot of effort into making sure we have a good retention of skills within our business.

Our suppliers like to work with us because they see our long-term commitment to this market and understand that a good relationship on one project could lead to others. We will continue to grow here, and it is encouraging that many suppliers not traditionally active in the renewables sector are now pursuing opportunities in this area and wanting to work with us.

Dr Paul Dalgleish, RCR: RCR is an ASX listed company with over 3,000 Australian employees. We will self-perform most of the construction works with employees that are local to the region and always RCR has the option to divert skilled labour from some of our other diverse sectors that are not as busy across to the renewable energy sector. For example, there are a number of significant solar and wind opportunities in South Australia and Western Australia where the traditional markets are not as buoyant.

To ensure that RCR’s high standards of health, safety, environment and quality are followed, we will bring our trained supervisors and managers to the region to develop the local capability. We plan on supplementing our team by employing local skilled labour and subcontractors where possible.

Manuel López-Vélez, Elecnor Australia: Everybody’s heard the complaints about recruiting lately and filling a qualified job can take months of hunting. Construction companies are demanding potential workers to be able to fill a role straight away, without any training or ramp-up time.

From Elecnor’s perspective, with around 14,000 employees in more than 55 countries we have developed an in-house tool to relocate internal resources if necessary and as well drop the idea of finding only perfect candidates. We look for people who could do the job with a bit of training and practice. There are several ways to get workers up to speed. In this sense, we have developed a specific and tailored training courses classified in the different activities of the group and by country.

On the other hand, it is evident that a shortage in construction workers could potentially raise cost and trigger delays of new projects.

Power purchase agreements in 2017 often look very different to those that were being signed five or 10 years ago. What kind of PPA is needed for a project to be viable and how do you think the market is likely to evolve with more developers building renewable energy projects?

Thomson, ACCIONA: Traditional PPAs are becoming a thing of the past. Previously, major retailers tended to control the flow of projects, but increasingly renewable energy auctions are sponsored by state and territory governments. We’re also seeing “corporate PPAs” emerge in Australia, which will continue to grow in prevalence. These developments present more opportunities to developers and investors to get their projects into the market.

That said, the environment remains very competitive. For Acciona, the future will include a balance between merchant exposure and a combination of all of the above. We have a strong balance sheet, a desire to grow and the internal capabilities to manage investment risks across a range of scenarios.

RCR Tomlinson CEO and managing director Dr Paul Dalgleish.

Dalgleish, RCR: As an EPC contractor we are not heavily involved in the PPA discussions with off-takers. However, we do discuss and partner with the project developers ways to improve the generation profile that may have a positive impact on the PPA negotiations. Certainly as we move forward solar power will become more and more competitive as capital cost reduces due to increases in PV efficiency (toward the theoretical efficiency of 55%) and with no fuel cost and very low maintenance costs, running costs will be minimal.

López-Vélez, Elecnor: In order to provide more stable generation cash flows, projects are always looking for opportunities to sign a long-term PPA, which traditionally included a bundled price for black energy and LGCs. However, this trend is changing and developers are finding alternatives where there is only a long-term agreement for LGCs and/or a portion of the black energy or vice versa and assuming as well merchant risk.

It is a global trend that the number of attractive PPAs is declining due to slow load growth and protracted low commodity prices, which eliminate any incentive for load serving entities to sign long-term, above-market contracts. Taking merchant exposure will definitely increase within the key infrastructure players.

Falling costs of technology have made wind and solar obvious choices for new generation. Will projects completed over the next few years look expensive in the future?

Thomson, ACCIONA: One positive trend is declining capital costs, which is underpinning a surge in renewable energy’s competitiveness compared to conventional generation. We anticipate further cost reductions, particularly in wind and solar PV, but it’s unclear where the bottom of the cost curve lies.

Projects we built five to 10 years ago look expensive compared to ones we’re developing today.

As costs continue to decline, today’s projects will be considered more expensive relative to those of the future. However, we need new clean energy generation today, and so long as financial models and risk profiles meet expectations, investment decisions will be taken.

Dalgleish, RCR: Capital costs of solar projects are already competitive with conventional generation technologies and fuel costs are the lowest of all technologies. The wind industry is a long way down the deployment curve and the solar PV industry is not far behind.

With regards to solar PV, there will be continuing improvements on design, construction methodology and technical efficiencies as well as continuous improvement on the construction component, but the biggest impact will be seen by developing lower-cost and higher-efficiency solar PV modules that can be installed on the same amount of infrastructure. Fuel cost is expected to remain zero.

Elecnor Australia business development manager Manuel López-Vélez.

López-Vélez, Elecnor: Everywhere, renewables have benefited from a cycle of falling costs stimulated on by accelerated deployment and there is no doubt that this trend will continue in the coming years.

Looking backwards, Elecnor signed-off in July 2007 on the world’s largest solar PV plant to be constructed at that time. It was a 20MW single-axis tracking system at a cost of around €6.3/Wp, we are talking about almost $10/Wp. Today, Elecnor is building one of the largest solar farms in Australia of 275MW at about seven times lower cost.

What work is done between developers and networks about the impacts to frequency of new generation from intermittent renewables on the grid?

Thomson, ACCIONA: Much work is being done in this field. The industry is working closely with regulators and market operators in Australia and around the world to ensure new generation can be reliably operated in the grid. Technically, a lot of the frequency stability and variability of supply issues can be managed. Part of the challenge in the transition to clean energy is that we’ve approached it from the wrong perspective of trying to make renewables fit for the market design we have, instead of ensuring the market design is fit for renewables. This issue is now getting more traction and will be important to meeting these challenges.

Dalgleish, RCR: The grid frequency is the same for all types of generation; it is the response to sudden load changes that affects frequency. These can be from significant load increases (peak power) or due to system fault responses. It is important to keep some inertial capacity within the system operating, however this can be renewable energy also in the form of hydro.

The great benefit of solar unlike wind is an ability to place it near the load or centralised to the existing grid. As an EPC contractor we design and construct to satisfy the generator performance standards for the project. Although current penetration of renewables across the NEM is quiet low, it is clear that there is a lot of work to be done by state and federal government bodies to come up with a regulatory framework that encourages new generation and also maintains some level of inertial capacity as well.

It is highly likely that the requirement for peak power and the necessity to wheel power across the network will be reduced with local solar generation coupled with batteries, particularly in residential and commercial buildings.

RCR is a member of the Clean Energy Council’s grid directorate, which is constantly working to ensure that: the grid connection process can be streamlined as much as possible; generators can connect under fair and reasonable terms and conditions, and; risks and costs can be appropriately managed by generators.

What role do you see for storage in utility-scale renewables projects?

Thomson, ACCIONA: We started exploring this six years ago in Europe by installing a 1.3MW lithium ion battery in an experimental PV plant in Tudella, Navarra. There have been many improvements in the cost and performance of utility scale batteries since, and that trend will continue. In fact, the battery cost curve is steeper than PV, so advances come more rapidly.

In terms of storage, with the right signals and market design, renewable energy projects with storage will play an important part in fast frequency response scenarios and in frequency stabilisation generally. This is just part of a bigger picture, with evolving opportunities for network owners to manage challenges around future capital expenditures and line congestion via storage technology.

We also anticipate a significant part of national storage capacity will come from rollout of EVs and further uptake by homeowners and behind the meter application in the commercial and industrial space.

Dalgleish, RCR: Energy storage will play a major role in future-proofing the grid and RCR is working on several opportunities to gain experience and work towards being the EPC contractor of choice with regards to energy storage solutions both on and off the grid.

It is hopefully not a necessary requirement for storage to be included in the actual projects themselves, but rather at the locations on the grid where they would provide the most benefit. It should not be underestimated the overall effect local residential storage will have on the system and the economics around future power costs.

López-Vélez, Elecnor: Storage and utility-scale renewables is the perfect marriage; it is just a matter of bringing the numbers together to make it happen.

There are multiple synergies and solutions. Each project will need to identify the most suitable design for it location and needs. This could be from enabling arbitrage to maximize revenues and dispatchability in peak times to executing a network service agreement with the utility providing different grid services and diversifying the revenues stream of the project.

A hypothetical question: if we had a truly national grid with much higher levels of interconnection, would planned projects be distributed differently?

Thomson, ACCIONA: In the wind sector, not necessarily. We build projects with an ideal combination of wind resource (in part related to topography), low community and environmental constraints, and grid availability. That said, more network to work with could open up new areas with previously unexplored wind resources. For solar PV the constraints aren’t as great. If you have grid with capacity and a viable solar resource, you can generally find suitable development locations.

The trend is towards a distributed system that’s much less reliant on further scaling up, or reinforcement of, transmission and distribution networks. Technological evolution means the business case for large investments in new transmission infrastructure is less clear-cut than previously. Economically it’s probably better to move towards micro-grid models, which are emerging around the world. Time will tell which proposition is most compelling.

Dalgleish, RCR: The requirement for a massively interconnected grid will be greatly reduced due to local solar generation and storage and behind the grid large scale solar developments. Wheeling power large distances creates an inefficient grid as losses are increased. Solar power provides the opportunity to distribute generation (as fuel source is continuous and not subject to mining as in coal or piping for gas).

A more interconnected grid may allow more large scale renewable energy projects to be installed, but the process of identifying good sites, close to the load and in conjunction with some inertial load support, must ensure a project stacks up both technically and financially.

López-Vélez, Elecnor: Probably yes, projects will be located in areas with higher irradiation and lower cost of land.

Can you share your forecasts for 2018 and beyond?

Thomson, ACCIONA: We believe solar PV costs will continue their rapid descent to compete equally with wind, and complementary battery storage costs will become more competitive too. There will also be further deployment of wind and PV similar to activity this year, and more demonstrations of how quickly the industry can deploy assets to replace retiring coal generators.

We predict further increases in the level and intensity of competition. All of the major international players are either here already or arriving now, meaning that 2017’s wind and PV price benchmarks will almost certainly be broken next year.

Finally, and this is perhaps more wish than forecast, we’d like to see bipartisan support for, and action on, the recommendations in the Finkel review and the review of climate change policy. Australia cannot afford to delay these changes any longer.

Dalgleish, RCR: If we assume that over the next five to 10 years the minimum generation that will be installed will replace current coal-fired power stations then we would expect the market to be quite significant. What we need is good policy to ensure that there is a strong signal to the market to continue investing in the lowest cost forms of new electricity generation.

Further to the federal and state RET schemes that will provide some certainty for the next few years, there will be energy consumers such as Sun Metals and corporates such as Telstra who will be looking to the market for the lowest cost of electricity and if necessary constructing these projects themselves. This should result in more renewable energy projects finding a way to market.

López-Vélez, Elecnor: Wind, solar and other forms of renewable energy will be the fastest growing power sources over the next few decades.

The panel:

Andrew Thomson, managing director, ACCIONA Energy Australia
Andrew Thomson is the managing director of ACCIONA’s energy division in Australia after starting as director of development in 2007, where he was responsible for developing large scale wind and solar projects. Andrew has a Bachelor of Science Degree and an MBA from the University of Western Australia, and over 20 years professional experience. He has served on the board of the Clean Energy Council and sits on the Corporate Council for the European Australian Business Council.
Dr Paul Dalgleish, CEO and managing director, RCR
Dr Paul Dalgleish has worked extensively throughout Australasia and is currently managing director and CEO of RCR Tomlinson. Since joining RCR in 2009, Paul’s focus on enhanced management and strategic positioning has delivered growth for RCR in the infrastructure, energy and resources sectors. He is an engineer with a Doctorate in Business and has more than 20 years’ experience in executive management roles, including chief executive of UGL Infrastructure, managing director of Montgomery Watson (Asia) and executive roles with Thames Water internationally.
Manuel López-Vélez, business development manager, Elecnor Australia
Manuel López-Vélez is business development manager at Elecnor Australia and previously served as environmental business developer. He has a masters in renewable energy engineering and BSc in environmental science.