A panel discussion at the Clean Energy Council Wind Industry Forum in March covered all bases.
The panel (above, from left):
- Anna Freeman (chair), director energy generation Clean Energy Council
- Tristan Edis, director analysis and advisory Green Energy Markets
- Amelia Rahman, director energy specialised and acquisition finance National Australia Bank
- Steven Nethery, general manager technical services Goldwind Australia
- Angus Holcombe, renewable operations manager Meridian Energy Australia
Wind plants are finding it easier to gain community support but that doesn’t mean they can simply build and plug into the grid, as a rush of wind and solar development has made connection a major issue in the industry.
A panel of experts met at the CEC’s Wind Industry Forum in Melbourne in March to talk about the challenges of playing a leading role in the clean energy transition and all the obstacles and potholes that dot the markets for selling energy and finding investors.
Green Energy Markets director analysis and advisory Tristan Edis admits only two years he was sceptical about the market’s ambitions to meet the Renewable Energy Target, so the task of predicting the future is a reputational hazard, but he was forthright about the next 10 years and said he sees some “serious storm clouds” on the horizon.
A staggering amount of new capacity is under construction or proposed: between 2018 and 2021 he estimates 26,000GWh of capacity will be added to the NEM. The exit of the Liddell coal plant in NSW in 2022 will see 8,000-9,000GWh removed from the system, leaving a lot of room for coal and gas generation to leave the market, he said.
Today, gas generation is expensive and sets the marginal price in the market, but by 2021 he sees gas as the first supply to be pushed aside when it’s sunny and windy. Serious upgrades to transmission are needed, however, if there’s any chance of new wind and solar capacity being effectively distributed.
“We are encountering genuine constraints,” Edis said, citing disappointing marginal loss factors data released by AEMO in March. A big part of the problem is the NEM, which is some parts of the country is not at all fit to take new generation. “Anything north of Gladstone [in Queensland] is a disaster zone,” he said. One remedy to all this woe would be definitive federal policy that emphasizes the role of renewable energy in cutting carbon emissions. “A lot hinges on policy,” Edis said.
Mist and the merchant market
For investors, it’s a case of understanding the clear logic of clean energy but waiting for some political mist to clear. National Australia Bank director energy specialised and acquisition finance Amelia Rahman said financiers are committed to the sector and are encouraged by the falling cost of technology. Outlook for falling energy costs and increased supply also means lenders will take “a more conservative approach” when assessing projects, she said. The merchant market is a “challenging proposition”, she said.
Corporations over the past few years have wised up to the savings that can be had from power purchase agreements, and Goldwind Australia general manager technical services Steven Nethery expects more to come. “Generators are willing to sell renewable power and customers are willing to buy it,” Nethery said. “Those who can go out and get it themselves are going to do that.”
It sounds so simple, but Meridian Energy Australia renewable operations manager Angus Holcombe said there is still plenty of confusion about PPAs. “There are many who think if you strike a price of $60/MWh, for instance, you get a flat price of $60 – and that’s not the case. Effectively what you put in place is an imperfect long-term hedge.” If spot prices “normalise”, some energy buyers’ PPAs might start to look expensive. “We’re not saying they’re a bad thing, but there are risks some people still don’t understand.” Holcombe expects firming to become a focus in the market if the retailer reliability obligation comes into place.
If elected in May the Labor Party has said it will support a National Energy Guarantee, or revert to direct contracting through the Clean Energy Finance Corporation if bipartisan support can’t be achieved. Holcombe laments the NEG didn’t make it into policy the first time around, and said direct contracting is a less-preferred approach. “You end up with a situation where you’ve got a segment of generators that aren’t exposed to the market – they’re dealing directly with the government,” he said. “If you take that to an extreme … at some point private investors won’t want to compete against government.”
Goldwind’s Nethery said he would be more than satisfied to see the Renewable Energy Target extended beyond 2020. “We need to set the goal where we’re headed and there’s a mechanism there right now that works and we’re all furiously working to meet it,” he said. If it’s a case of setting the hurdle higher, government can “turn the dial” and reset the RET when it wants. “We need clear direction from the federal level,” he said.
The release in March by AEMO of updated marginal loss factors for clean energy generators sent a shiver through the industry and NAB’s Rahman explained the extent to which investors were spooked. “The challenge for us is it is increasingly more difficult to predict [marginal loss factors during the due diligence process],” she said. The outcome is an “even more conservative” approach to risk allocation.
A conservative estimate says Australia will install 70GW of new generation with storage over the next 20 years, said Nethery. “That certainly won’t be possible in the current grid or with the current set of rules – we’ve got to look at the rules.” During the energy transition, he says, marginal loss factors should be viewed as useful indicators to networks of where improvements to grid capacity are required. The same goes for reactive power and system strength, where instead of a generator being penalised for connecting to a weak grid there should be an incentive for a network to do something about it.
“With the amount of new generation that’s going in during the transition it won’t be long until every single connection is a weak grid connection,” he said. “We need to start thinking differently.”
It’s not a case of building transmission to pre-empt addition of new renewables projects, he said, it’s a case of working in concert with developers and scheduling augmentation of networks close to new wind farms coming online. After all, “renewable energy zones” are no mystery – everyone knows where new generation is likely to seek connection.
Generators need to do their job and networks need to do theirs – build networks – and we don’t need “generators, by abstraction, building the network.”