Mainstream acceptance among investors and reduced costs have assured a very busy year for large-scale renewable projects, writes Clean Energy Council director of large-scale energy Alicia Webb.

Despite some positive signs at various points last year, the renewable energy industry spent a lot of 2016 feeling like it was stuck in second gear. But as the new year gathers momentum, all that is about to change.

For large-scale renewables, the Renewable Energy Target (RET) remains the most important federal policy for the Australian market. Yet while bipartisan support was returned to the policy in 2015, investment confidence has taken its sweet time to rebuild. But we are now finally at a point where it seems we are poised for a very healthy year ahead, particularly for large-scale wind and solar power.

Large-scale solar in particular has fallen in price faster than anyone anticipated, as shown by the 12 successful projects in last year’s funding round from the Australian Renewable Energy Agency. ARENA set aside a pot of money expecting to buy 200MW of solar, but because of falling costs the funding ended up buying 480MW. And every $1 of public money spent by ARENA supporting these projects will unlock $10 of private investment. This is a remarkable improvement from only several years before, when $1 of public money bought only $2 or $3 from private investors.

The problems with PPAs

The missing piece for the RET recently has been bankable agreements between project developers and energy retailers to purchase the renewable energy generated by large-scale solar, wind and bioenergy projects. While some projects such as Goldwind’s White Rock Wind Farm in NSW have elected to begin construction without a power purchase agreement (PPA) in place, this approach represents a higher level of risk than many developers are prepared to wear.

Into the gap stepped the ACT government, which directly purchased power from a variety of wind and solar projects to help meet its target of sourcing the equivalent of 100% of its power use from renewable energy by 2020. It worked well for the industry, but it wasn’t charity – it was smart business. The ACT’s reverse auctions saw it buying power from these projects in a buyers’ market, and was rewarded with some of the lowest-cost renewable energy in Australia, at prices so low that even the government was surprised. But the initiative was extraordinarily valuable in keeping the industry moving during a period of great uncertainty.

Additional state government schemes are also helping to push projects along, with a couple of projects getting a leg up from the Victorian government’s LGC purchasing scheme, the NSW government tender for renewable energy to offset the Sydney metro rail project, and the Queensland government issuing a PPA to the Mt Emerald wind farm.

The big retailers are stepping up as well. With only a few years left until the RET stops encouraging new large-scale renewable projects, it’s crunch time. If liable parties like the energy retailers find themselves caught short without enough large-scale generation certificates (LGCs), the potential financial penalties are quickly stacking up.

And they’re taking action. AGL announced its Powering Australian Renewables Fund last year, which is designed to attract investment partners to finance renewable projects, reducing costs and spreading the risk. PPAs are part of the deal for the projects involved, and the fund has attracted some $800 million from the Queensland Investment Corporation and the Future Fund, with announcements expected this year.

Good returns

West Australian retailer Synergy is looking to adopt a similar model, with a new solar power fund already drawing out Colonial First State and offshore infrastructure business DIF as potential backers. The fund will make a modest start, but is expected to grow as more projects are added to the mix.

EnergyAustralia has joined the fray too, announcing in December that it would sink $1.5 billion into funding 500MW of new wind and solar projects to meet its obligations under the RET. Origin Energy is looking to get out of conventional oil and gas and focus on coal seam gas and renewable energy. Origin was successful in securing funding for a large-scale solar project in the last ARENA funding round, and will build the $217 million project on the Darling Downs in Queensland. It will also sell its Stockyard Hill Wind Farm, which will come complete with a PPA as a sweetener for buyers.

In short, the trickle of renewable energy projects which started after a long and torturous review of the RET is now a free-flowing river. Construction works are in progress or being readied, deal makers are active, costs are being slashed and interest from investors is at fever pitch. I suggest you hold on tight – the next four years are going to be a wild ride.