The Climate Spectator has a column speculating the wind power industry in Australia may find itself caught between the glut of RECS currently on the market and the falling cost over solar power over the next few years - Caught between a flood and a rising sun.
The evolution of the large-scale renewable energy industry in Australia has defied the conventional course of business cycles – it’s managed to have its bust before its boom. But judging by the number of suits and ties being worn at this week’s Clean Energy Week, there is clearly an expectation that the worm is about to turn, and important meetings are on the agenda.
Large renewable projects, particularly wind, have been stalled on the grid for much of the last five years, courtesy of the deadly mélange of politics and policy. They are still in the doldrums, quite literally, but there is a growing confidence that critical supply contracts can be negotiated with the all-powerful energy retailers, possibly as early as the end of this year, Pacific Hydro general manager Lane Crockett suggested this week.
That would be good timing. As Andrew Garrad, the founder of the UK energy consultancy Garrad Hassan, pointed out this week, the strengthening of the Australian dollar should translate to at least a one third cut in the capital price of wind turbines. And then there is the fierce competition among manufacturers to sell their product, exacerbated by the recent entry of ambitious Chinese manufacturers with their own financing. “It is a great time to build wind farms in Australia,” Garrad said. “Although I suspect that is not the whole story.”
Indeed not. But if the wind industry is about to enjoy its long awaited moment in the limelight, and fulfill its ambition of erecting a turbine a day to meet the 20 per cent renewable energy target, it had better not get too comfortable. One of the most surprising themes to emerge out of this week’s conference is the bullish predictions about the cost curve of large-scale solar – and if the predictions are right, then it’s out to eat the wind industry’s cake, if not its lunch.
Wind, whose rollout has been delayed by a surplus of certificates generated by overly generous subsidies to the small-scale market, was largely expected to gobble up nearly the entirety of the 20 per cent renewable energy target – particularly considering the fading pretensions of geothermal. But the large-scale solar industry is confident it will be able to grab up to one quarter of that $30 billion market at least. The wind industry could find itself caught between a flood and a rising sun.
According to industry analysts Bloomberg New Energy Finance, the wind industry should have the game pretty much to itself over the next few years – at least until 2016. By that time the best wind sites will have been built out, and the cost curve of solar PV will have fallen to match the lower quality wind developments. BNEF suggests large-scale solar will account for one third of the renewable generation built in Australia in 2017, one half in 2018 and more than three quarters of the renewable build in 2019.
If true, it means the golden years of wind in this country would have lasted a mere half decade. “Wind will dominate between now and 2017. But it will not swallow the RET,” says Kobad Bhavnagri, a BNEF analyst. He predicts that large-scale solar PV will account for at least 16 per cent of the build-out for the renewable energy target, while large-scale solar thermal will account for 6 per cent.
The solar industry, particularly the PV sector, believes it can do even better than that. Buoyed by dramatic and unexpected falls in the cost curve overseas, large-scale solar PV developers think they can reach parity with the costs of wind energy by 2015.
“If we get to that point then one quarter of the RET is entirely achievable,” says Rob Bartrop, the marketing director in Australia for First Solar, the world’s biggest solar company by market capitalisation. Tony Stocken, head of large commercial projects for BP Solar in Australia, agrees. “I think there is a great future for large-scale solar. The wind guys need to watch their backs.”
But for this to happen, it’s going to require a reshaping of government policy towards larges-scale solar projects, notably in the flagships programs and possibly in the form of incentives. The winners of the first round of the Solar Flagships program (First Solar and BP Solar are both shortlisted) are due to be announced in July, and will likely build massive projects of between 150MW and 250MW. The industry, however, is pushing for the second round to be rethought, calling for at least a dozen projects of around 50MW each that could attract multiple technologies, which would be installed by different developers in a range of regions.
“To be competitive with wind by 2015 we will need to get a lot of plants into the field,” Stocken says. “One big plant is not going to do it.” He points out that it is not just the cost of modules that needs to fall, it’s the cost of construction, maintenance, and the cost of finance. This can only happen with experience.
The BNEF analysis suggests that solar thermal, which has to travel further down the cost curve than solar PV (it is about 5-10 years behind), could provide more than 1 gigawatt of capacity by 2020, but industry spokespeople say this too would depend on multiple, smaller projects being developed. Craig Chambers, from Parson Brinckerhoff, which is leading one shortlisted solar thermal consortium in the flagships program, says the ability to pull costs down is about volume. “You can’t do it by theory, you’ve got to do it in practice.”
James Harding, the head of renewables of German solar energy developer Ferrostaal IPS, which missed out on the shortlist, noted that the International Energy Agency has made more bullish forecasts for solar thermal, suggesting it could provide 5 per cent of the country’s total electricity consumption in Australia by 2020, rising to 12 per cent by 2030, and 40 per cent by 2050. The IEA forecasts, however, were predicated on early policy support, especially in this decade.
“It cannot be an option for Australia to sit on the sidelines and wait for the technologies and supporting industries to develop elsewhere in the world,” Harding says. “We should embrace the natural advantages we have here in solar resources (good sites in Australia would yield 25 per cent more solar thermal power than equivalents in Spain), and play a leading role in developing the technologies and a strong local capacity. “
The CEC is also preparing a paper that will recommend multiple smaller projects across the various solar technologies, to ensure that Australia emerges as a key long-term “test-bed” for the industry. That paper is likely to canvass a range of financing options to overcome the difficulties of financing – this would include grants and loan guarantees, as well as other measures such as revenue subsidies, tax credits and feed in tariffs.