RETurn to investment—why we need the renewable energy target
The landowner
Bill Garnock, landowner. Bill's property, Boco, sits in the middle of the Boco Rock Wind Farm, which began generating power in 2014. A long-time advocate of wind energy, Bill was set to host income-earning turbines on his property in stage two of the project, which is currently on hold. For now, his farm is home to a substation and transmission lines, but no turbines.
GEreports: What did the operational RET, and certainty around the target, mean for you as a landowner with the prospect of hosting wind turbines on your property?
Bill: I’ve been here all my life. Our family has been here since the mid 1800s, so four or five generations. We farm cattle now, traditionally we were cattle and sheep but just cattle and wind now! My property is called Boco ... our geographic situation lends itself to a wind farm, and being a believer in renewable energy resources, we were reasonably happy when the renewable-energy target came back in with the previous government. I've been chasing it [a wind farm in his district] to happen for 20 years. I think it’s a backwards step if [the renewable-energy target] disappears with this government. On our property, we've got the transmission lines … if stage two had gone ahead, then we could have 20-odd turbines.
There’s a lot of discussion around climate change, and whether it’s happening or not happening, and clean energy versus dirty, or whatever, without too much talk around the fact that these are renewable resources, they’re not finite resources. Once you get these things up and built ... the resources, such as wind, are free. There’s nothing you have to dig out of the ground and buy. So there’s a whole other side to the argument. Even though it might be more costly to establish the infrastructure, down the track, you’re dealing with a resource that’s free.
The renewables business chief
Alex Hewitt, managing director, CWP Renewables. Alex has worked in the wind sector for almost a decade in Australia, and before that ran utilities-development projects in Europe. He leads negotiations with project investors and the major suppliers of equipment, such as turbines.
GEreports: How has the uncertainty around the RET affected your business?
Alex: We were prepared to wait for the six months for the review, and even six months of debate after that. But it’s dragging on, and as it drags on, that level of uncertainty means our business is in limbo. Shareholders are getting impatient … frustrated and impatient. Resources will be reduced if we don’t get a result soon.
We’ve got four projects. The next project is ready to build. If we had a RET, we’d be talking through power-purchase agreements with retailers, and we’d be financing the next project.
All projects across the renewable sector are now in limbo.
It takes five years to develop a project, and we invest in the order of $5 to $10 million, and that’s before construction starts. For the Boco Rock project, we raised $360 million and we created hundreds of jobs. In order to make that investment happen, to make the project happen, you need two things. One is a project, and the other is legislation to underpin long-term confidence so that you can raise that money. Whilst there is that legislation in place you remain committed to your business. As soon as that’s taken away or even threatened, you’ve got to look very closely at whether you continue or not. In our case, if the RET is severely curtailed, we will not have a business. The moment the renewable energy target has bipartisan support, we continue with confidence.
We now have an on-off switch which will be determined by an outcome on the RET. There will be some dilution of the RET, but if we get a result in the 30s [thousands of gigawatt hours of renewable-energy generation] and there is some clearance of banked RECs [renewable energy certificates], then confidence returns, investment will come, and we’re full steam ahead. If this is still drifting around well into the second quarter, our investors are going to lose patience and our attentions will go elsewhere. Whilst this uncertainty continues, there won’t be any financing. I remain cautiously optimistic that we’ll get there, but it’s very frustrating. The last financing in the wind sector was Boco Rock in June 2013. Since the Abbott government came to power, our sector has been “closed for business”.
The energy economist
John Quiggin, professor of economics at the University of Queensland, a member of the Climate Change Authority and author—most recently of award-winning book Zombie Politics: How Dead Ideas Still Walk Among Us [Princeton University Press]—frequently writes about energy economics, in the media and on his blog.
GEreports: How important is the RET to Australia’s sustainable future?
John: It’s pretty clear that if we’re going to achieve a sustainable reduction in emissions there’s no alternative but to move entirely to renewable energy over the next 30 years or so. The only potential alternatives, neither of which I think will work, are nuclear energy, and carbon capture and storage.
Carbon sequestration doesn’t exist in any meaningful form. There are no examples of the full process; that is, carbon dioxide being captured from a power station and then sequestered. It’s a hypothetical technology. What we’ve seen, even in Australia, which has a strong incentive for it to work, is that funding has been greatly reduced.
As regards nuclear, it’s an open question what’s going to happen in the rest of the world, but really there’s no serious possibility of Australia having nuclear energy before, say, 2040. Even if you look back at the Switkowski Report, they were suggesting a minimum of 15 years [before nuclear power could come online], and that was really after a policy to introduce nuclear was in place, which takes quite a number of years. That ship has sailed for Australia.
The main point is, we need to reduce our CO2 emissions and we can’t do it without renewables. The other point is that the cost of renewables has come down so far that the impact they have on electricity prices is going to be exceptionally modest. The impact on the economy as a whole is going to be essentially undetectable over 30-35 years.
How should we get there [to being a country fueled by renewables]? The best option is probably a carbon price, but we’d need to have that higher even than it was under the original carbon-price scheme, and much higher than it’s likely to be in the near future. If we had a carbon price of $50 a tonne that applied across the entire economy, it would work better than a renewable energy target. Since the carbon price has been removed, the renewable energy target is the only game in town.
The GE perspective
Jason Willoughby, managing director of sales and project finance for GE in Australia and New Zealand, works with GE customers to enable financing of infrastructure projects in many fields, from oil and gas extraction to wind-generated power.
GEreports: What would RET certainty mean for Australia?
Jason: The energy sector at the moment is undergoing the most fundamental change that has been experienced in 100 years, and lot of that has been driven by the rapid development of technology. It’s very hard to look forward 20 years and be able to predict what the energy market will look like. The best way to prepare and get the most efficient outcome in the energy sector for Australia really comes down to policy certainty. So you set the framework, you step back and you let people compete.
GE looks at the RET as an important part of Australia’s overall environmental plan. There’s bipartisan support for reducing Australia’s emissions by 5% by 2020. The RET has been an important plank of the actions that have been implemented to achieve that 5% emissions reduction. Over the past 12 months, with the number of reviews, including the Warburton Review, that have taken place, the conclusions have been quite clear that the RET reduces power prices over time, and that it also reduces emissions at the lowest possible cost. So the RET is achieving its primary objectives.
That’s the context. Now, while there is uncertainty, investors are not going to be involved in the market. And if people aren’t expending the resources, aren’t spending the time to participate in the market, then you’re not going to get the best outcome for that market. You’re not going to get people innovating or competing, which I think is important to be able to come up with the best outcome.
GE’s position has been that when you introduce certainty to a market like the RET, then people will be encouraged to participate and that participation is going to provide innovation, competition and come out with the best possible solution. An opportunity exists for both major parties to collaborate, to ensure investment in Australia’s renewable sector can proceed with confidence. Compromise on both sides is manifestly in Australia’s national interest.