Australian Government Gives Green Light to a Clean Energy Future

With the Carbon Price passed into law, Australia
is set to unlock more than A$13 billion in government funds for clean energy
that could boost investments for large solar power stations, geothermal, wave
power and energy efficiency projects, but is wind  missing out, asks David Fogarty. But Giles
Parkinson thinks the Government-approved Clean Energy Future package could
hardly have been better timed for the 850 or so delegates to the Carbon Expo
forum in Melbourne.

By David Fogarty for Reuters (8 November
20110:

Australia is set to unlock more than A$13
billion in government funds for clean energy that could boost investments for
large solar power stations, but wind farm developers are at risk if the money
disrupts an existing green scheme.

The Senate on Tuesday passed laws supporting
renewables and a national carbon price to accelerate investment in cleaner
energy.

Geothermal, wave power and energy efficiency
projects are also likely to benefit from two independent bodies to be approved
by the Senate, the A$10 billion dollars ($10.3 billion) Clean Energy Finance
Corporation (CEFC) and A$3.2 billion Australian Renewable Energy Agency.

Wind farms and household solar are unlikely
to get access to the cash because the technologies are more mature, cheaper
than other renewables and less in need of support.

But getting the design right for the CEFC in
particular will be crucial, energy policy analysts say, or the risk is
undermining an existing scheme that has driven major investment in wind farms.

“Not only does the CEFC stimulate
certain technologies but it also acts against other technologies, so the wind
industry might come out really loudly against the CEFC,” said Tony Wood,
director of the energy program at the Grattan Institute in Melbourne, an
independent think tank.

Australia is blessed with vast potential to
generate renewable energy from the sun, wind, geothermal, wave as well as hydro
power. While government programs have tried to support green energy, about 90
percent of the country’s power comes from coal and gas.

With energy costs and greenhouse gas
emissions rising, the government is trying to change this.

The CEFC starts in 2013 and runs for 5 years,
with half the money set aside for renewable energy and the remainder to support
lower-emissions technologies and energy efficiency. It aims to commercialize
green energy power generation that needs additional financial help to make it
viable.

It potentially represents the most important
program to ramp up green investment since the government overhauled and
expanded a market-based scheme that mandates a national target of 20 percent
renewable energy by 2020.

REVIEW

That scheme, the Mandatory Renewable Energy
Target, has led to a dramatic rise in wind farm investment, with more than
2,000 megawatts of capacity now installed and about another 9,000 MW of
projects proposed.

The projects earn renewable energy certificates,
currently trading at about A$40 per megawatt/hour, that retailers and some
generators have to buy to meet green energy targets

The government is reviewing the design of the
CEFC, with wind farm developers fearing a major scaling up of rival renewable
energy technologies that would also earn renewable energy certificates could
distort the market.

“The CEFC needs to have the right
principles around it to make sure that it doesn’t create a market distortion
under the renewable energy target and that’s what we will be advocating for
strongly,” said Lane Crockett, managing director, Australia, of Pacific
Hydro, a large wind farm developer.

“If there was a market distortion, it
could threaten wind assets,” he said, adding the A$5 billion under the
finance corporation should deploy renewable energy investment for assets or
generation above and beyond the 20 percent renewable energy target, and focus
on less mature technologies.

Questions remain over the level of risk CEFC
is willing to take and the type of financial support for projects.

“The CEFC, being a government-owned
body, wouldn’t be expected to give the rate of return that banks or others
would, so people talk about it that would be just above the bond rate,”
said Paul Curnow, who advises on carbon, renewable energy and environmental
markets for law firm Baker & McKenzie in Sydney.

“It could be loan guarantees, early
stage equity, concessional loans,” he said, steps that would help bridge
the price gap in servicing debt costs and the money a project earns from
selling power and earning renewable energy certificates.

A major issue for many large renewable energy
projects is the high initial capital cost and debt repayments. Depending on the
technology, the long-term power purchase agreement as well as money from
renewable energy certificates might not cover the debt servicing costs.
Sweeteners become essential.

The smaller Australian Renewable Energy
Agency, set to start next year and run for nine years, will focus on grants to
emerging green energy technologies to help with research and development and
bringing them up to commercial scale.

WAVE AND GEOTHERMAL

The agency will repackage existing programs,
with additional support for large-scale solar expected, along with money for
geothermal and wave power developers.

Beneficiaries could include Carnegie Wave
Energy Ltd and Oceanlinx and geothermal companies Geodynamics Ltd, Green Rock
Energy Ltd and Pacific Hydro.

“In Australia, local banks will often
only lend for 5 to 8 years, so if the CEFC is able to take a long-term view,
able to invest 10 to 15 years, then the returns on areas such as solar and
geothermal start to make more sense as the returns on investment kick in with
higher energy and carbon pricing over this longer period,” said Curnow.

Geodynamics says it aims to complete a 25 MW
plant by Dec 2013 and is targeting production of more than 500 MW by 2018.

Large-scale solar is set to benefit from both
funding bodies. This includes utility-scale solar photovoltaic (PV) power
plants and solar thermal, which focuses the sun’s energy to drive steam
turbines to generate power.

These can use large numbers of parabolic
troughs to heat fluids to drive the turbine, or use acres of mirrors to focus
sunlight to a point on top of a tower.

Leading power generation equipment maker
Alstom is confident it will benefit since its turbines can be used for both
types of solar thermal technology. Alstom also has a stake in U.S. solar tower
firm BrightSource.

“We haven’t secured deals with anybody
at this point,” said Gwen Andrews, vice-president Asia and Oceania for
environmental policies and global advocacy at Alstom.

“But with the new funding announcements
coming out, we are very hopeful of the future for solar thermal in
Australia.”

The government earlier this year announced it
would partially fund the country’s two largest solar power stations with total
capacity of 400 MW. Investors include French nuclear firm Areva, BP Solar and
Pacific Hydro.

Curnow said it was too early to judge how
successful the CEFC would be. If the aim was to solely support the target of 20
percent renewable energy, then the body might not be able to spend the full
A$10 billion because there were already sizeable green energy investments in
the pipeline.

“If you just need a 20 percent target, then
assuming all of those projects going forward need some support from the CEFC,
you have to question whether they could spend that money, since the aim is to
leverage private investments,” he said.

“So it does imply that we are going to
see more renewables than the 20 percent.”

Source: www.reuters.com

Giles Parkinson in Climate Spectator (8
November 2011)

It was a couple of years later than it needed
be, and about an hour later than the organisers hoped, but the passing of the
Clean Energy Future package by the Senate on Tuesday could hardly have been
better timed for the 850 or so delegates to the Carbon Expo forum in Melbourne.

Some 20 years after climate change first
became a serious public policy issue, after some 35 different policy reviews,
several aborted attempts, a trail of political victims and some harsh words
both in and out of parliament, the Senate gave its approval to a carbon price
by a handful of votes.

There were cheers in the Senate, but a muted
reception at the expo, possibly because most had left the giant screen relaying
the proceedings of the Senate to tuck in to lunch. “I can’t quite believe it
has actually happened,” said one lawyer who had been working on legislative
drafts for the best part of a decade. But, as one banker lamented, some
uncertainty has simply been replaced by more uncertainty: the question posed by
his customers, which up to now has been “will the legislation be passed?” will
simply be replaced with “will the legislation be repealed?”

The passage of the legislation does have one
important political dynamic: the onus of the government to justify and explain
its legislation is now passed to the Opposition, which has been campaigning on
a platform of “no, no, no,” underlined by Abbott’s extraordinary blood oath to
repeal it. It was quickly the focus of the leading business types invited to
speak at the expo.

Michael Fraser, the CEO of AGL Energy,
described the “Abbott factor” as “very unfortunate”. For AGL it meant that any
decisions made on certain investments, such as the baseload gas generation that
most say is crucial to transition one of the world’s dirtiest economies to a
cleaner future, will be deferred. “We will proceed with caution,” Fraser told
the audience. “We want to see bipartisan agreement.”

And, he warned, energy prices would not fall
as the Opposition claimed they would, should the carbon price be repealed. In
that situation, they would likely go even higher. “When I look at the
fundamentals, energy prices are going to rise.”

Steve Sargent, the CEO of GE Australia, the
local branch of the world’s biggest industrial conglomerate, said the political
situation was “disappointing,” particularly when both sides of parliament had
identical climate policies, at least as far as the crucial emissions reduction
target was concerned. “We should have been debating what we were going to do
and how we going to get there,” he said.

The federal government insists that Tony
Abbott’s threat to repeal the legislation is simply hot air. It’s not that it
can’t be done, at least in theory, said Mark Dreyfus, the parliamentary
secretary for climate change, it’s that it won’t be, for political reasons.
“This legislation will not be repealed. It’s a hollow promise,” he told the
audience.

In the meantime, big business seemed mostly
happy and enthusiastic about the arrival of a carbon price. “There are a whole
lot of business that don’t exist today that are going to emerge,” Fraser said.
“We certainly see lots of opportunities.” GE, which has been pricing carbon on
its own internal models for nearly a decade, also saw lots of opportunities.
And Sargent noted, citing new engine models GE had delivered for the Qantas
fleet: new technologies could deliver both lower operating costs and lower
emissions. “It’s very doable,” he said.

One of the areas of concern was about the
price of carbon, not so much that it was set so high in comparison to the
current European price (it is currently about double) – as both AGL and Delta
pointed out, to achieve transition to gas in short term will need a price far
higher than $23 a tonne – but that it was set at all. “The quicker the
transition to a market price, the better, said Santos CEO David Knox. “We
already take on oil price risk, gas price risk. Now we will have carbon price
risk. We will just model this into our business plans.”

Knox said Australia now had a fantastic
opportunity to drive down emissions, with a “clever” combination of gas and
renewables, that could reduce Australia’s emissions intensity by more than half
to 0.4t/MWh, and make local industry competitive and the economy an attractive
place to invest.

But Steve Everett from Delta was still
hopeful for a role for coal, saying “remnants” of the industry would be needed
to provide centralised power stations. He even expected coal-fired power
stations to be built in various “pockets” such as in Western Australia, and
possibly even along the east coast if carbon capture and storage could prove
its worth.

Knox said that would be possible, but not
easy. The huge transport costs of CO2 to be sequestered meant that CCS was
“very unlikely to solve the problem,” unless the coal-fired plant and the tanks
to sequester the emissions were close together. Coal seam gas, which Santos
exploits, still has its own issues. Knox said concerns about entry to the farm
gate and its impact on aquifers needed to be addressed properly. Indeed, he
said, the industry needed to aim to “jump high” on these issues, rather than
engage in limbo dancing.

Most people would be hoping for some of the
same from the Opposition on climate policy. But it may take a while.

Source: www.climatespectator.com.au