Bioenergy, Geothermal, Hydropower, Solar, Wind Power

Australia: Renewable Energy Opportunities Down Under

Why should U.S. companies be looking to invest in Australia’s renewable market? Australia is one of the very few developed nations that has not ratified the Kyoto Protocol. However, the Australian stance toward Kyoto does not indicate a lack of interest in, or market for, renewable energy products or services within Australia.

There is a very active renewable energy industry supporting all forms of renewable generation (e.g., wind, hydro, biomass and solar) in the country. In fact, the Australian Government has committed to reducing Australia’s emissions to 108% of its 1990 levels. This will require substantial reductions to Australian emissions, given Australia’s significant coal-fired generation (approximately 75% of generated electricity) and the large aluminum industry. In addition, the local renewable energy market is supported by a number of Federal and State Government grants and investment programs. Australia is also a founding member of the Asia Pacific Partnership on Clean Development and Climate (AP6). Other founding members include the United States, China, India, Japan and South Korea. Many of these activities are based around developing, researching and implementing the latest technological solutions available to the renewable energy industry. As such, Australia is a premiere market for U.S. companies with new or innovative renewable energy products. What is driving renewable energy use in Australia right now? There are a number of reasons renewable energy use in Australia is experiencing significant growth at the moment. Despite having a large percentage of coal-fired generation, Australia has introduced several renewable energy segments into its energy mix over the years. The largest of these segments is hydro electricity, which had a number of very large developments in the 1950s and 1960s. There was also a move in the 1970s and 1980s to introduce biomass co-firing in many of Australia’s sugar mills. Until recently there had been very little new renewable energy investment. In 2000 however, the Renewable Energy (Electricity) Act 2000 was passed into law, which is designed to increase the generation of renewable electricity by an additional 9,500 gigawatt-hour (GWh) per year by the year 2010. Under the Act, the Government introduced its Mandatory Renewable Energy Target (MRET) program to promote renewable energy developments. Under MRET, large wholesalers of electricity are required to obtain a prescribed number of Renewable Energy Certificates (RECs) as a percentage of the electricity they wholesale or face financial penalties of AUD $40 [U.S. $31] for every REC they do not obtain. Each REC represents 1 megawatt-hour (MWh) of electricity created by renewable energy generators. A market has been established to allow the trade of RECs between generators and electricity wholesalers. The Government has also stipulated there will be 9,500 GWh of RECs by 2010 and that the MRET scheme will stay in place until 2020. By mid-2005 a total of around 9.2 million RECs had been created and redeemed out of the total anticipated 138.7 million credits to be provided by the time MRET ends in 2020. The price for RECs commenced around U.S. $29 in March 2003, peaked at U.S. $32 in August 2004, and in mid-2006 had fallen to U.S. $18, reflecting an oversupply in the market. The MRET scheme has been very successful is subsidizing the local renewable energy generators, making them more competitive with Australia’s very cheap coal-fired generation. There has been widespread criticism of the Australian Government’s unwillingness to extend the program beyond its current cap of 9,500 GWh per year or 2020 expiration date. The failure to increase programs like MRET has led to several Australian states introducing their own renewable energy programs to further assist the economics of renewable energy generation. These include the NSW Government’s NGAC scheme (NGACs), the NSW Government NRET scheme (NRET) and the Victorian Government’s VRET scheme (VRET). The latter two will be introduced in 2007. NRET and VRET will be similar in format to MRET, providing renewable energy generators a subsidy through RECs. Other assistance measures include research and development assistance for renewable energy technologies, with several hundred million dollars set aside by the Australian Government. Many of these programs provide matching funds and grants for technology researchers and pilot projects with a renewable energy focus. Aside from the Government-led programs, the Australian business community increasingly is aware of the benefits of renewable energy. Numerous companies seek to “green” their corporate image, and the number of electricity retailers offering residential customers “green power” supply contracts is growing. Which specific renewable technologies is Australia looking for — solar, wind, etc.? Australia is endowed with significant natural resources allowing the ready adoption of a wide range of renewable energy technologies. With large areas of available land and very high levels of solar incidence, solar energy is expected to be a key component of renewable energy development. The country also has extensive areas (particularly along its coast) where wind speeds above 6 m/s make wind energy projects attractive. Plus, having large areas of arable land and a sizeable agricultural industry present scope for increased use of biomass. Extensive areas of high temperature granite have sparked a growing interest in the development of geothermal power plants in several locations in central Australia. While the development of new hydro electricity projects is limited by ongoing restrictions and a prolonged drought, the existing hydro infrastructure will require modernization and upgrading. What are some challenges for U.S. firms seeking to sell to Australia’s renewable technologies market? The main challenges for U.S. firms considering the Australian market include the following: * Providing a product or service that is differentiated from what is currently available. * Competing with the very low cost and widely available coal fired generated electricity. * Identifying a suitable local partner, agent or distributor. * Accessing the funding that is supporting Australian firms competing with non-renewable generation equipment and technologies. * Meeting Australian technical standards (e.g., IEC, CE, c-tick). What is the financing picture like in Australia? There is a range of financing options available to companies operating in the Australia renewable energy industry — most of which operate under commercial terms similar to those in the U.S. Large-scale capital expansions undertaken by electric power generators often use third parties to undertake project design and construction under a variety of contracting arrangements — BOO BOT, BOOT. Such projects are often underwritten by a power purchase agreement (PPA) from a retailer. Financing can be a little more difficult than for a standard power project given the perceived risk and less predictable cash flows. Several groups have established portfolios of renewable energy assets, becoming experts in the location, investigation and development of renewable power projects. There is also increasing interest from a number of the larger infrastructure companies in setting up renewable energy businesses within their existing business. Babcock & Brown Wind Partners (BBW) is an Australian listed company with assets in Australia, the U.S. and Europe. BBW has 938 MW installed with an average 3,000 GWh of generation per annum. As discussed earlier, government funding may be available for some projects, particularly those for demonstration or pilot plants. Such funding usually requires matching or greater funding from other sources. The scale of these grants can extend for several $100,000 [US $78,000] to $3 million [US $2.3 million]. Opportunities may exist to apply directly or in cooperation with an Australian company to access these kinds of funds. Smaller scale installations of PV and SWH by residential and business customers have also been eligible for a range of rebates. The terms of these schemes can vary between the Australia states. By way of example the Photovoltaic Rebate Programme (PVRP), which began in 2000, offers cash rebates to householders, owners of community use buildings and housing developers who install grid-connected or stand-alone PV systems. The rebate level for new systems is currently AUD $4 per peak watt [US $3.00], capped at $4,000 [US $3,127] per residential system and $4,000 per community building. The PVRP is expected to continue until the end of 2007. What are some tips for doing business in Australia? The Commercial Service in Australia has offices in Melbourne and Sydney from where Commercial Specialists cover the entire country. Staff in Australia work very closely with the Commercial Service Export Assistance Centre network in the U.S. Here are a few exporting tips from the U.S. Commercial Service: * Dedicate top-level management and develop a clear export strategy. Identify your market(s)-conduct research and a risk/reward assessment. * Be patient and realistic when going international. Take a long-term approach and allow sufficient time for due diligence. * Seek professional help from the U.S. Commercial Service, District Export Council, bankers, international legal firms, or freight forwarders. * Make sure your product is export ready (standards compliance, regulations, labeling, licensing, etc.). * Understand and select the best distribution channel for each country (Do research on all potential distribution partners). * Create payment terms and conditions that meet the market’s needs/standards. You can offer terms to your foreign buyers. Meet your competitors head-on by using the EXIM Bank and SBA Export Programs. * Design your website to be attractive and responsive to foreign buyers. * Take advantage of U.S. government export promotion services. Everything from export financing, to market research to advocating for your products in overseas markets. Affordable and effective, regardless of the size of your company. John McCaffrey is a senior commercial specialist at the U.S. Consulate in Melbourne, Australia. He recently discussed renewable energy opportunities in the Australian market in a recent interview for RenewableEnergyAccess.com.