Developers, manufacturers, investors and other renewable energy industry stakeholders need to know where the next big market is going to be so that they can adjust their business decisions accordingly.
Since 2003, global consultancy Ernst & Young has released its Country Attractiveness Indices, which ranks global renewable energy markets by analyzing investment strategies and resource availability. The indices are updated on a quarterly basis and the most recent report can be found here.
Here is the firm’s assessment of Australia.
The Liberal Party election victory of September 2013 looked set to change the face of Australian renewables forever. With the new government setting a series of legislative and program overhauls in motion to remove and reduce subsidies and following reports that the Australian generation sector
has enough capacity for over 10 years, an environment of uncertainty has emerged following the repeal of the carbon tax bill in June. The Government has not yet released its final decision on the Renewable Energy Target (RET), a decision that the industry is eagerly awaiting and which will provide it with much-needed certainty one way or the other.
The Political Debate Begins
The Palmer United Party (PUP), currently holding the balance of power in the Senate by three votes, refused to pass the bill without an amendment enforcing companies to pass on savings from the repeal to consumers. Then, a last-minute attempt to block the repeal by the Australian Motoring Enthusiast Party (aligned to the PUP), was lifted after a deal was struck that saw that Party secure PUP support to save the Australian Renewable Energy Agency (ARENA), a potential victim of the Government’s latest budget proposals. Scrapping ARENA would save the Government A$1.3 billion (US$1.2 billion) but would place in doubt 181 renewable energy projects worth around A$1.0 billion (US$0.9 billion) that ARENA has already committed to, and potentially an additional 190 projects in the pipeline.
PUP’s unequivocal refusal to support any change to the country’s RET before 2016 has been a source of significant political debate. The Government’s proposal to scale back the current target of 41TWh by 2020, in the face of reports that no new generation is required in the market for at least 10 years, will, if carried through, mean that less renewable generation will be financeable. Even the threat of an amended RET has already slowed investment, with Australia’s spending on large-scale renewables projects falling to A$58 million (US$54 million) in the six months to June 2014 from almost A$1.3 billion (US$1.2 billion) a year earlier according to BNEF.
The Government’s RET review has been completed and it is now considering its options. These are difficult policy choices, given that the review received more than 24,000 submissions with 99 percent in support of keeping or increasing the RET. The Government’s rationale for reducing the targets appears to hinge on two factors: over capacity in the system reported by the national market operator in its recent “Statement of Opportunities,” and reductions in consumer energy bills through elimination of subsidies. Political and economic issues are converging, making the road ahead difficult to predict with certainty.
Prepared for Flight
It is evident, however, that investors are already forming positions. Suzlon is reconsidering its investment in the A$1.5 billion Ceres wind farm, Solar Systems Pty has suspended plans for a 100-MW concentrated PV plant, potentially one of the largest in the world and Infigen Energy has indicated 1 GW of projects are now under review. Other industry players vocal in their concern include Acciona, GE, First Solar, Vestas and AGL Energy.
Growth Remains Strong in Small Scale Systems
The country’s small-scale solar PV market has also shown surprising resilience despite years of subsidy cuts, with BNEF forecasting an additional 15.8 GW of installations by 2030 requiring A$42.0 billion (US$39.1 billion) of investment.
Carbon Price Alternatives
The Government’s 2014–15 budget includes a proposal to allocate A$2.6 billion (US$2.4 billion) over 10 years to an Emissions Reduction Fund (ERF) effectively encouraging companies to reduce carbon emissions through taxpayer-funded grants. This is also being debated, with both PUP and Labour calling for an emissions trading scheme, though the former insisting that the carbon price be set at zero and only activated once Australia’s key trading partners, such as the U.S. and China, have taken similar actions.
Picking the Direction
In an environment of excess capacity, reported customer hardship and price elasticity, Government must ultimately decide to either leave the regime as is, or to remove some of the subsidies inherent in the RET. Given the political difficulties in large-scale reductions in the RET, the industry appears to be anticipating the latter, through reductions in the targets from around 41 TWh to between 25 TWh and 30 TWh per annum, rather than removal of the scheme altogether. We expect the debate will continue and that it may be some time before the investor community has the certainty it requires to consider new investments.
Lead image: Australia map via Shutterstock