December 28, 2010

Price hit puts wind projects in limbo

Sid Maher, The Australian, 28 December 2010

At least $1.5 billion worth of investment in wind farms is in limbo after a collapse in the price of renewable energy certificates.

There is also uncertainty about when a revamp scheduled for next month will restore prices to viable levels.

And the nation’s biggest baseload renewable energy generator, the NSW Sugar Milling Co-operative, faces receivership by February unless the price paid for RECs almost doubles in the next three months. RECs effectively subsidise renewable energy projects such as wind farms and solar schemes, which receive one certificate for each megawatt of power they produce above a baseline set by the Office of Renewable Energy Regulator.

Energy retailers are required to buy increasing numbers of RECs under the government’s Renewable Energy Target scheme, which aims to have 20 per cent of the nation’s power generated by renewable sources by 2020. But the price of the certificates is determined by supply and demand.

RECs are currently trading at about $28.40 – down 20 per cent on their $36 mark in October and well below the $45-$50 needed to drive new wind farm investments and maintain the viability of the NSW Sugar operation.

The low prices have been caused by a glut in RECs issued to households that have taken advantage of government-subsidised solar-panel installations. The collapse triggered a revamp of the entire RET scheme in February and prompted Climate Change Minister Greg Combet to wind back the solar credits program earlier this month. Uncertainty over the future of the RET comes as the new Victorian Liberal government takes a tougher line on planning approvals for wind farms, increasing the buffer between houses and turbines and declaring several mountainous and coast areas “no-go zones”.

Climate Institute executive director John Connor said the REC market had also been affected by uncertainty created by the sale of NSW electricity assets. The state’s retailers accounted for 30 per cent of the market for RECs and their purchases had been minimised ahead of the sale process. Under the government’s revamp in February this year, RECs produced by small-scale schemes, such as solar roof panels and hot water systems installed after Saturday, will be put into a different pool to the large-scale schemes and sold for a set price of $40.

RECs created by rooftop solar and hot water systems installed before Saturday will be transferred to the large-scale scheme and traded on the open market.

Pacific Hydro spokesman Andrew Richards said the company had about $1.5bn in wind farm investments on the table – two sites in South Australia, one in Western Australia – that were awaiting the results of the changes in the RET scheme. “We are all just waiting to see what the legislated amendments will do,” he said. Mr Richards said there was a danger of creating a “boom-bust-boom” cycle in the trading of RECs. “We want a stable price. Hopefully as of next year, things will start to settle down,” he said.

Energy giant AGL is confident the government’s change will restore the price of RECs to viable levels. “AGL believes the implementation of the split RECs scheme from January 1 is likely to contribute significantly to absorbing the current over-supply of RECs in the market, which will drive investment in the renewables sector,” a spokesman said.

Queensland Nationals senator Ron Boswell said the latest collapse in the price pointed to “another rolling policy failure on the scale of the home insulation and (Building the Education Revolution) debacles”.

“The REC price is back to about half the level analysts say is needed to stimulate investment in wide farms, which must provide most of the target. It will also cripple the potential of all other large-scale renewable projects, including power from bagasse, waste and geothermal.”

NSW Sugar chief executive Chris Connors said the $150m co-generation project had been given a “last chance” until the end of February, but the REC price would have to rise to about $50 to ensure it was viable.

Clean Energy Council policy director Russell Marsh said it would take until early March for the likely REC price to be known. He said uncertainty around the carbon price and the NSW electricity assets sale were weighing on the market.

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