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ETS decision another blow for wind farms

The announcement of an early start to emissions trading has added to investment uncertainty plaguing the Australian wind market, which has already stagnated in the lead-up to this year’s federal election, says one of the world’s largest power engineering companies.

Alstom Wind senior vice-president Alfonso Faubel said regulatory uncertainty over the carbon price and the renewable energy target had created a “standstill”, with wind projects unable to secure power purchase agreements from retailers.

There are 59 wind farms in Australia, worth about $40.4 billion, The Australian Financial Review reports.

His comments follow criticism of the Clean Energy Finance Corporation for announcing financial support for two major wind farms, on the basis of the difficulties they face winning backing from the private sector.

“When you have that much uncertainty, what it does contribute to is a lot of stagnation and cautiousness until things clear up,” Mr Faubel said

“From what I hear, the announcement is not a bad thing – the only problem is the time it will take to firm up to bring some solidity to the market.”Switch to coal

But Mr Faubel conceded there was also a switch under way in Europe, away from renewable energy due to a low European Union carbon price and financial turmoil. In Germany, two coal-fired power stations were opened last year and four more are due this year.

“You have a combination of the low ETS and an unprecedented financial crisis, meaning that a lot of decisions are not only based on the ETS but also funding availability,” he said.

But Mr Faubel was hopeful the EU would act on a proposal to temporarily remove up to 900 million permits from trade, to bolster the price in its flagging ETS. As part of the plan to move to an ETS domestically, the Australian market will link to the EU.

“Europe is perfectly conscious of CO2 emissions and the seriousness of it,” Mr Faubel said.

“What we will see probably is a move to increase targets over the next year, especially after the German national elections.”

Mr Faubel’s assessment is reflected in private briefings provided to federal government by EU officials. While Germany’s economic ministers have expressed opposition to moves to reform the EU ETS, it is believed German chancellor Angela Merkel is more supportive.

“Germany certainly wants to have stability in its own government before making a decision which would affect the whole energy scene,” Mr Faubel said.

Meanwhile, energy forward contract pricing in Australia has surged since the Labor leadership change.

Traders had been including no cost of carbon in forward contracts over the last years, taking the view the scheme would be repealed. But since the return of Kevin Rudd, energy contracts in NSW rose by $5 before falling slightly in the last week. Volumes have also almost doubled in the past two months.

According to Deutsche Bank, in the 2014-15 financial year the market is pricing in $8 to $9 of carbon because of the risk of political deadlock.