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Offshore wind ambitions in disarray as key players walk
Credit: Angela Macdonald-Smith, Senior resources writer | Oct 20, 2024 | afr.com ~~
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The prospects for a multi-billion dollar offshore wind industry emerging anywhere in NSW are crumbling with leading players walking away from coastal projects, exposing threats to the federal government’s ambition to power heavy industry and homes with reliable renewables.
The decision by Norway’s Equinor to pull out of the running for the Illawarra Wind Zone south of Sydney has fuelled doubts about the chances for also developing a similar zone off the NSW Hunter coast further north, despite the former national oil company’s stated commitment to pursuing a project in that region.
Hostility from local communities to offshore wind farms and uncertainty over the NSW government’s support for the sector are key obstacles. But industry sources put costs at the top of the list, pointing to the deep waters off the NSW coast that make installing turbines much more costly than in Australia’s most advanced offshore wind zone, in Victoria’s Gippsland region.
The Illawarra and Hunter zones are among six proposed by the federal government around Australia that would become major sources of renewable generation, with typically less variation in output than onshore wind and solar power. They would help replace retiring coal power stations and contribute towards Australia’s target of reaching net zero emissions by 2050.
However, despite its 25-year track record in Europe, offshore wind is in its infancy in Australia and faces major challenges. That’s because of the lack of a services sector for the specialised equipment and labour, rising costs across the industry globally and the need for new transmission lines to connect the massive turbines – some expected to be 300 metres high, as tall as the Eiffel Tower – into the grid.
The decision by Equinor and its local partner Oceanex Energy drew headlines in the media last week but has been known since June, federal Climate Change and Energy Minister Chris Bowen said on Tuesday. He rubbished speculation that the Equinor decision might mean there were zero applications for the Illawarra zone, describing that as “utterly wrong”.
However, several ventures that had previously targeted the Illawarra zone have also quietly dropped those plans, including Malaysia-owned Spark Renewables.
The only venture found by The Australian Financial Review to possibly still be in the running for Illawarra is Spanish-owned BlueFloat Energy, but it remains unclear whether it applied for a feasibility licence during the set period from June 17 to August 15. A spokesman declined to comment.
The Hunter zone, which is more advanced than the Illawarra zone, had eight applications for feasibility licences. But only one provisional licence has so far been granted – to the Equinor-Oceanex venture. Spark has also dropped its Hunter proposal, while Origin Energy has abandoned a partnership with BlueFloat for a Hunter project and will instead focus on a Gippsland project.
NSW grid owner Transgrid has meanwhile signalled it had low expectations of offshore wind developing at all in the state, saying in a planning document in August that it had to plan for scenarios where the technology does not play a role.
Transgrid cited “significant challenges” in the offshore wind industry broadly over the past 12 months driven by “social licence impacts”, and compared NSW to the more competitive situation in Victoria, where less expensive fixed turbines could be used.
“All forecasts suggest offshore wind will eventually have an important role to play. However, with the pace of global offshore wind development slowing, the timing of its introduction in NSW is uncertain. We are therefore planning for a scenario where offshore wind does not play a critical role in preserving the security of the NSW system.”
Industry sources have said it is clear that both the designated NSW zones face much bigger roadblocks compared with Gippsland. There, the initial dozen wind feasibility licences awarded could unlock $100 billion of investment and support more power generation than all of Victoria produces today.
Industry executives pointed to stronger resistance from communities along the Illawarra and Hunter coasts, as well as much higher costs because the deep waters off NSW require expensive, more recently developed floating turbines, rather than units fixed to the seabed.
Nuclear ‘not much higher’ cost
Floating offshore wind, which must be used in water depths of more than 50 to 60 metres, has a capital cost of about $7500 per kilowatt of capacity installed – 36 per cent more than for offshore wind, and over two-and-a-half times more than onshore wind, according to CSIRO’s latest GenCost report, which gives an economic assessment of the cost of building new electricity generation and storage in Australia out to 2050.
That is only modestly less than the estimated cost for large-scale nuclear reactor of almost $8500 per kilowatt hour, said Aiden Morrison, director of energy research at The Centre for Independent Studies. He said offshore wind in NSW is not included in the Australian Energy Market Operator’s base case for the development of the power system on cost grounds, nor is offshore wind included in the CSIRO’s calculations on the ideal future mix of clean energy for Australia
“Given that large-scale nuclear is not that much higher in capital costs than floating offshore wind, I think there is no way you would consider building offshore wind rather than nuclear,” Mr Morrison said.
“The declaration of the wind zones [in NSW] around existing steel facilities and coal facilities is more or less a political kneejerk reaction to replace an existing industry with a new industry and has little to do with an optimal economic decision for new clean energy.”
Some in the industry also harbour doubts about the NSW government’s commitment to developing the offshore wind sector, whereas Victoria has set ambitious generation targets for the industry and is much more advanced in developing policy and regulatory settings.
Victoria is targeting 2 gigawatts of offshore wind capacity by 2032, enough to power 1.5 million homes. That rises to 4 gigawatts by 2035 and to 9 gigawatts by 2040, by which time the generation capacity of offshore wind would be more than four times the size of the state’s biggest coal power station, Loy Yang A, of 2.21 gigawatts.
“An important difference is that the Victorian government has legislated offshore wind targets, which drive a high degree of investor confidence,” said one source.
“This may simply reflect commercial fundamentals – floating offshore wind foundations have quite a way to go before they are cost competitive, and in some areas there isn’t the demand to make investments in such large-scale energy infrastructure stack up.”
NSW Energy Minister Penny Sharpe declined to comment, with her office referring queries to the federal government.
A spokeswoman for Mr Bowen said the Albanese government was securing regional jobs and providing energy security for homes and industry with the power of offshore wind.
“Offshore wind is a new industry for Australia, and the Albanese government has created policy certainty on climate and energy to bring the world’s renewable energy developers here,” she said.
From the start, interest among developers in the NSW zones has been modest compared with the huge international appetite in the Gippsland zone, where more than 35 ventures applied for feasibility licences. That compares with eight for the Hunter, and just one each for western Victoria and for the Illawarra, one source said.
Still, Equinor, formerly called Statoil, is continuing to pursue its project off the Hunter coast, with a spokeswoman saying the decision to drop Illawarra would allow it to focus on that Novocastrian Offshore Wind venture. Several others remain in the mix in the Hunter, including majors such as France’s EDF Renewables. At 1854 square kilometres, the Hunter zone stretches from Norah Head, near The Entrance, northwards to Port Stephens.
Once granted a feasibility licence, a venture may carry out further work to develop its plans for a commercial project, which still needs to go through an environmental approvals process. No known feasibility licences have been granted in the Illawarra region.
“The decision was made as part of Equinor’s ongoing review of the early-stage project investments, which is aimed at maintaining a strong and balanced portfolio to ensure we can put our technical and financial capabilities behind projects in the portfolio,” an Equinor spokeswoman said.
“As part of the decision, we carefully evaluated risk factors that are currently impacting the global industry and conducted project-specific and site-specific assessments.”
Community objections
The comments have fuelled speculation that part of the reason behind Equinor’s move was the forced reduction in the size of the Illawarra zone because of community objections.
When the federal government declared the zone in June, it had shrunk from original proposals by about one-third to 1022 square kilometres. The minimum distance from the shore to the turbines was also doubled to a minimum of 20 kilometres. The generation capacity of the zone was reduced from 4.2 to 2.9 gigawatts, still enough to power 1.8 million homes, Mr Bowen said.
The radical changes followed a consultation process with the public that yielded more than 14,000 submissions, of which 65 per cent were opposed.
Interest among some project developers in the Illawarra and Hunter zones waned as they examined their plans more closely.
“The capacity factors meant the wind speeds weren’t strong enough on balance compared to construction costs,” said a spokeswoman for Spark, which had teamed up in 2023 with offshore wind developer Simply Blue Group and offshore services company Subsea7 to pursue projects in both NSW zones.
BlueFloat Energy, which is developing offshore wind projects across Europe and elsewhere, still lists a proposed project off Illawarra on its website, the 1.6 gigawatt South Pacific project, as well as the 1.725 gigawatt Eastern Rise project off the Hunter Coast, which Origin dropped.
“Due to the depth of the water, the economics and technology required for offshore wind in NSW, make it more challenging,” an Origin spokeswoman said, noting that the proposed project with BlueFloat off the Hunter did not receive a provisional licence. She said the project had not been sufficiently advanced for community concerns to have played a part.
Still, communities have fought back against the developments in NSW, despite many of the public’s concerns about the visual impact having been eased by the doubling in the distance offshore for the nearest turbines, to 20 kilometres.
“For me, the big thing is the cost side of things,” said Alex O’Brien, president of Responsible Future Illawarra, a group opposed to offshore wind in the region. He cites estimates that floating offshore wind is “at least four times” more expensive than onshore and two to three times more than fixed.
“Also the scale of what is being planned is unprecedented,” he said, citing figures of the limited deployment so far of floating offshore turbines worldwide. “Our group is not against renewables. We advocate for renewable projects in the right locations.”
In Port Stephens, the region’s biggest campaign group against offshore wind has promised to double down on its opposition to the Equinor/Oceanex project, arguing that the partners “do not have social licence for their proposed project in our waters and they are not welcome here”.
“Vikings go home!” the Facebook page trumpets.
Ben Abbott of No Offshore Turbines Port Stephens also says the group’s near-10,000 supporters are not anti-renewables, but have a wide range of concerns, including harm to birds and marine life, the impact on the whale-watching industry, and on recreational and commercial fishing. He also raises concerns about costs.
“None of us are against renewables in one way, shape or form, [but] it has to be done reasonably,” said Mr Abbott. “We are not afraid of change, it is the scale of what they want to do and the fact we know it is not feasible financially without massive subsidies.”
Developers remain more confident about the Gippsland offshore wind prospects, despite setbacks including the rejection on environmental grounds in January of a proposed marine base for the industry at Port of Hastings. Average wind speeds in the Gippsland zone reach 10 metres per second, on par with prime offshore wind regions such as the North Sea.
Jorn Hammer, a partner at Copenhagen Infrastructure Partners and the head of the business in Australia, said CIP remained committed to offshore wind in Australia and with specialist partner Southerly Ten had the expertise to deliver. CIP is backing the Star of the South project in Gippsland, the country’s most advanced, and regards any project in NSW as a longer-term prospect.
“We know patience and trust in our partnerships is critical to successfully work through local and global challenges – this is part of any energy infrastructure investment,” Mr Hammer said.
”In the short term, we are firmly focused on our investments in Gippsland, where there is a strong commercial opportunity, legislated Victorian Government offshore wind targets, and long-run community support for offshore wind.“
Matt Rennie, co-CEO of energy transition advisory Rennie, says offshore wind is “hard and getting harder”, citing an anecdotal increase of at least 40 per cent in the capital costs of building offshore wind over the last two years.
He said location definitely matters, confirming NSW’s deep waters make a difference to costs, and describes the social licence for projects as “elusive”.
“While offshore wind was anticipated to have social licence advantages, we are not seeing it with several communities challenging turbine locations and the new connecting transmission lines that are needed to provide grid connections,” Mr Rennie said.
This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.
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