Renewables hit the COVID slow lane

The Clean Energy Regulator (CER) has just released its updated large scale Renewable Energy Target market data for July 2020. It’s a useful compass bearing of how renewables have been impacted by the COVID-19 pandemic and the sharp fall in oil prices, which means gas prices, which means wholesale electricity prices.

The CER diligently classifies renewable projects in three groups: “probables” are projects that the CER identify as being well advanced in approvals and planning, but not yet at finance close and construction. “Committed” projects have crossed the financial line and are underway, and “accredited” projects marks completion, sign-off and the start of generation.

From a market confidence perspective the key “delta” point here is the relationship between probable projects and committed projects. In a confident market projects could be expected to transition through this stage relatively quickly, while slowing investment would be represented by projects remaining “probable” for longer.

The other delta is the rate at which new projects make it on to the probable list. This means investors have already sunk costs in securing sites, project approvals and lining up suppliers.

Large scale renewable energy projects pipeline 2016-20 source: CER

The macro picture supplied by the CER shows strong and sustained delivery of renewable projects since 2017. That’s no surprise. Australia was installing renewables at world record pace in 2018 and 2019 as high wholesale prices and demand for LGCs to meet the RET target combined to deliver a renewables investment boom. Sustaining this investment pace was always going to be practically and commercially challenging.

A close up of the previous pipeline graph, focussing on 2020

Keen eyes may note a flattening of all three classes of projects through 2020, particularly projects reaching the critical “committed” stage.

To shed light on this, the team at NEM Risk Bulletin have compared the CER’s monthly large scale RET market data for July 2020 with what it reported at the end of February 2020, just before the pandemic hit and wholesale prices fell by around 50 per cent compared to the same time in 2019.

At the end of February 2020 the CER identified 1204MW of projects on its “probable” list.  In the five months to the end of July 2020, four of the 16 projects had crossed the Rubicon onto the “committed” list: the 244 MW Bango Wind farm near Yass in NSW, the nearby 108MW Biala wind farm and two small solar installations on existing industrial sites. McCain’s is installing 7MW of solar on its food processing facility at Ballarat and SA Water is building 6MW of solar to help power its pumping station that supplies Whyalla with fresh water.

That’s a total of 365MW out of 1204MW, or a transition rate of 30 per cent over the five months since the state of the pandemic. In simple terms that translates into a large scale renewable rate of around 875MW a year. That’s a long way short of the 4.1GW of large scale renewable accredited in 2019.

There’s still a strong bow wave of projects committed prior to the COVID-19 price shock which are coming on line in 2020. The CER currently expects to accredit 3.4GW of new capacity in 2020. It has so far accredited 2GW as at the end end of July 2020. If the rate of committed projects continues to slow then this will be reflected in a sharp decline in accredited projects in 2021.

The other metric to watch is the rate of projects reaching the “probable” list. There are 8 new projects that have joined the list since February with a total capacity of 1322MW. Two thirds of this emerging capacity is underwritten by the Queensland state government owned CleanCo: stage 1 (540MW) of the Macintyre wind farm in south-west Queensland and the 400MW Western downs solar hub. There is also a 300MW solar farm progressing at Rodds Bay near Gladstone and smaller solar farms lining up at the Vales Point coal fired power station (62MW) and 90MW at Sebastapol near Wagga Wagga in NSW.

Minus the heavy state government intervention this flow of new “probable” projects equates to a build rate of around 900MW a year. It provides further evidence that renewables investment has slowed sharply since the end of February 2020.