Renewables recovery or the Hand of Govt?

The Renewable Energy Target (RET) might have been delivered last year, but the helping hands of governments continue to underpin and sustain new renewable investment in 2020.

The Clean Energy Regulator has released its RET investment data for August, which appears quite bullish: three new projects with a total of 383 MW of generation capacity crossed the all important “probable to committed” line in August, meaning they have reached financial close and will begin construction.

On the face of it that’s an encouraging build rate, particularly given the slump in wholesale electricity prices which have halved since the same time last year.

It looks like the signs of a healthy investment recovery from a sluggish first half of 2020. NEM Risk Bulletin analysis of the July report by the CER showed worrying signs of a rapid slowdown in renewables investment, as the impact of COVID-19 on world energy demand trashed global oil prices, which in turn trashed wholesale electricity prices, making all new energy investment challenging.

Using the simple and unreliable maths of extrapolation, that translates into an annual large scale renewables build rate of around 4.5 gigawatts per annum, up there with the world record pace of the last two years.

However there’s a catch. All of these projects have been underpinned, directly or indirectly, by governments.

The 162 MW Columboola Solar Farm in Queensland’s Western Downs has reached financial close courtesy of a 100 per cent off take agreement by the state government owned generator CS Energy.

Stage 2 of the giant Murra Warra wind farm in western Victoria has been bought by private equity firm Partners Group, thanks to a 100 per cent off take deal with Federal Government owned generator Snowy Hydro.  The additional 209MW will make it the target wind farm in Australia.

Another 12 MW solar farm has been signed off by the South Australian Government  owned SA Water, to augment electricity supply for pumping at its Happy Valley reservoir in southern Adelaide.

Another large wind farm progressed onto the CER’s “probable” list in August. The massive 450MW Clarke’s Creek project looks likely to proceed thanks to another 100 per cent off take agreement by the other Queensland government generator, Stanwell.

As corporate investment in renewables to reduce scope 2 emissions has fallen off, governments have stepped in. Worryingly, when they don’t, renewable projects falter. The only other change from July was the downgrade of the 200MW plus 100MW battery Solar River Solar Project in South Australia.

The original off taker of most of its power, private energy company Alinta, pulled out earlier this year and the developers haven’t been able to find another one. After all, there’s only so much government owned corporations can do.

It’s probably a safe bet that the next projects most likely to make financial close will also be government backed: the third Queensland Government CleanCo generator is underwriting stage 1 (540MW) of the Macintyre wind farm in south-west Queensland and the 400MW Western downs solar hub. The rest will probably have to wait until the market recovers.