Gale force … pressure builds in the wind project pipeline
The project pipeline for wind farms around Australia is filling faster than ever before, writes Jeremy Chunn. Whether these future facilities will power the NEM or hydrogen exports, it’s clear that investors back the technology. But will the wind buildout be a breeze?
The energy transition is gaining momentum and the states can take the credit. Yes, the Australian Energy Market Operator’s Integrated System Plan spurred them into action but the effects of decisive clean energy targets and plans for renewable energy zones in Queensland, NSW and Victoria have set wheels in motion.
Now comes the hard part – building the generation that will replace coal.
EcoGeneration can’t claim to see into the future but it looks as though wind will be a primary provider in tomorrow’s grid. Just have a look at the Wind Map of Australia 2021 that came with our February edition, using data provided by Rystad Energy.
In last year’s map the wind project pipeline totalled 6.7GW, which included announced projects from concept stage to pre-construction. For the 2021 map, the project pipeline has grown to 59.9GW, nearly nine times greater.
Not every project will be delivered, it’s true, but the sentiment is plain as day: investors like wind generation.
About 8GW of wind operates in the NEM today but AEMO’s Integrated Sydney Plan 2020 has called for about 25GW – or an increase in capacity of more than 200%. Can it be done?
Final investment decisions in wind projects lagged in 2020, on data from BloombergNEF, with three projects totalling 430MW reaching financial close and starting construction – a slim result compared with 1.3GW in 2019 and 2.5GW in 2018. The pipeline of new capacity announced or permitted provides a clearer forecast of activity in wind, with 7GW in 2019 and 5.4GW in 2020 (on BNEF’s numbers).
“These pipelines are quite big, however that doesn’t mean all these projects will be built,” says BNEF renewable energy analyst Lara Panjkov.
Regardless of NSW, Queensland and Victoria announcing support for more than 10 renewable energy zones capable of accommodating up to 30GW of generation, federal energy policy is a vital missing component. In some parts of the country government-backed support is already facilitating new projects to be built, with the ACT government and Queensland government-owned retailer CleanCo enabling 812MW of wind contracts in 2020, which could result in 1.8GW of new wind capacity, Panjkov says.
Apart from hanging all the blame on Canberra, it must be noted that the inadequate state of the electricity network is another major obstacle to a steady schedule of approvals and build of wind farms. Network investment and regulation have struggled to keep pace as solar and wind projects have been completed to meet the Large-scale Renewable Energy Target. The result is a NEM plagued here and there by stability and system strength issues.
The levelized cost of energy for wind in Australia has been rising ever so slightly since about 2018, on BNEF’s numbers. Taller turbines with longer blades and larger swept areas generate higher yields but the balance of plant costs are similarly higher, such as foundations, cranage and transport costs. The fact is that the sites with the best wind resources are taken, and bigger, more powerful technology will be erected in areas with lower wind speeds.
Panjkov expects new strategies will emerge to manage system strength issues and the complexity and cost for generators; she cites as an example Powerlink’s decision to build a synchronous condenser in North Queensland to contract supply of system strength to newly-connecting renewables generators. “There is also a need to balance challenges on the network, particularly around system strength and inertia, and to de-risk assets against falling realised prices,” she says.
Regulation is undergoing the most rapid reform since the NEM was created. The need for a two-sided market has accelerated the pace of change, which only makes life harder for investors to anticipate what the future holds.
Rising penetration of wind generation has had dramatic effects on parts of the NEM. In South Australia, the price of wind generation was 37% lower than average prices in the first quarter of 2020, Panjkov says.
More interconnection is broadly good news for renewable energy investment. “It can help balance the power system, alleviate curtailment and boost grid security,” Panjkov says. “However, building new interconnectors is generally expensive, slow and cumbersome.”
More than 50 developers are linked to the 120-odd projects listed on the EcoGeneration Wind Map of Australia 2021 that are in various stages of development. The name that comes up most often is Epuron, with 12 projects totalling more than 3GW: three in Queensland, five in NSW and four in Tasmania.
Epuron was founded in 2003 and co-founder and director Andrew Durran has been in the wind sector since 1995. “There have been a lot of cycles through that period but what we are seeing at the moment is a major transition,” says Durran, pointing to federal political stagnation and the inevitable exit of coal generators. “The reality in the energy market today is that the renewable energy developers are no longer waiting for direction from government … they can see that projects need to be built or the lights will go out.”
A wind plant is a slower and more complicated build than a solar facility, with higher barriers to entry. Wind makes up about 9.4% of the NEM, with utility-scale solar contributing about 3%. The difference in generation profiles of the two technologies is profound: generation day and night can be expected from wind assets distributed between Tasmania all the way up to Queensland and from South Australia to Victoria and NSW, whereas there is about a half-hour difference between the solar peaks from the eastern-most and western-most parts of the NEM.
“There is a massive amount of diversity,” Durran says. “The advantage of that is with the construction of strong interconnectors you can reduce the cost of storage, the size of storage and the uncertainty in the market.”
Durran expects the next 10 years will see a strong consistent build of new wind farms, with consolidation within the sector. New entrants with enormous capacity around the world and easy access to financing are being attracted to Australia. “The limitation, really, is about how quickly that transition can technically occur, and how quickly developers like ourselves can deliver product that is ready to build.”
Epuron has a pipeline under development of around 3.5GW, Durran says, with an early stage pipeline about the same amount – a total of 7GW it hopes to deliver over the next five years. “We are the most active wind farm developer in Australia.”
State governments are stepping up to recognise that commonly owned transmission infrastructure is needed for the large amount of clean energy generation required to replace coal, both in terms of renewable energy zones and interconnectors. “Every state boundary that you can find has a new interconnector proposal somewhere along it,” Durran says. “These things are vital to take advantage of the lowest cost of new assets and the diversity of weather patterns across the market.”
The price of wind will continue to dilute the pool price, he says, “but not in such a way that it outcompetes itself.”
With a mature industry able to attract finance without too much difficulty, Durran suspects long-term PPAs from utilities with sturdy credit ratings are not going to be the norm. “The world has recognised that there are going to be a number of different underwriting strategies for these projects,” he says. “If you step forward about five years, it’s not just how energy is sold that is critical for these projects; it’s also how the rules and regulations in the marketplace ensure that the right capacity is built.”
The transition from synchronous to asynchronous machines relies on a new way of managing system security, but Durran feels the government is avoiding the task so far. The industry is looking for direction on the issue, he says, other than being expected to install technology at generation to make output appear as steady as a coal plant.
“Without understanding what the market will look like in 10 years’ time there is going to be a lot of unnecessary investment in unnecessary equipment,” he says. “The sooner it’s clear where those new rules and regulations are going to move the more efficient the transition will be.”
Epuron doesn’t own any operating wind farms. Those that it did manage throughout the planning stage include Silverton, White Rock and Gullen Range, all in NSW.
Some parts of Australia are dotted with projects at various stages in the approval process, all apparently competing for connection in parts of the NEM where transmission is inadequate. Yes, some states have announced ambitious and much-needed plans for renewable energy zones, with the Commonwealth pitching in to bolster transmission, but a surge in development of wind plants could push up against all manner of constraints. Developers that are coloured with a competitive streak could end up expending more effort and capital in pursuit of success than if they took a more collegial approach with their peers and government.
“You’re seeing competition for future powerlines,” says NGH director Nick Graham-Higgs. “I think there is scope and space for more collaboration between government and industry.”
The careful matching of generation and storage with new or existing transmission is too important to devolve into a race for approval and delivery. “There is an opportunity to turn Australia into a renewable energy powerhouse if there is a level of coordination and understanding of what potential there is out there and what you could realise,” says Graham-Higgs, who advises on renewable projects in NSW, Victoria and Queensland.
Spanish energy company Naturgy is prominent among the queue of hopefuls waiting to add new wind plants. The company is already working on a 218MW wind farm in Victoria, which it hopes to commission in 2022, and a 107MW wind farm and 20MWh battery for the ACT also due in 2022. A spokesperson for the company told EcoGeneration it is finalising permits for projects worth more than 400MW to make it “one of the main renewable energy operators in Australia in the next three years, achieving a total capacity of more than 1.3GW”.
Tilt Renewables has been operating in the Australian wind sector long enough to have notched up a successful sale, with its 2019 sale of Snowtown 2 in South Australia. This year’s wind map shows the developer has five projects in the pipeline, worth nearly 2.3GW.
“We’ve got a mature pipeline of opportunities that we hope to get away in the short to medium term,” says Tilt Renewables executive general manager renewable development Clayton Delmarter. “The next phase of projects and new pipeline growth will be more about new infrastructure off the back of REZs [renewable energy zones] and the ISP [AEMO’s Integrated System Plan].”
Delmarter’s view on South Australia is that “it’s pretty full at the moment,” he says, pointing to negative pricing and issues with system strength. “Until the [NSW-SA] interconnector EnergyConnect comes into play it’s probably viewed as a fairly difficult patch to develop new projects.”
Tilt is finishing the 336MW Dundonnell wind farm in Victoria, which has had its challenges during commissioning. “We’re still very much focused on wind,” Delmarter says, although Tilt is also working on battery storage, solar and gas projects. “We have solid options in our portfolio but it’s fair to say we see better value in the wind developments just as a function of their generation profile, some of the locational benefits and the slightly higher bar around IP and getting them away.”
Tilt has had to make development modifications to some older permits to take advantage of newer technology, where lower LCOEs can be achieved thanks to taller turbines with longer blades.
In NSW the company is planning a 400MW facility in Rye Park and – potentially two-and-a-half times as big – the 1GW Liverpool project. “We like NSW in the context of load and lots of coal potentially coming out,” Delmarter says.
Developers of wind and solar plants in the early stages are caught up in a shadowy game where AEMO and the networks are not entitled to share information about competitors’ activity in the surrounding areas.
“It’s hard to get a sense of, well, is that solar farm up the road coming tomorrow … or in a year? And all of a sudden you’re halfway through your grid studies and you have to update all your models because there is a change in the status of all these other projects and you have to start again,” Delmarter says. “That’s been the big frustration.”
Whereas some developers like to keep their plans to themselves until they are certain of commitment, others have a tendency to declare their intentions perhaps prematurely. Delmarter says Tilt has cooperated with adjacent developments on offsets and connections in the past, among other things. “It’s really complicated,” he says, “which is why [development of] REZs is not going to be straightforward either.”
As projects are approved the age-old problem of sourcing experienced personnel will rear its head again. The issue is compounded by the exit or demise over the past few years of some major contractors, and let’s not forget the parallel construction of infrastructure around the country competing for resources. “It’s definitely a challenge for the industry,” Delmarter says. “There’s a maturation and upskilling required across the board.”
There are plenty of examples of cost blowouts and delays to projects that can be pinned on inexperienced contractors. The practice of handing over a project to an EPC – engineering, procurement and construction company – has been popular in Australia for some time but it’s not a global standard. A developer who employs an EPC could be seen to be concentrating risk, where instead it could take on the role of project manager and spread risk among contractors. Lenders might prefer the use of EPCs for the simplicity it offers in understanding risk, but a well-managed split-contract structure might be a better solution for an experienced developer.
“Australia has good EPC capability,” Delmarter says, “but the track record of the past few years probably is a bit of a testament to that model coming under pressure. People are looking at that allocation of risk a little bit differently now.”
The construction of the wind capacity required to replace coal is too vital a task to get wrong. With a steady and coordinated approach, Australia should end up with the clean generation fleet it deserves.