Wind goes quiet down under

The Australian wind market is eerily quiet.

Not a single onshore wind farm reached financial close in the first five months of 2021, according to Bloomberg New Energy Finance. This was reported in BNEF’s 1H 2021 Global Wind Market Outlook that came out last month.

This is part of a gradual downward trend. A record 2.5GW of wind reached financial close in Australia in 2018, but this shrunk to 449MW in 2020.

There are problems in construction too. There are currently around 3.6GW of wind farms in the construction pipeline in Australia, which sounds impressive. But many are being delayed in construction as the grid struggles to cope with huge levels of wind and solar projects built in recent years.

This means many projects are being severely delayed. BNEF has pushed around 700MW of completions expected in 2021 and 2022 into its 2023 forecasts.

So why is Australian wind struggling? It’s partly the grid – but not entirely.

The first reason is that old chestnut for Australian renewables companies: political opposition. Renewables companies in Australia have faced nigh on a decade being led by governments that have sought to water down previously ambitious renewables targets.

Some native firms have chosen to move overseas, such as New Energy Solar, which warned that “the policy and regulatory environment for renewables in Australia is not conducive to growing the business and achieving economies of scale” last month. That is just as true for wind as it is for solar. NES is focusing on the US instead. Meanwhile others, such as Infigen Energy, have sold up.

It’s clear to see why companies are sceptical.

In May, Prime Minister Scott Morrison’s government vetoed using public funds for a 157MW wind and 100MW battery by Neoen; and, last week, it withdrew approval for the 26GW Asian Renewable Energy Hub because it was “clearly unacceptable” due to its potential impacts on birds and wetlands. Industry group Clean Energy Council has raised concern that AREF was rejected before detailed environmental studies were completed.

However, the overwhelming feeling is that such projects always face an uphill battle because the government just doesn't like them.

The second reason is the grid challenges we discussed earlier. Australia has been highly reliant on coal-fired power stations for decades and coal continues to make up around 29% of the country’s energy mix. There is a lot of work to be done to change the grid to make it suitable for a transition to renewables.

Unfortunately, any modifications are being made slowly, which hinders the commissioning of new wind projects. The 336MW Dundonnell and 157.5MW Mortlake South projects are two wind projects that have experienced delays.

And the third reason is falling electricity prices, which have made it more difficult for wind developers and investors to build projects profitably. BNEF attributes these to the “rapid rise of renewable energy, soft demand and low fuel prices”. Though this is a bonus for consumers, it does yet more damage to the confidence of investors that want visibility over project returns.

Yet there are reasons to remain optimistic.

For one, renewables developers in Australia are seeing relatively strong demand for renewable energy power purchase agreements, which BNEF said would account for a 1.3GW boost in forecast completions in 2024 and 2025.

There are some reasons to be positive on the policy side too.

We have seen plans for 14 renewable energy zones to co-ordinate and support renewables projects; and the A$2.3bn Project EnergyConnect transmission line between South Australia and New South Wales has won approval. REZs may only be in the development phase and Project EnergyConnect is due by 2024, but both would be helpful if they happen.

The growth of giant battery storage may also help mitigate grid challenges.

Then there is the burgeoning offshore wind market, where there are 12 projects in development totalling 25GW. The shutdown of coal-fired power plants over the next two decades is opening opportunities for offshore wind farms, such as the 2GW Star of the South project that is backed by Copenhagen Infrastructure Partners. This has already won licensing and environmental approvals, and it may kickstart the market.

Renewables companies can only hope that the first-half figures represent a nadir – and that the eerie present for wind gives way to a brighter future.