Renewable energy fund fizzles

Australian
Monday 17/11/2008 Page: 20

INVESTMENT in Australia's renewable energy sector has failed to take off, totalling just $3 billion in the eight years since the scheme was introduced. Modelling by the Energy Supply Association of Australia estimates that a $23 billion investment in renewable energy will be required to achieve the federal Government's goal of doubling the market share of renewable energy from 10 per cent to 20 per cent by 2020.

Uncertainty over interim mandatory renewable energy targets (MRET) beyond 2010, which is slated to be announced in early 2009, has been the key reason for investment in the sector stalling, according to "2020 Vision", a new report from Ernst & Young on the investment challenges and opportunities of meeting the target.

The MRET was initially set to reach 9500 gigawatts by 2010, but the federal Government has since vowed to increase the target to 45,000GW by 2020. But it has not revealed its interim targets for the increase in energy from wind, biomass, geothermal and solar sources.

Adding to the regulatory challenges confronting the industry, E&Y strategic growth markets leader Jon Dobell said increased finance costs due to the global financial crisis were also likely to impact on the viability of some 'cleantech" projects. The International Energy Agency's 2008 Outlook, which was released last week, found modern renewable technologies would grow "most rapidly, overtaking gas soon after 2010 to become the second largest source of electricity behind coal".

But it noted that shifting the energy mix to reduce carbon emissions required "much more investment in energy-related infrastructure and equipment". Mr Dobell said investment in Australia would need to step up a gear for domestic renewable targets to be met. To achieve the 2020 target of 20 per cent (market share), more than half of all new electricity generation capacity installed in Australia until then will need to be renewable, requiring about $23 billion in investment," Mr Dobell said.

"Only about $3 billion has been invested in the renewable energy sector in Australia since mandatory national targets were first introduced eight years ago so this is a huge increase." As the clock wound down on meeting the MRETs, the attractiveness of renewable energy investment in Australia's states and territories is also set to dramatically change, the 2020 report found.

Despite capturing the lion's share of renewable energy investment over the past seven years, South Australia, the traditional seat of renewable power, was "about to lose its crown" because of grid transmission capacity constraints, while the unexploited wind resource and available transmission capacity made NSW the "'next frontier" for renewable energy investment.

"A relatively lower underlying electricity price in NSW in the past due to excess baseload capacity has impeded the viability of renewable energy projects," the report says. "However, increasing coal prices, the introduction of emissions trading and increasing construction costs for new fossil fuel plants are likely to negate this in the future."

Western Australia, where the electricity market is not physically connected to the other states, was deemed the most attractive state for investment in large-scale renewable energy projects in the short term because of its "excellent" wind resources along the southwest coastline near population centres and because planned of upgrades of the electricity transmission line from Perth to Geraldton, which would support renewable energy infrastructure.

Although Queensland, Victoria, NSW and Tasmania are all physically linked through major transmission interconnectors and operate under the National Electricity Market (NEM), the report found that differences in regulation and the range of operators and distribution infrastructure limited trade between regions and created a variety of electricity prices which "can affect a state's attractiveness for renewable energy projects".