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Is renewable energy set to boom?

Is renewable energy set to boom?

With the renewable energy target increased at COAG in April this year, factors such as the "brain drain", financing, assessment and approval processes could impede the potential of the industry…

With the renewable energy target increased at COAG in April this year, factors such as the "brain drain", financing, assessment and approval processes could impede the potential of the industry and the goal of lowering greenhouse gas emissions, writes Patrick Ibbotson.

Like it or not climate change means we live in a world that is increasingly "carbon-constrained". If Australia is to move to a lower carbon economy then a strong renewable energy sector is necessary. Our policy and market settings need to facilitate this.

The energy industry is a significant contributor to greenhouse gas emissions. Demand for electricity has grown significantly over the past three decades and is continuing to grow. The difficulty is how to deal with climate change while continuing to meet the needs of growing populations.

At one level this raises a question of intergenerational equity. The NSW Land and Environment Court has observed that the attainment of intergenerational equity in the production of energy includes "as far as is practicable, to increasingly substitute energy sources that result in less greenhouse gas emissions for energy sources that result in more greenhouse gas emissions".

The mandatory renewable energy target (MRET) of 9500GWh was introduced in 2001 by the Renewable Energy (Electricity) Act 2000 (Cth). The Clean Energy Council estimated that generation from eligible sources in 2008 under the MRET was 6500 Gigawatt Hours (GWh). Figures available from the Department of Climate Change indicate that the current mix of renewable energy generation in Australia includes: wind 41 per cent; solar PV 2 per cent; biogas 26 per cent; solar hot water heaters 26 per cent; and hydro 5 per cent.

On 30 April 2009, COAG agreed to adjust the MRET to a target of 20 per cent of electricity from renewable energy sources by 2020. That is 45,000 GWh. The target will ramp up over a number of years starting at 12500 GWh in 2010; 20,100 GWh by 2014 and 35,800 GWh in 2018.

Internationally, while not unaffected by the GFC, renewable energy is a significant growth industry. Leading countries include China, the US, Spain, Germany and Japan. While the percentage international growth figure is typical of a product in the early (expansionary) stages of its lifecycle, where growth is off a relatively low absolute base, the growth figures are impressive.

The Renewable Global Status Report Update 2009 identified that internationally existing wind power capacity grew by 29 per cent in 2008 and has grown from 48GW in 2004 to 121 GW. Grid-connected solar PV grew 70 per cent in 2008 to 13GW - a six-fold increase since 2004. Overall renewable power capacity expanded to 280GW in 2008 - a 75 per cent increase from 2004.

In 2008 additional capacity in both Europe and the US from renewable energy projects exceeded additional capacity from conventional power projects (including coal, gas, oil and nuclear). The world Wind Energy Association estimates that wind energy may contribute up to 12 per cent of global electricity consumption by 2020.

Australia is a relatively small market and its progress in implementing commercial scale renewable energy projects has not been as rapid as for countries with a more favourable policy settings. However, the MRET has been a successful initiative and the expanded renewable energy target and proposed carbon pollution reduction scheme suggest that the Australian market is set to grow strongly.

The Climate Institute recently observed: "With over 200 renewable energy projects already planned for the coming years, Australia is in the beginning of a clean technology boom. These projects will deliver more than five times the total capacity of the iconic Snowy Mountains Hydro Scheme, which took 25 years to complete."

Over the next decade we can expect to see significant growth in the wind and geothermal generation and, off the back of the Solar Flagships program, solar generation. Indeed the Climate Institute estimates that Western Australia will increase renewable capacity by 350 per cent in the decade 2010 to 2020 and South Australia, Queensland and Victoria will each grow by more than 200 per cent in that period.

The Solar Flagships Program will invest as much as $1.6 billion in up to four solar power plants generating up to 1000MW. Understanding the scale of existing projects internationally helps to appreciate the scale of this commitment. Currently the largest operating Solar PV plants in the world are in the order of 50MW to 60MW and the larger planned concentrating solar thermal plants in the order of 250 to 280MWs.

While there is significant potential in the renewable industry, there remain material impediments. Technical risks, in particular problems of intermittency and storage, present impediments to solar and wind projects but industry participants are optimistic that these will be overcome internationally.

However, one of the particular risks facing Australia is the "brain drain" - to the US, China and Germany in particular - in relation to solar energy. Transmission location and capacity present barriers to entry. Many renewable energy projects are in remote locations due to the availability of land or the location of the renewable resource (for example wind or HFR geothermal).

This presents a benefit by reducing conflict with incumbent communities but it creates a significant barrier to entry if transmission lines need to be constructed over any significant distance or if transmission losses are significant. Transmission lines are expensive and their construction requires assessment, approvals and land access processes in addition to the generation facility itself.

Finance remains difficult. The debt and equity markets continue to be constrained. Project financing is more difficult than it has been for many years. Government policies, such as a feed in tariff that can reduce off-take risk, may need to be considered.

Assessment and approval processes can delay and defeat projects. In a market where funding is constrained it has never been more true that the competition for funding is international. Delays in the approval process can materially impact project feasibility.

In NSW wind farm approvals have ranged between 15 and 23 months. Renewable projects present an interesting tension between global benefits and local impacts. The nearer to population centres (and hence demand), the greater the risk of conflict with incumbent communities and hence the complexity of and delay in the assessment and approval of projects. These factors will be in the balance when proponents decide where to proceed with projects and whether to proceed at all.

The benefits of and demand for renewable energy projects are clear. The challenge for Australia is getting the policy and market settings right for our particular operating environment. If we do that, then the renewable industry is set to boom.

Patrick Ibbotson is recognised for his expertise in major project assessments and approvals, environmental compliance and the delivery of projects with significant environmental drivers. He advises major public and private sector clients on all aspects of environmental law.

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