Chill breeze of politics stills Australian renewables

BUNGENDORE, Australia Sun May 26, 2013 5:23pm EDT

1 of 9. David Brockwell walks between wind turbines during a routine inspection at the Infigen Energy wind farm located on the hills surrounding Lake George, 50 km north of the Australian capital city of Canberra May 13, 2013.

Credit: Reuters/David Gray

BUNGENDORE, Australia (Reuters) - On a line of low hills standing sentinel beside a dry lake bed near Australia's capital, giant turbines turning slowly in a chill winter breeze give no hint of a multi-billion-dollar storm building around renewable energy.

Infigen Energy's Capital Windfarm, built five years ago, was a vanguard for wind power as Australia sought to wean itself from cheap fossil-fuel power in the face of climate shift blamed in part for Lake George's transformation to a vast plain.

But big plans to expand the Infigen renewable energy project near Canberra and others like it have been put on hold awaiting the outcome of an election in September.

The ballot, which opinion polls show the opposition conservatives winning, along with an economic slowdown and rising home energy bills have put the brakes on Australia's decade-long clean energy push.

At stake in the September 14 vote is a controversial carbon trading scheme championed by ruling Labor to curb greenhouse gas emissions, with a $20 billion pipeline in renewable investment largely on hold as nervous companies sit on their hands.

Infigen for one has not decided whether to go ahead with a A$180 million expansion of the Capital wind farm, despite having local planning approval, or with a A$150 million joint venture solar plant with U.S.-based Suntech Power.

"We expect changes. We don't know what they'll be. But the uncertainty is having a crippling effect on the market," says Nathan Fabian, head of a group of institutional investors with $900 billion in funds under management and worried about the looming climate fight.

The conservative coalition has pledged "in blood" to scrap a carbon tax and cut power costs in a country with plentiful supplies of cheap coal, while reviewing policy on renewable power.

But how they may do it is unclear.

"We don't see any clear long-term policy direction on the climate or energy sector from the opposition," says Fabian, of Australia's Investor Group on Climate Change, which includes pension funds and major international banks. "And until that is clear, capital is sitting on the sidelines."

WORLD FIRST

Reversing renewable momentum would be politically risky for opposition leader Tony Abbott, not only because of electoral concern about climate shift and the billions of dollars at stake, but also because the push to cleaner energy was born in conservative politics.

In 2001, with scientific warnings of global warming and growing public pressure for action after a decade-long drought, the former conservative government put in place a world-first mandatory target for renewable energy.

That grew with Labor's election in 2007, and laws were passed requiring 20 percent of power to come from renewable generation by 2020 under a fixed Renewable Energy Target (RET) of 41,000 gigawatt hours from solar, geothermal and wind.

Backed by tradable certificates to make renewable power more competitive against coal generators, the RET was to drive clean investment while scrubbing 41 million tonnes of greenhouse gas each year from national emissions.

Wind energy's share of total generation is projected to shoot up from 1.5 percent in 2007 to 12 percent in 2029, growing by nearly 70 percent annually along a breeze corridor wider than Western Europe blowing across Australia's southern latitudes.

But big power generators and utilities like Origin Energy and EnergyAustralia, as well as gas producer Santos, are now pushing for the RET to be wound back or scrapped, along with the carbon price.

Origin's CEO Grant King says renewable power is more expensive and intermittent than gas and coal-fired generation.

Large energy companies also argue the renewable target will overshoot its aim, as electricity sector emissions are at a 10-year low due to the carbon price, falling demand and a manufacturing slowdown as a China-led resource boom retreats.

That argument has sympathy even among senior government lawmakers like Martin Ferguson, Labor's Energy Minister until March when he resigned.

"The RET is not 20 percent and nor is it 25 percent as some in government will admit. I think due to the real reduction in demand for energy, reflected in the work of the energy market operator, it is more like 30-33 percent," Ferguson said.

Large industry players are pushing opposition climate change spokesman Greg Hunt to consider a target of around 27,000 gigawatt hours instead of 41,000, which would drastically change the viability of some renewable projects in the pipeline.

CONSERVATIVES VOW CHANGES

While Hunt has said he is "very much aware of the importance of providing certainty for the renewable energy sector" and that changes will "create sovereign risk", he has promised to review the scheme next year.

Lawmakers on both sides of the political divide say a conservative government will have no choice but to bring in changes.

"Why saddle industry which is struggling? Industry is saying take the pressure off," says a senior Canberra lawmaker who asked not to be named because of political sensitivities.

Last week, Hunt warned a conservative government planned changes to grants for renewable projects and that it would look to back out of contracts signed pre-election by the government's A$10 billion Clean Energy Finance Corporation, set up to help commercialize wind and solar ventures.

Adding to political paralysis, banks are also unwilling to loan money for new renewable projects not underpinned by industry-standard power purchase agreements signed with energy retailers - often the same power utilities opposed to the current renewable target.

Pacific Hydro's Australian general manager Lane Crockett says the political uncertainty around the RET has stalled plans to expand. "I'm sentiment unsure. I've never seen the crystal ball more hazy," he says.

After a decade of building, only two wind projects are going ahead at the moment: Meridian Energy's Mt Mercer wind farm in Victoria state and TrustPower's Snowtown 2 wind farm in South Australia.

Meridian's project is one of a few going ahead without an underpinning sale agreement. The company will not comment on its reasons, but rivals say the decision to go ahead points to an "unusually bullish board".

Infigen Energy Managing Director Miles George says bigger energy companies arguing against the 41,000 Gwh target are motivated by self interest, with Origin looking to protect multi-billion dollar gas investments.

Infigen, which has six wind farms in three Australian states and another 13 largely on hold, says experience in the South Australia state shows wind generation is starting to depress wholesale electricity market prices.

Wind now accounts for 21 percent of installed capacity in the state against 13 percent for coal and 47 percent for natural gas, and supplies over 25 percent of electricity.

"There's no fuel cost, so they can actually come in cheaper than coal. And now they are becoming large enough that they are actually becoming a threat," says Brett Harper, of carbon and energy research firm RepuTex.

(Editing by Jeremy Laurence)