Powering up. Australian renewable energy outlook Dominic Churchill, Director

Transcription

1 Powering up Australian renewable energy outlook 2015 Dominic Churchill, Director

2 Australia is a country of extremes. Whilst it is considered to have some of the best conditions for wind and solar generation in the world, endowed with enough renewable energy resources to power the country 500 times over 1, it is also one of the top 10 global emitters of greenhouse gases from electricity and heat production, typified by its sub-critical coal-fired powerplant fleet which is estimated to be the most carbon-intensive in the world 2. 2

3 The global investment boom in renewable energy development has outstripped investment in any other energy sources, including coal, since Investment globally in renewable energy has increased from US$60b in 2004 to over US$300b in 2014 (more than double the investment in fossil fuels) and has been underpinned by favourable government incentives with 144 countries out of 196 now enacting renewable energy policy 3. Uncertainty arising from Australia s Renewable Energy Target [ RET ] has contributed to languishing investment in renewable energy over the last 18 months, bucking the global trend. Investment fell 88% to AU$29.3m in 2014 from AU$244m the prior year with no new investment in large-scale renewable projects as a result of the RET uncertainty 4. FIGURE 1: PROPORTION OF NEW GENERATION (GLOBAL, GW) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: Climate Council Renewable (%) Non-Renewable (%) Notwithstanding lacklustre investment in Australian renewable energy projects in recent times, there is currently as much as 24,000MW of solar and wind generation projects at a pre-construction phase currently announced or permitted 5. Favourable economic conditions make investment in Australia s renewable energy sector more attractive than ever, including: cost of kit at all-time lows, a rapid rate of technical development of renewable energy technology, RET resolution and a current Liberal Federal Government more favourably disposed towards renewable energy, further development of economic, variability-reducing technologies such as battery storage, continued volatility in fossil fuels and uncertain forecasts, and a global focus on reducing the reliance on fossil fuels. 1. The Global Renewable Energy Boom: How Australia is Missing Out, Climate Council of Australia, Ibid 3. Ibid 4. Ibid 5. Bloomberg New Energy Finance as at 27-Jul-15 3

4 With current estimates suggesting up to 30% of Australia s greenhouse gas emissions are produced by fossil fuel generation 6, energy generation is the most direct means by which Australia can reduce its greenhouse gas emission and begin to reverse the impact of its CO 2 emissions. Start with what you can deal with; deploy capital in technologies that build towards a sustainable world and offer real returns. Australian energy demand overview Demand for electricity has continued to decline since 2013 which has resulted in oversupply of generation capacity (coal-fired generation) as well as putting downward pressure on wholesale energy prices. The repeal of the carbon price in 2014 further contributed to lower wholesale prices but is also attributed to reversing the trend of Australia s declining greenhouse gas emissions 7. Softening retail demand resulting from a rapid take up of solar PV panels as well as energy saving devices such as energy saving light bulbs have removed the need for major capital expenditure on network upgrades; a cost that has historically been passed onto customers in retail energy prices 8. These factors coupled with the impact of the continued exit of major industrial users from Australian operations, are expected to continue the downward trend of wholesale electricity prices in Australia 9. FIGURE 2: AMEO FORECAST AUSTRALIAN ENERGY DEMAND, JULY 2015 Demand GWH 270, , , , , , ,000 Source: AMEO Despite a softening overall demand outlook for electricity, a significant opportunity exists for renewable energy projects to replace existing installed fossil fuel generators, many of which are operating decades beyond their intended decommissioning dates Low Mid High State of the Energy Market, Australian Energy Regulator, December Ibid 8. Ibid 9. Clean Energy Australia Report, Clean Energy Australia Report

5 Maximum demand energy (peak usage) periods are forecast to increase while average energy demand is expected to decline over the coming years due to demand-side management. Accentuated demand troughs will test the commercial viability of some large-scale generation plants which have been developed on the assumption of gradually increasing energy demand. This mismatch in generation supply and demand presents an immediate opportunity for renewable energy and storage technologies to more efficiently meet the increasingly variable total grid demand 11. Although uncertainty surrounding the outlook of the RET persisted into early 2015, Australian businesses and households continue to develop renewable energy generation behind the meter to increase their energy self-sufficiency, manage energy supply and reduce their on-going energy costs, illustrating clear acceptance of renewable energy as a viable and mainstream energy source. Renewable energy opportunity Renewable energy generation technologies are benefiting from substantial build cost reductions. Over the five years to 2014, wind power total costs fell by as much as 14% and solar photovoltaic technology fell by 75% 12. Globally, renewable energy development is now cost-comparative or cheaper than fossil fuel generation per megawatt 13 and the cost per megawatt of renewable technologies is expected to fall a further 18% to 30% by However, even with the significant reduction in cost for renewable energy generation, and Australia s abundant renewable resources, electricity generated by large scale renewable generation only accounts for approximately 11% of Australia s total supply 15 or approximately 25,220 GwH of total generation in the National Energy Market (excludes WA) 16. FIGURE 3: AUSTRALIAN RENEWABLE ENERGY DEMAND FORECAST (%, GWH) Renewable % of total generation GWH 60% 120,000 50% 100,000 40% 80,000 30% 60,000 20% 40,000 10% 20,000 0% 2014 large-scale generation (acutal) 2020 RET target 2030 Climate Works forecast - Source: Climate Council of Australia, Australian Government Department of the Environment, AEMO 11. State of the Energy Market, Australian Energy Regulator, December The Global Renewable Energy Boom: How Australia is Missing Out, Climate Council of Australia, Ibid 14. Ibid 15. The Global Renewable Energy Boom: How Australia is Missing Out, Climate Council of Australia, State of the Energy Market, Australian Energy Regulator, December

6 Figure 3 above illustrates the significant investment opportunity over the next 15 years to develop and commission the renewable energy projects. Over the next 5 years as much as 6,150GwH of additional renewable capacity must be developed to meet the legislated renewable energy target. Beyond that, a further 71,292GwH (or 50% of total supply) has been forecast to be required to ensure Australia stays within its carbon budget 17. In dollar terms, the required total investment over the next 15 years is north of AU$30b on renewable generation (before network connection costs). Renewable energy and storage advantage The installation of reliable and economic storage solutions has the potential to transform existing RE generators such as wind and solar farms to efficient, on-demand baseload and peaking generators, all but negating the need for existing fossil fuel generators. Renewable energy has been a major driver in the development of new and existing energy storage technologies, particularly over the last decade 18. The major driver for this development has been the need to increase the security and reliability of renewable energy supply as energy generation is dependent upon favourable (and ultimately variable) weather conditions. Energy storage technology has gained greater mainstream media attention since the announcement by Tesla of the construction of the Gigafactory lithium-ion battery manufacturing facility in late 2014 which is expected to have a significant impact on the retail and wholesale of lithium-ion batteries. Despite this increased attention, energy storage technology is a mature market for conventional energy generation technologies with storage technologies for renewable energy generation rapidly developing. Energy storage technologies vary and include mechanical, thermal, electrochemical or chemical storage 19. FIGURE 4: EXAMPLES OF ENERGY STORAGE TECHNOLOGIES Mechanical Thermal Electrochemical Chemical Pumped hydro Hot water Supercapacitors Hydrogen Compressed air Molten salt Super conduction magnets Synthetic natural gas Flywheel Phase-change material Batteries Chemical compounds, including ammonia Fuel cells Methanol Source: CSIRO Current energy storage technologies detailed in Figure 4 above have unique advantages and disadvantages which limit their application to various types of renewable energy projects due to their physical characteristics and economic reasons The Global Renewable Energy Boom: How Australia is Missing Out, Climate Council of Australia, Battery Storage for Renewables: Market Status and Technology Outlook, International Renewable Energy Agency, January Electrical Energy Storage: Technology Overview and Applications, CSIRO, 8 July Ibid 6

7 Five main opportunities currently exist for energy storage to increase the use of renewable energy in Australia to boost grid-side supply and reliability, illustrated in Figure 5 below. FIGURE 5: GRID-SIDE APPLICATIONS OF CURRENT ENERGY STORAGE TECHNOLOGY Application area Specific considerations Storage technology Bulk energy storage High energy rather than power Slower response is sufficient Flow battery Lithium iron phosphate Medium cycle life Regulation services Fast response time High power Low cycle life is acceptable Lithium-ion Molten salt Advanced lead-acid Network augmentation deferral High reliability Low cycle life is acceptable Advanced lead-acid Lithium iron phosphate Power quality Fast response time High power Lithium ion Advanced lead-acid Medium cycle life Intermittency Fast response time High power Lithium-ion Advanced lead-acid Long cycle life required Source: CSIRO Major opportunities also exist for small-scale storage applications which include power quality, reliability, and management, back up and are dependent on storage unit size, discharge duration, cycles and desired lifetime 21. Although the cost of implementation of energy storage continues to fall, key factors which have impeded further commercial development of technologies include a lack of compensation schemes for storage systems, the absence of a standardised performance and safety validation framework, a regulatory environment supporting legacy fossil fuel electricity generation which supports centralised generation and load-driven supply planning. Other factors impacting commercial development of storage technologies include the lack of industry and utility business acceptance of storage technology and renewable energy as well as a lack of traditional project financing which is often costly or difficult to obtain due to the early-stage misconception associated with renewable energy and related technologies 22. Despite these hurdles, UBS expects a 50 fold increase in the use of storage technology in Australia by Furthermore, modelling undertaken by the Clean Energy Council expects there to be a 3,000MW market for energy storage in Australia by 2030 without the support of subsidies or other regulatory support; a considerable increase from current estimates of the market which has been estimated to be as little as 5MW 24. It is clear that energy storage has a critical role to play in the widespread roll out of renewable energy generation and that even without subsidy support; energy storage technology will be deployed in conjunction with renewable energy generation. 21. Ibid 22. Battery Storage for Renewables: Market Status and Technology Outlook, International Renewable Energy Agency, January Clean Energy Australia Report Ibid 7

8 Conclusion Renewable energy generation has cemented itself globally as a an economically viable and efficient alternative to traditional fossil fuel generation, a sentiment that has been underpinned by legislation in 144 out of 196 countries. This is further emphasised by investment in renewable energy continuing to outstrip fossil fuel generators every year since Resolution of the RET, decreases in renewable energy costs, developments in storage technology and system efficiencies mean reduced sovereign and plant risk for project developers and investors. NPV-positive opportunities in renewable energy projects exist today and will become the norm as renewable energy technology and storage technology costs continue to decrease and efficiencies increase. Climate Capital is working with renewable energy technology and storage technology developers, investors and customers to capitalise on the over $30b investment opportunity that exists in the Australian energy market. About the author Dominic Churchill is a Melbourne-based valuation professional with a keen focus on the energy and infrastructure sectors. As well as a Director of Climate Capital, leading sales and market and production activities, Dominic has been an analyst at sister firm Value Adviser Associates since July 2012 performing research, modelling and analysis support on a range of valuation and advisory assignments. Dominic s experience includes analyst support for the regular mark to market valuations of a range of major Australian infrastructure assets, in particular, energy generation, transportation, social infrastructure, public-private partnerships and debt instruments for Australian and international fund managers. Sources of information 1. Clean Energy Australia Report 2014, Climate Council Australia 2. The Global Renewable Energy Boom: How Australia is Missing Out, Climate Council Australia, State of the Energy Market 2014, Australian Energy Regulator 4. Integrating Renewables into the Grid: Stocktake project (version 1), Marchment Hill Consulting, VAASA ETT, August Electrical Energy Storage: Technology Overview and Applications (prepared for the Australian Energy Market Commission), CSIRO, 8 July Battery Storage for Renewables: Market Status and Technology Outlook, International Renewable Energy Agency, January Bloomberg New Energy Finance 8. Bloomberg, LLP 8

9 About Climate Capital Climate Capital is a Melbourne-based advisory firm focused on investment (greenfields) and mergers and acquisitions (brownfields) opportunities in the renewable energy infrastructure sector. Climate Capital s investment model seeks to align strategic and financial investors who bring to bear project development and management experience with pre-development and operating renewable energy infrastructure projects. Climate Capital is a member of the Peloton Global group of companies and draws upon the collective experience and expertise of Group companies and strategic alliances and partnerships. Peloton Global Group of Companies 9

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