Australia caught up in a renewables trade rush

As the countdown to year-end and the holiday period begins, the last-minute rush of deal announcements has started. Just November 28 saw several: China Ming Yang Wind Power agreed to build a 200MW wind farm in Romania for Speranta and Succesul. The Asian company will provide engineering, procurement and construction services for the local renewable energy developer. Ming Yang will also supply the 2MW turbines and hopes to leverage this opportunity as a base of expansion.

On the same day, Suzlon Group subsidiary REpower Systems announced it had won an order from Mitsui for 52 turbines for a 107MW wind farm in Australia. This is REpower Systems' first contract with the Japanese company. Suzlon Energy shares gained up to 9.4 per cent on the Bombay Stock Exchange on the morning of the announcement.

In addition, Ireland's Gaelectric Holdings won over €90m ($US123 million*) of pension-backed funding to expand and finance a 42MW wind farm in Londonderry. BlueBay Ireland Corporate Credit, set up by London-based BlueBay Asset Management with investment from the National Pensions Reserve Fund of Ireland, will contribute €30 million ($US41 million) to expand Gaelectric’s business and Proventus Capital Partners gave €6 million ($US8 million).

Long-term institutions like pension funds and insurance companies are showing greater appetite for investing in European renewables projects, according to recent Bloomberg New Energy Finance research. Such investment (not including commitments via worldwide infrastructure funds or capital injected into companies involved in project development) has risen from just over $US1 billion in 2008 to $US2.7 billion in 2012 and $US3 billion-plus in 2013, thanks to project yields of some 6 per cent and a high level of predictability over cash flows.

Also on November 28, Aeon Delight, a building maintenance company, and Recycle One, an environmental research and consulting company, announced it will build two solar power stations in central Japan. Construction will begin this month on the 9.4MW and 7.5MW plants, which are expected to come online in February 2015. Research One has developed two solar plants in the Asian country, with a combined capacity of 54MW.

Other notable deals over the last week came from Suriname where Canadian mining company Iamgold said on November 27 it will build the Latin American country's first solar plant. The 5MW project will cost $US15 million and begin operations in Q3 2014, said the developer. Also that day, the World Bank's International Finance Corporation announced $US221 million of financing for a wind farm in Jordan. The 117MW project will be built by Jordan Wind Project and will benefit from $US69 million from the IFC, with contributions from the European Investment Bank and Denmark's export credit agency. Jordan has been facing an increasingly high energy-import bill after repeated attacks on Egypt's gas pipelines. This appears to be a clear-cut case of renewable power undercutting the alternative, fossil-fuel option, in a developing economy with pressing need for extra energy.

Energy smart technologies

Japan seeks smart solution to renewables grid integration conundrum

Elsewhere in clean energy, Toshiba announced on November 26 it will supply an energy storage system for a pilot project by Tohoku Electric. The 20MWh/40MW lithium-ion battery based energy storage system will address the need for greater frequency regulation and operating reserves driven by the increase in renewable generation in Tohoku Electric’s service area. Construction has already commenced, with a commissioning date set for February 2015.

Japan currently does not have a market-based mechanism for the procurement of ancillary services. Instead the government launched a JPY 29.6bn ($US0.3 billion) grant programme in 2013 to support utilities' installation of large-scale battery systems to be used for the grid integration of renewables. As well as the aforementioned project for Tohoku Electric, the only other project approved this year has been a 60MWh/15MW redox flow battery system supplied by Sumitomo Electric to Hokkaido Electric, scheduled for commissioning by March 2015.

Thanks to the generous feed-in tariff program launched in July 2012, Japan has seen a sharp increase in proposed renewable projects, particularly solar. Bloomberg New Energy Finance expects the country to be the world's largest solar market this year, with potential for installations reaching just over 9GW.

However, Japan’s electricity market and grid structure are not hospitable to the influx of renewable energy projects proposed. For example by March this year, Hokkaido Electric had received grid-connection applications for 1.6GW of PV projects sized 2MW or larger due to abundant land in the region. Hokkaido Electric’s peak demand is 5.8GW and it has only one 600MW interconnection with neighbouring Tohoku Electric; the utility's own estimate is that it can only cope with 400MW of utility-scale solar. To lessen the impact of the solar projects, the Ministry of Economy, Trade and Industry approved tightened curtailment rules in Hokkaido starting from May.

To enable greater renewable energy uptake, Japan needs to reform the electricity sector to loosen the control that the vertically integrated regional monopolies exert over the grid infrastructure and electricity market. Legislation passed earlier in November is the first step in this direction.

EU carbon

European carbon prices weakened last week, as traders brushed aside news of progress towards the formation of a German government and awaited the European Parliament's vote on backloading on December 10.

European Union Allowances for December 2013 finished the week 1.6 per cent down. EUAs for delivery in December ended the Friday session at €4.36/t, compared with €4.43/t at last week’s close. Front-year allowances had a slightly bearish start to the week, but advanced mid-week to an intra-day high of €4.58/t as Germany’s CDU and SPD announced a coalition agreement. But it soon returned to trade around previous week’s close, hinting that some players may have been keen to unwind their positions at the higher intra-day price.

UN Certified Emission Reductions (CERs) for delivery in December remained relatively unchanged, closing the week at €0.31/t, down from last week’s €0.34/t. The absolute spread between CERs and Emission Reduction Units continued to narrow, closing the week at €0.15/t, down €0.02 from the previous week’s close.

*$US1 equals $A1.10.