The clock is ticking Minister Combet

We are now well into February and still yet to hear from the Government on their response to the recommendations from the Climate Change Authority on the Renewable Energy Target. 

The clock is ticking, as illustrated by our charts of the week from Infigen Energy's interim results released yesterday, and analysis by Green Energy Markets.

The chart below is Infigen Energy's assessment of the supply and demand for certificates in the Large-scale Renewable Energy Target (‘LRET').  The solid purple line is annual demand for renewable energy certificates or LGCs.  In terms of supply the grey bars represent actual certificates that have already been created and the dark and light purple bars represent certificates Infigen expect to be created in the future from already operational projects and projects already committed to construction.

Demand and supply of large scale renewable energy certificates (LGCs)  

Source: Infigen Energy Interim Results Presentation – half year to Dec 2012

The chart illustrates that in 2009 and 2010 there was a huge surge in certificates well above demand, which were from solar PV and solar hot water systems. Ever since then we've been living off this surplus of certificates, so even though annual production since 2011 has been below demand it hasn't been a problem.

However the dashed black line in the chart above shows that the surplus of certificates will start to be rapidly used up such that by 2016 we'll end up with a major shortfall of certificates, unless further projects are committed to construction.

The problem is that you can't just create new wind farms overnight, or any other large-scale renewable power projects for that matter.

Yesterday I caught up with Miles George, CEO of Infigen Energy which owns around a quarter of all operational wind farm capacity in Australia, and has over a gigawatt of projects under development.  So he knows a thing or two about what's involved in making a wind power project a reality.  

He explained that you generally need at least 2 years to get a project operational and everything hangs on an electricity retailer signing onto a power purchase agreement. It's only once the power purchase agreement is in place that financing is possible and of course only with financing in place can you  start signing contracts with suppliers. Sorting out all these agreements takes around 6 months once a power purchase agreement is in place. Then you can commence construction which takes a further 18 months to 2 years. This is for a project that otherwise has all its ducks in a row. For example it already has agreements with land-holders, planning and environmental approvals and a grid connection secured.

What this means is that in order to have power plants up and generating renewable energy in 2016, we need to start seeing retailers signing onto power purchase agreements at significant levels starting today.

The chart below by Green Energy Markets shows in the dark blue bars their estimates of new power project capacity that need to be committed to construction each year to meet demand (and maintain reasonable market liquidity).  Light blue bars are what has been historically achieved.

Historical and required construction commitments for renewable generation capacity

Source: Green Energy Markets

We need to get cracking starting now with commitments for 1200MW of projects this year. This is equivalent to all the wind installed in South Australia to date, and more than anything we've done before.  While it should be doable (essentially just 7 to 10 wind farm projects), these things inescapably take time.  Also if we fall short this year then it means we have to make it up the next year plus a bit more (to account for the missed year of RECs that an earlier project would have produced). 

To help get things cracking Climate Change Minister Combet can't afford to just say (as his office have been doing) that the government will deliver its response to the Climate Change Authority's recommendations within the next six months.  He needs to come out within weeks with an unambiguous public statement that the government will rule out any changes to the level of the Large-scale Renewable Energy Target. 

Yes it will take some time to work out the mechanics of any changes to regulations and possibly legislation required to address all the Authority's recommendations.  But he doesn't need this to answer a simple question – does he support the Authority's recommendation to leave the LRET gigawatt-hour targets unchanged?

All this requires is a simple yes or no.