Two basic truths about new global energy race were highlighted this week.
First, we have priced ourselves out of the liquefied natural gas game as illustrated by the decision of Woodside to walk away from Browse. Our labour costs, work practices and government attitudes are just too tough in a new world where there is a big increase in the supply of energy led by shale gas.
And secondly, how many Australians know that even if Julia Gillard wins the next election (and that is not a prediction) she will reduce the carbon tax to a token amount? Arguably it is the coalition who has more draconian anti-carbon policy.
These two truths are what struck me after I had yarned with Ditlev Engel, the chief executive of one of the world’s largest wind groups, Danish based Vestas, in a KGB interview to be published on Monday.
I must emphasise that Engel said nothing like the above but he underlined how the economics of the wind industry had been transformed in the last five years. One of those changes is that the European price of carbon has fallen from around €30 to €4. As things now stand, in 2015 our carbon price is buttoned into that European price so if there is no change our price will fall from $23 a tonne to about $5.
The high price of carbon was a big driver of the wind power generation as was government renewable quotas encouragement. There has also been a big rise in the global capacity to produce wind turbines and this comes at a time when shale gas is seen as the low cost game breaker in lowering energy costs.
So, suddenly the wind industry must sell itself on the basis that it represents a much more secure pricing structure than the booming shale gas.
At the same time Vestas is improving the ability of its turbines to produce power from lower wind speeds – a facility being incorporated in the new Port Fairy Victoria installation being launched this week.
Engel believes that Australia is one of the best wind power sources in the world and if gas prices rise in Australia wind will be very competitive. Moreover gas prices are volatile so wind should be an important part of a power generation spread.
Suddenly wind is talking a language that makes sense.