SPECIAL REPORT: More than $1.6 billion of renewable energy projects are proposed for the South West Interconnected System, but their success may hinge on how the government handles two regulatory issues.
A decision on how to best fund Synergy’s renewable energy responsibilities will be among the factors that determine which of the $1.6 billion worth of solar, wind, biomass and wave projects get the go-ahead in Western Australia.
Under the federal government’s renewable energy target legislation, power retailers need to buy a number of large-scale generation certificates (LGC) from renewable generators, with the certificates representing one megawatt hour of power each.
The system effectively acts to subsidise renewables to cut carbon emissions.
Business News understands Synergy is forecast to be facing a deficit more than 800,000 certificates by 2021, with the government considering a range of potential solutions.
The cheapest, but perhaps politically risky, would be to buy the certificates from interstate generators; with a current price of $85 each, that option would cost about $75 million.
An alternative would be for Synergy to build its own renewable generation capacity, led by the Warradarge wind farm project, a 250-megawatt development that would be built near Cervantes at a reported cost of $650 million.
Energy Minister Ben Wyatt downplayed that cost estimate, however.
“This figure appears to have been calculated using market data from across Australia for a wind asset of 250MW,” Mr Wyatt said.
“The actual cost for the construction of the proposed Warradarge wind farm is yet to be determined and will be dependent on several factors, such as changes in wind technology costs at the time of construction.”
He said the government’s policy would be to deliver the best value to electricity consumers and taxpayers.
“Synergy is considering a wide range of options to achieve (the renewable energy target) objective, either through developing its own assets or through signing offtake agreements with the private sector,” Mr Wyatt said.
The state government has already released a $19.5 million tender to fund a wave farm in Albany, and committed to tender for biomass and solar projects in Collie during the recent state election.
The cash allocated to the two Collie projects would total $60 million, according to Labor’s election documents.
Further considerations will be the excess capacity in the South West Interconnected System, and the concentration of existing generation power in the hands of Synergy.
Additionally, Business News reported in July that an analysis compiled for the Australian Energy Market Operator predicted commercial rooftop solar installations could grow by around a gigawatt in the next two decades.
Independent Power Association chairman Richard Harris, who is also a director at renewables hopeful WestGen, said that a move by Synergy to further its renewable capacity would raise ‘crowding-out’ issues for smaller providers.
“Just adding more generation to its already large generation fleet means it’ll become even larger,” Mr Harris told Business News.
He said one solution used in Queensland was for the state government to run a tender for a power purchase agreement from private renewable providers.
That would be in the form of a reverse auction, with the lower cost bidders winning.
“(For the provider) it guarantees a floor for the LGC price,” Mr Harris said.
“They still sell their energy into the market, but they can go and bank their project … the government acts as a stopgap or insurance policy.
“The government then hands those LGCs to the retailer (Synergy).”
A second hurdle for projects was the rules related to accessing the Western Power network.
“If (a provider) wants to connect a 50MW solar farm, for example, Western Power is obliged to offer unconstrained access; there are very few places on the grid where you can get that,” Mr Harris said.
“(The provider) would have to spend considerable amounts of money to upgrade the network.”
Unconstrained access means that electricity can flow from the plant to anywhere on the network, which is difficult to secure when most transmission lines are already in use.”
Access was much more costly than in other jurisdictions, Mr Harris said.
In recent weeks, the state government has changed the policy to allow interim constrained access, although legislation is not yet in place.