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Batteries boom in Australia as renewable investments decline

The Clean Energy Council says investors are shying away from large renewable projects in Australia, as government intervention has created uncertainty and grid risks are tough to quantify – even with a prized connection agreement in hand.

From pv magazine Australia

Australia’s Clean Energy Council (CEC) put out alarming data last week showing a shift in large-scale renewable energy investment. While battery storage has seen a 300% year-on-year increase in the first quarter of 2021, there has been a dramatic decline in investments in large-scale renewable projects, with financial commitments for large solar and wind farms falling to the lowest levels seen in five years.

New England Solar farm near Uralla, New South Wales, was the only project to reach financial close in the first quarter of this year. Its 400 MW of capacity is also a 40% drop on capacity committed in the previous quarter and 30% lower than the 2020 quarterly average.

“Confidence for new investment in the sector is really in limbo at the moment,” said Clean Energy Council (CEC) Chief Executive Kane Thornton. He noted that projects are experiencing “significant and often unanticipated delays through the grid connection process,” and claimed that government intervention in the energy market is adding to “uncertainty for investors.”

Sally Torgoman, infrastructure lead advisory for the energy practice at PwC, agrees. She said that grid risks must be factored into every stage of a renewable energy project.

She confirmed at a recent Smart Energy Summit that achieving grid connection for a large-scale development typically takes two to four years and costs upwards of AUD 1 million (USD 774,000). She also said that the risks posed by the grid continues into the operational phase of projects in the form of changing marginal loss factors, which measure energy likely to be lost between the point of generation and the point of demand. She also noted the possibility of curtailment in response to grid instability and other possible requirements to mitigate problems with the grid.

PwC recently surveyed 50 renewable energy experts in the Australian market to discover whether everyone was having the same problems.

“It’s very rare that you run a survey and get 100% of participants saying the same thing, but 100% of the experts said that the No. 1 issue in the National Electricity Market [NEM] is underinvestment in transmission and distribution, followed by slow grid connection processes,” Torgoman said.

She told pv magazine Australia that investment would likely decline if there are no boundaries around the level of intervention that the government might make in the market. Recent Australian federal government interventions have included investing taxpayer dollars in the development of Snowy 2.0, and more recently in development of a gas-peaking plant at Kurri Kurri on the central coast of New South Wales.

This despite this year’s research by the CEC, which found that large-scale battery storage is superior in terms of reaction times, operational costs, and emissions to gas plants for delivering electricity peaking services.

“In a market that’s really about managing supply and demand in a timely way, investors don’t know when the government will plonk down another couple of hundred megawatts of assets to insure against closure of Liddell,” said Torgoman. “Or whether it will allow the private sector to invest its own money to meet the approaching supply shortage.”

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Monique Miller, executive director and head of solar and dispatchable renewables at Clean Energy Finance Corp., spoke after Torgoman at the Smart Energy Summit this month. “Global investors are looking to double holdings in sustainable investments to 2025,” she said.

Torgoman said that there’s “plenty of liquidity in the market and investors are very keen to invest in environmental, social and governance (ESG) related projects, particularly in renewables.”

She and Thornton echo the voices of many industry experts who say that Australia has a tremendous opportunity to become the choice of renewables investors. “We desperately need new generation,” said Torgoman, noting that upwards of 40 GW of renewable energy will be required to replace the output of retiring coal-fired power plants and meet electricity demand.

Big batteries

Investment in batteries also makes sense, Torgoman said, because they offer a number of benefits. These include securing the stability of the grid, while allowing the deferral of capital investment in major grid upgrades. At this point in time, batteries also offer longer asset lives than before, and pricing is more attractive now. Torgoman said it’s become “good business to consider whether upgrading a power line or a substation can be dealt with more effectively with a battery.”

Battery energy storage also allows the time-shifting of excess renewable generation at certain times of day into low-generation, but high-demand periods.

“But that actually means again that we have to remember the important role that transmission and grid connections play,” Torgoman said. “The grid is an unavoidable requirement.”

Among the remedies to the “financially and psychologically” painful problems of effectively quantifying risks the grid in its current state poses to investors, said Torgoman, is a more transparent process that helps investors and developers understand the limitations and accordingly cost them. She said the current multi-faceted, multi-party process of grid connection, for example – which puts the onus on investors to understand grid capacity and complex modeling – could be clarified.

She said that some parts of the process are up for interpretation, and yet there is no third party to which one can refer a grid-connection decision made within Australian Energy Market Operator for review. The result is that investors end up “having this one-way conversation that becomes quite hard,” she claimed.

Thornton from the CEC said that the reduction in financial commitments to clean energy generation is “a deeply disturbing trend.” Just as countries throughout the world are recognizing the need to accelerate their investment in renewable energy, the brakes are being applied to “Australia’s promise as a renewable energy superpower,” he concludes.

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Source: pv magazine