By PHILIP HOPKINS
THE state government is likely to miss targets to retire the Latrobe Valley’s brown coal power stations, and renewable energy will fall short, requiring the state to import energy, according to major new reports.
In a series of articles in the Australian Financial Review, Patrick Durkin also reported:
The Japanese-backed Flotation Energy slammed the federal government’s decision to reject a feasibility licence for its Seadragon project off the Gippsland coast’; and,
The state government is being warned against using a risky funding model that would offer business a taxpayer guarantee for minimum energy prices to start the $100 billion in offshore winds investment.
The AFR reported that Infrastructure Victoria last week released a draft 30-year plan with 43 recommendations and seven longer-term future options, including on energy policy.
However, two supporting documents on Infrastructure Victoria’s website revealed dire forecasts as the state government pushes for its 95 per cent renewable energy target by 2035.
A 93-page analysis by Aurora Energy concluded that Victoria would go from being a net exporter to a net importer of electricity as Yallourn W, and Loy Yang A and B close over the next decade. This would lead to higher costs and reliability issues, the AFR reported.
With power demand increasing, “the strain on interconnectors is likely to grow, amplifying net imports as Victoria relies more heavily on interstate resources to bridge the gap between local generation and higher electricity consumption”, Aurora said. “This increased strain could also limit Victoria’s ability to export surplus power during periods of high local generation.
“Delays in Victoria’s transmission build could lead to higher energy costs, reduced investment in renewables, increased market volatility and potential reliability issues, ultimately impeding the state’s progress toward sustainable energy goals.”
The AFR said a separate analysis by engineering giant Jacobs for IV lists eight “very high” and 10 “high” risks for the state’s energy system.
These include offshore wind targets not being met, annual gas supplies facing shortfalls, a lack of renewable gas developments and more frequent extreme climate weather events increasing the frequency and unpredictability of peak demand.
Also, thermal power plants may be run longer than expected and coal-fired power outages may increase.
The Opposition energy spokesman, David Davis, said the reports amounted to “catastrophic wake-up calls” for Victoria’s energy supply.
The modelling showed a rise in wholesale electricity prices of about 120 per cent, rising from in some cases, under $50 per megawatt hour in 2030 to between $110 and almost $140 per megawatt hour by 2035.
“The risks pointed to in the Jacobs report show virtually every energy source in the highest risk category, and the Aurora report shows surging energy prices. Basic supply is not secure, with the risk of blackouts obvious.”
Questioned in Parliament for a response to the reports, state treasurer, Jaclyn Symes, said it was a matter for the energy minister, the AFR said.
The government is also running late on releasing the next stage of its offshore wind strategy, which received a setback by the federal decision to deny the Seadragon project off Gippsland, the AFR said.
Federal energy minister, Chris Bowen, rejected a feasibility licence for Seadragon due to a small overlap in its 700-squre kilometre proposal with a project proposed by renewable energy giant Iberdrola.
The general manager of Flotation Energy, Carolyn Sanders, said the decision was difficult to understand.
“It will leave one of the very best offshore wind sites in Australia empty and unused,” she told the AFR.
The company had undertaken extensive environmental studies and consultations, “putting us years ahead of other projects”.
The rejection came despite Flotation having received government grants, major project status and having gone through five years of planning, she said.
Mr Davis said the state’s offshore wind plans were now in chaos, while an energy specialist, Tony Wood, described Mr Bowen’s decision as “weird”.
The state government has also been warned about the funding model to be used as a taxpayer guarantee to encourage offshore wind, the AFR said. The government, unlike other states, has relied on using ‘contracts for difference” (CFDs) that would effectively underwrite private investment in offshore wind.
CFDs would guarantee developers a fixed price on selling their electricity. The developer is paid even if the market price falls below the greed price, producing a predictable income stream and reducing the financial risk for private investors.
The state government thus takes on the risk under the financial product, a policy restricted in Australia and banned for retail investors in the United States due to them potentially generating large losses. The government said CFDs had been used internationally for offshore wind and many onshore solar and wind projects in Victoria.
Mr Davis told the AFR using CFDS was too risky given debt was about to reach $188 billion by 2028 and the CFDs already had a liability of more than $500 million.
