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The renewables climate

What is putting some countries ahead of others in the renewable-energy game? As Australia’s RET sits stalled at the curb, we ask Peter Cowling, GE’s general manager of renewable sales in the Asia Pacific region for his informed take. Who on this fast-warming, slow-cooking planet is getting it right?

GEreports: What makes some countries better at uptake of renewables than others?

Peter: Typically, without a carbon price renewables are more expensive than fossil fuels, and therefore they need policy support.

So then the trick is the certainty and quality of the policy support. In China, there’s really clear policy support, and long-term planning. There’s a really clear feed-in tariff for wind energy in Thailand; a clear feed-in tariff in Vietnam. The Philippines is doing stuff also, because wind energy is probably the next cheapest source of power and one of the few indigenous energy resources they have. That’s another issue that comes in here, energy security—whether there is actually a local alternative.

The drivers are different in different countries. In much of ASEAN, any energy is welcome. They’ve got a shortage of electricity.

In developing countries you can often deliver renewables more quickly than you can deliver them in developed markets.

That is, the planning process can be a lot quicker, with fewer objections and systems to navigate. But we also find in new countries that building a wind farm, although it’s not super complicated, does take some experience, and that has slowed down implementation, just the sheer learning process involved. Solar’s a much simpler concept, and it’s lower tech. I mean, the panels themselves are high tech, and the grid connection, but installing them is pretty straightforward. You don’t have all the engineering you have to go through to put up a turbine, a 200-metre-tall object that you expect to spin for 25 years.

GEreports: Which countries are making the most of wind?

Peter: China. China. China. And China. The Global Wind Energy Council released its numbers just last week, and 2014 was the biggest ever year of wind installed. Half of that was in China. Half of the remainder is in Europe, and half of the remainder of that, roughly, is in the US. The US is having a tougher time of it because its subsidy, the production tax credit (PTC) is running out. But China—25,000 megawatts of wind installed in a year!

GEreports: What’s driving China’s installation of wind?

Peter: China doesn’t have a perfect environmental record, but they seem to take climate change seriously, and they’re really looking to the future. A huge proportion of their population and of their manufacturing capability is within a metre of current sea levels. All the big deltas of China are just where your Shanghais and all those places are. So they’re phenomenally vulnerable to climate change. They know the world has to go in the direction of renewables, so they’ve strategically placed themselves to be an important part of that.

The Chinese government is very deliberately incentivising installation of wind capacity. They’ve put in place a tariff scheme that seems to incentivise getting as many megawatts out there as you can. It’s less good for the efficiency of those megawatts, but in any event, it’s an effective subsidy scheme, which for a lot of utilities makes it much less risky to build wind than to build other forms of power stations. China will hit its 2020 renewable-energy target [15 per cent of primary energy generation] any day now.

So China is the leader right now, and the rest of Asia is coming in behind it. I’ve just come back from Vietnam, where they’ve got a feed-in tariff for wind, and they’re likely to increase it in the next little while, which will encourage a bunch of wind installations.

GEreports: How does Australia’s Renewable Energy Target (RET) compare globally, with other countries’ mechanisms to encourage uptake of renewable energy?

Peter: The RET has been extremely successful at getting the least-cost renewables into the grid. It’s been copied around the world. It’s something I think Australia as a whole should be really proud of. It’s a really clever way to maximise renewable energy uptake because it is a meritocracy, rather than just having a feed-in tariff for the fixed rate, and there is constant competition to deliver the lowest-cost energies. The UK system was until recently a copy of ours; and a similar system is used by a number of US states.

The reverse-auction process is also quite successful, and maybe that’s something we could look at more.

GEreports: How does the reverse auction work?

Peter: Basically at a normal auction you bid to a highest price. With a reverse auction, you pitch your lowest price.

It functions a bit differently in every country. In Brazil, as I understand it, it’s online and real time, and you’re bidding to grab as much volume as you can. Whereas, say, in Canberra, the recent reverse auction had sealed bids and the lowest bids won.

The risk with reverse auctions is that you win a project by diving to the bottom, and then the proof of the pudding is in actually being able to financially close a project at those levels. That can be tricky.

Brazil and South Africa have been quite successful with reverse-auction systems. They’ve seen a dramatic drop in delivered cost of energy from renewables.

GEreports: Can Australia now learn from any other country in how to encourage renewables?

Peter: Oh yeah, certainly. I mean, I think China’s perhaps an extreme example, but the point is that you put a firm policy in place, and you take it seriously, you unleash infrastructure bottlenecks to allow it to happen, and it will happen.

GEreports: What are Australia’s infrastructure bottlenecks?

Peter: Quite often there are concerns about grid stability if you have large numbers of renewable plants out there. You can fix all that if you really are honest about wanting to increase the level of renewables in the system. There are technical fixes to all of this.

GEreports: Can you give me an example?

Peter: Ultimately, what you might have to do is what they’ve done in Texas, which is get out there and build a new grid—big backbone powerlines—and then the wind turbines come. The problem in Australia is we look at a big windy area and say, “Oh, look, it hasn’t got any grid.” No individual developer can afford to build grid, so it doesn’t happen.

GEreports: The government should do that?

Peter: They could if they wanted to, or they could step up and put in place the mechanism to encourage someone else to do it.

Australia has stepped back from that sort of planning of the grid. The government used to own the grids, and we’re pulling back from that. And that’s fine. It’s not vital that you own it. But you do have to have a plan and send the right signals to investors that you’re serious about the plan for them to be able to risk investing. And that’s a critical question.

Let the private sector do it and I think you’d probably drive your best result, particularly in an economy like Australia. But, you do need the certainty, and the reason things have stalled in Australia is not because it’s too hard or because there’s planning issues or anything else.

It’s simply that people cannot be certain at the moment that the renewable energy target will still be binding on those liable under it, so people pull back from investing. Too risky.

GEreports: In the near future is the market for renewables likely to be at the mercy of fluctuating fossil fuel prices? Every time the price of fossil fuels goes down, investment in renewables stumbles? Or is the world steadily moving towards renewables?

Peter: I actually think that volatility will pause investment in renewables from time to time, but in terms of the relative costs of power generation, wind and solar have great advantages. Your fuel cost is fully known. You can hedge your risk on currency and interest rates going forward. So most of the pieces of your puzzle are solid, which is a huge advantage. There are markets, for example, Texas, where the primary market for renewables, the major driver, is actually as a hedge against higher electricity prices from burning gas. It’s fascinating.

Look, at the end of the day, there’s really cheap coal in the old power stations that’s pretty hard to beat, but when people are looking to decarbonise and to build new capacities, renewables look very, very different.

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Henry Sapiecha

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