Research from carbon analytics firm, RepuTex, indicates that growth of wind capacity in the Australian National Electricity Market (NEM) is expected to outstrip growth in electricity demand by more than 2.5 times over the next seven years, as the Australian market seeks to meet its Renewable Energy Target (RET) in the face of weak electricity demand and a rising gas price.
According to RepuTex’s Quarter 1 Power and Renewable Update, the considerable growth of wind generation, driven by higher forecast Renewable Energy Credit (REC) prices, is likely to result in the gradual drop-off of natural gas and brown coal output as the economics begin to favour renewable energy in Australia – sooner rather than later.
According to RepuTex’s associate research director Bret Harper, Australia will see re-investment in stalled wind projects as early as 2015, as REC prices begin to rebound.
‘The oversupply of RECs will continue to suppress the REC price through 2014; however, new renewable capacity will likely be required as early as 2015 as power companies begin to run out of RECs created in the small-scale technologies portion of the RET,’ said Mr Harper.
‘Over 11,000 MW of capacity will be required over the next seven years to fill the gap to the RET, which equates to more than 2.5 times forecast market demand. If we see that amount of RECs come online, we would expect carbon intensity to drop by around 10 per cent through to 2020, and the economics of the market will significantly change to favour low-carbon fuels.’
According to the report, growth in wind output is likely to keep wholesale electricity prices low, which is bad news for marginal coal operators.
‘Even as demand grows through to 2020, newly built wind capacity will operate at low cost, ensuring that competition for generation will remain fierce in the foreseeable future. We anticipate wholesale prices will remain low, which is likely to keep many of the marginal coal generators, such as those who have been forced to reduce generation this quarter, out of the market’, said Mr Harper.
With brown coal forecast to decline throughout the decade, the future of natural gas in Australia is also called into question by the report.
‘As REC prices increase between 2015 and 2020, making wind more competitive to build, we anticipate over 80 per cent of new capacity will come from wind sources.
‘Natural gas output is forecast to decline as it struggles to compete with cheaper black-coal alternatives in the short term, and from there it is unlikely to get any support from a softening carbon price beyond FY2016. But from around that time, east coast LNG projects come online, bringing domestic gas prices up to international levels’
‘Conversely, prospects continue to look positive for renewables even if the carbon price does not reach the heights of Treasury predictions during this period,’ said Mr Harper.
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