Australian firms’ appetite for construction


February 17, 2017

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What’s happening in Australia? The contradictory stories about its wind sector are enough to make you coin a lazy stereotype: strewth!

On one hand, Prime Minister Malcolm Turnbull is facing controversy after making unsubstantiated claims on the wind sector, and putting it on trial in the court of public opinion.

But, on the other, the industry is embarking on the biggest programme of renewables investment in Australia in the last 50 years. This means we must think things are either great or dire. But which is it?

Let’s start with the bad news. Turnbull has been embroiled in a public spat this week over claims that he sought to scapegoat the wind sector over severe blackouts in the state of South Australia in September, which were really caused by storms. The fact the state gains 40% of electricity from renewables makes it an easy target politically.

That isn’t new. We reported this at the time. However, this week it was revealed that he made these statements despite being told by the grid operator that wind schemes were not to blame. We were initially positive about Turnbull, but now it’s clear that he is doing little to change the culture of political hostility to wind and other renewables.

But there has been a change. That’s where the good news comes in. This week, the Clean Energy Council in Australia reported that the renewables sector in the country is set to see almost 2.3GW of new wind and solar schemes in the next few years.

It has highlighted that there are currently 22 renewables projects under construction or ready to begin this year, including 834MW of wind on-site now. These wind schemes include RES’s 240MW Ararat in Victoria; Neoen and Megawatt Capital’s 209MW Hornsdale 2 & 3 in South Australia; and RATCH’s 180MW Mount Emerald and Goldwind Australia’s 175MW White Rock Stage 1 in New South Wales.

There is also a further 627MW ready to start, including the 270MW Sapphire scheme by Partners Group and CWP Renewables; and the 200MW Silverton scheme by the Powering Australian Renewables Fund. Both of these are in New South Wales.

This activity is happening against a background of major falls in the support available under the renewable energy targets; with hostility from the top of the political system; and with a series of public-angering blackouts. There have again been blackouts this week in South Australia caused by hot weather and problems with the grid.

But investors are taking the plunge anyway. Why?

We think this is largely the result of pent-up demand. Turnbull’s predecessor Abbott turned Australia into a clean energy laughing stock, and caused such upheaval for the wind sector that he made it impossible to invest. Turnbull’s bluster has not been as damaging as that, which means developers and investors may as well build now while they are able to do so. Nobody knows when that might change.

There is demand from customers and grid operators too. It has become clear that the blackouts in South Australia this week were caused as much by failing software and historic underinvestment in the grid as by lower-than-expected output from wind farms. There is a need to invest in new power capacity in states across Australia, and wind is part of the solution. There is nothing intrinsically wrong with the sector.

And finally, the Clean Energy Council says that state and territory governments have been instrumental in restoring investor confidence, even though national government has been seeking to undermine it. The upshot is that investors are doing deals while they can, and that this is set to be a major economic benefit for the country to 2020.

Turnbull might bluster, but investors are sick of doing nothing.

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