Five reasons why 2020 could be the turning point for offshore wind in Australia

Australia is the 14th largest economy in the world by GDP, the second largest carbon emitter per capita, as a country it has the eighth longest coastline, and around 85% of the population live within 50 km of this coastline. The ingredients are all there to grow a world-leading offshore wind industry. But until now, it has lagged severely behind a long list of countries for progress in offshore wind development.

In an earlier article, we looked at how Australia’s first offshore wind project was moving forward. The planned Star of the South Wind Farm, a 2 GW project off the coast of Victoria, remains the only offshore wind farm in development, and it has taken this project to step-up to the plate to force the government’s hand into considering offshore wind farms as a potential renewable energy source. The Commonwealth government has a patchy track record on general support and policy measures to back renewable energy generation, especially with respect to long-term certainty for measures such as its Feed-in-Tariff scheme.

However, whilst the political landscape in Australia didn’t experience the upheaval that some forecast during the general election of 2019, a number of seeds of hope have been planted for offshore wind, including a recent discussion paper issued [1] by the Department of the Environment and Energy outlining a plan for an offshore clean energy bill.

With momentum building, RCG gives five reasons why 2020 may be a pivotal year for offshore wind development in Australia.

1. Bush fires and the climate emergency

The immense level of bush fires raging in states across Australia at the end of 2019 and start of 2020 has been impossible to ignore – coverage in international media has been broad and wide-ranging. The common theme in almost all the coverage is the link between the unprecedented temperatures causing the fires and the climate emergency. To date, the Australian government has struggled to keep up with the scale of actions required to combat the climate emergency. However, this can only last so long. There is mounting public pressure for action in light of the impacts being felt by communities across Australia this summer.

Analysis of web searches shows the increased interest of the Australian public in climate change, and the climate emergency. It’s clear there is a direct correlation between the bush fires that began in September 2019 and the Australian public’s growing interest in climate action.

Furthermore, 2019 has seen local governments take major steps with respect to the climate emergency. Eighty-four Australian local councils have now formally declared a climate emergency – 77 of those doing so in 2019 – representing approximately 7.3 million people (around 29% of the population) [2].

It is perhaps a matter of when, not if, the Commonwealth government bows to this mounting pressure and starts taking actions on the climate emergency. Support for offshore wind should be one of its first moves and the recently published discussion paper is a firm step in the right direction.

2. Low-cost offshore wind

Global offshore wind prices have continued to impress in 2019. In the UK, the results of the latest Contracts for Difference (CfD) auction (Allocation Round 3) means that the offshore wind farms built under this regime will effectively be built ‘subsidy-free’ (or more accurately, ‘Feed-in-Tariff free’). Meanwhile, burgeoning markets such as the US saw the positive impact of the maturing global industry, with prices in several power contract auctions in Massachusetts and New York likely to be well under previously forecast estimates.

At the same time, key drivers behind this cost reduction success are progressing at pace. GE’s 12 MW Haliade X offshore turbine has been installed for testing in Rotterdam, Netherlands; MHI Vestas recently installed the world’s largest wind turbine offshore (9.5 MW) at Northwester 2 in Belgium; and Siemens Gamesa announced an upgrade of its existing platform to 11 MW.

These sorts of headlines are impossible to ignore for a country with the potential of Australia; offshore wind grid parity is now in sight and a previously ‘expensive’ technology is becoming highly cost-effective.

3. Coal power closures

It is no secret that the main reason for the UK’s great gains in decarbonization of its electricity supply over recent years has been the switch from coal power stations to renewable energy. Offshore wind allows the industrialisation of renewable energy on a scale comparable to that of coal power stations. Whilst inherent intermittency means that offshore wind is not a direct substitute for coal, large installed capacity and capacity factors approaching 50% and above make it the most viable renewable energy technology for filling in a large part of the gap left behind by decommissioned coal power stations.

Australia has yet to announce any plans to accelerate the planned closure of its coal power stations (as the UK has done), but analysis by the Australian Energy Council in 2016 shows that the first major closure (2 GW) will be in 2022, and that by 2035 around half of the existing 23 GW of coal power generation will be taken offline. This is a significant deficit that offshore wind would be very well placed to help fill. Given the scale of offshore wind farms, and the lead-in times for development and construction, Australia would be sensible to start backing the offshore wind industry very soon so that it can have a serious part to play in meeting this demand.

4. National hydrogen strategy

In November of 2019, Australia adopted the ‘National Hydrogen Strategy’ [3]. Whilst some debate remains around the political motivation for adopting the strategy (national press stated that many believe that it could be used to help sustain the life of coal plants), the strategy itself presents a clear central focus that hydrogen should be produced from renewable energy.

An offshore wind industry would be the perfect complement to a green hydrogen industry in Australia. It would enable large-scale green hydrogen production, helping Australia become an exporter – a target it has set itself as part of the Strategy – and research in other countries is already underway to prove the viability of electrolysis using seawater leading to an even more natural coupling of the two technologies.

In Europe there are signs from governments and industry that hydrogen may be the next frontier for offshore wind. With energy storage becoming a critical component in an increasingly renewable energy reliant grid, offshore wind developers and European governments are already interested in the integration of hydrogen generation with offshore wind development. Shell, Siemens and TenneT have together called for Germany to develop an auction mechanism for offshore wind focused on coupled hydrogen production. In 2019, leading offshore wind developer Ørsted won UK government funding for a green hydrogen project with its partners ITM Power and Element Energy which will undertake a feasibility study to investigate large-scale hydrogen production in the UK.

Australia would be wise to maximise the chances of success of its National Hydrogen Strategy, by increasing its backing of offshore wind so that the two can grow together.

5. Abundant socio-economic opportunities

Five years ago, the United States could have been the subject of a similar analysis: a major economy, with a vast coastline, and abundant energy demand close to it, but ultimately not yet willing to commit to an offshore wind industry at scale. Furthermore, the decision of President Trump in 2017 to withdraw from the Paris Climate Agreement didn’t seem to indicate a change in the political winds.

However, the past two years has seen the United States become one of the most exciting and highly anticipated offshore wind markets in the world. Despite some headwinds from the Administration, the industry continues to push the federal government for leases, and individual states are in competition with one another to sign up to higher and higher targets for deployment. Aside from cost reduction, the main reason for this shift has been the realisation of the economic benefits that offshore wind brings.

Offshore wind is a large-scale energy industry with a huge potential market for construction and maintenance of major infrastructure which is a metaphorical gold mine for jobs. And not just jobs, but jobs in some of the areas where they are most needed; typically, coastal areas with declining industries in need of revitalisation and investment. It has been this argument that is most successful across party lines and has meant that offshore wind has largely received bipartisan support in the United States.

Australia is an obvious market that could benefit from this employment and economic effect. A report released in November 2019, by a group of unions and union representatives makes just this case [4]. Indeed, the closure of coal power stations not only leaves a shortfall in energy generation to meet demand, but also jobs. Offshore wind could be the answer in both regards and their report calls for local and Commonwealth governments to support an offshore wind industry in Australia and help workers from industries such as coal power generation in transitioning to new roles in this new renewable economy.

The exhibit below shows RCG’s analysis of high-potential offshore wind locations around Australia’s coast:

Conclusion

RCG believes that 2020 could be a pivotal year for offshore wind in Australia. The reasons for developing an industry are clear. Given the recent swell of public interest in finding solutions to the climate emergency, and the obvious benefits of a job-supporting, cost-effective, green industry, the signs are beginning to point to the early stages of an exponential growth in this market.

Whilst the elections in 2019 did not provide the political narrative to support this view, there are enough positive signs that 2020 could be the year that pushes offshore wind into the mainstream.

References

[1] Offshore clean energy infrastructure regulatory framework. Discussion paper. (Department of Environment & Energy, January 2020)

[2] Climate emergency declarations in 1,261 jurisdictions and local governments cover 798 million citizens. (Climate Emergency Mobilisation, posted on 18 December 2019)

[3] Australia’s National Hydrogen Strategy. (COAG Energy Council, November 2019)

[4] Putting the “Justice” in “Just Transition”. (Maritime Union of Australia, November 2019)

From offices in Asia-Pacific, RCG offers a full range of in-country support relating to the Australian offshore wind market.

Michael Stephenson

Principal

Gareth Lewis

Managing Director; Asia Pacific