Tuesday, April 19, 2011

Australian wind power, built by China

The Climate Spectator reports that Australian renewable energy project developer CBD Energy has struck a deal with 2 large Chinese companies to develop $3 billion worth of wind and solar power plants in Australia within three years and $6 billion over eight years - Australian wind, built by China. The Climate Spectator also has an interview with CBD leader Gerry McGowan - Q&A: Gerry McGowan.
Gerry McGowan, the managing director of emerging renewable energy company CBD Energy, bristles at the suggestion that he has ambitions well beyond his station. McGowan, who took on the two airline incumbents Qantas and Ansett when he launched his Impulse Airlines venture in the 1980s, now plans a similar assault on the Australian renewables industry.

The difference this time is the industry structure and its growth prospects. It’s ripe for someone to seize a major portion of a market that is yet to be developed. CBD – capitalised at just $83 million – on Monday announced a new venture that aims to be the biggest renewable energy group in Australia in a matter of a few years, with at least $6 billion of investments. But it’s not so much what McGowan has on the table that counts, it is who he has behind him.

CBD has finalised an agreement with the renewable energy offshoots of two of the biggest Chinese energy companies – China Datang Corporation and Tianwei Group – that will create a special purpose vehicle called AusChina Energy Group. Within three years it expects to have invested $3 billion in 1500MW of wind power capacity, built or under construction, and it expects to eventually account for one third of new renewable generation capacity in this country – before turning its attention to solar, and possibly the gas industry, and then overseas.

To understand how this is possible, it’s important to know the answer to a couple of key questions: where to get the cheapest turbines, and where to get the cheapest finance. The answer in both cases is China. And then it is important to note who these partners are. They are both state owned, and both subsidiaries of Fortune 500 companies: China Datang is the second biggest electricity utility in China, and its installed capacity of 100 gigawatts alone is more than double that of Australia’s entire electricity grid; Tianwei is one of China’s biggest solar, wind and electrical equipment producers.

The deal is clearly a game changer for CBD – which has a thriving solar panel business, some ambitious solar projects for overseas, and has dabbled in just a few small-scale wind energy projects in Australia, a 0.5MW facility on NZ's Chatham Islands and a proposed 70MW wind farm in NSW's Snowy Mountains, Adjungbilly, which was to receive funding and technology from Tianwei.

But it’s also a game changer for the Australian renewable energy industry. The industry has been stifled by constant changes to policies – McGowan estimates there have been 22 key policy changes in the last 6 months alone – and the shambles with the renewable energy target legislation means that developers have been unable to gain the power purchase agreements (PPAs) and the finance to start the rollout of the wind farms and other projects needed to meet the government’s 20 per cent target by 2020.

AusChina’s access to cheaper technology and cheap finance gives it a powerful competitive advantage over its rivals. The cost of turbines is going down, their output is going up, and the cost of capital will be lower with the state-backed partners. McGowan says the venture will be able to deliver wind power at around $90/MWh, compared to around $110-$120MW/h for many of its rivals, and it expects it to drive costs down further.

McGowan says that if the incumbent retailers are unwilling to sign PPAs, then AusChina will simply organise its own financing, either by setting up its own merchant business, or even its own energy retail business. In effect, the entry of the Chinese companies has every prospect of changing the dynamics of the industry.

If Australian companies can’t get around to building their own renewable projects, then the Chinese will do it for them. Hu Guodong – vice president of Datang Renewable Power Co, the listed offshoot – says the slow rollout of renewable projects in Australia has presented an irresistible opportunity for companies such as his. “Australia has amazing solar and wind resources,” he told Climate Spectator through a translator.

Cross posted from Peak Energy.


manotick said...

On the surface this looks great. Private sector driving the renewable energy future. (Unlike here in Ontario, Canada where it is all being driven by enormous government largess and driving up our electricity costs.)

I just wonder if anything can go wrong here. Given CBD's small stake in the project it could easily get shoved aside by the Chinese companies. And if they start a build out and then stop before completion for whatever reason, will Australian taxpayers be on the hook to finish the job.

Here in Ontario we have just handed over $8 billion to the Korean firm Samsung to build our wind and solar future. And that is $8 billion out of the taxpayers pocket who will then have to pay triple the price for the electricity that wind and solar is supposed to provide.

Just a thought.


Big Gav said...

Well - in this case the Chinese are funding the projects and there doesn't appear to be any taxpayer funds involved at all - so it seems like a good deal from that point of view.

My initial reaction is that if CBD start up a retail energy operation backed with these renewables projects it would be a great thing for the industry (power prices are rising rapidly here for a number of reasons, so it may well be profitable pretty quickly).