The future of Australia’s largest solar project is in doubt after the $1.2 billion Solar Dawn project failed to obtain finance by a June 30 deadline, triggering the withdrawal of a $75 million grant from the Queensland state government.
By Giles Parkinson
Solar Dawn, which proposes to build a 250MW solar thermal power plant using compact linear Fresnel reflector technology now owned by consortium leader Areva, said it was hopeful the project could still go ahead, but the status of a $464 million grant from the Australian federal government is not clear.
No PPA with Ergon Power
That latter grant was awarded under the government’s Solar Flagships program. The deadline for obtaining finance fell originally in December, but was extended for six months. However, Solar Dawn, which also included UK group Wind Prospect, was unable to negotiate a power purchase agreement (PPA) with the Queensland government-owned electricity utility Ergon Power to meet the June 30 deadline, and so could not attract bank finance.
Australia’s Energy Minister Martin Ferguson said he regretted the decision by the Queensland state government to withdraw its funding, and said the future of the federal grant would be decided by a newly created independent body, the Australian Renewable Energy Agency (ARENA), which is to take carriage of $3.2 billion of government grants.
However, ARENA only came into existence officially on July 2, and its first CEO, Ivor Frischknecht, does not start work until early August. It is yet to release its funding criteria, which it is expected to be released at the end of this month.
Solar Dawn project director Anthony Wiseman said discussions would continue with the Queensland government, and with ARENA. “It’s important to understand that we have not ceased work on project,” he said.
However, the newly elected Queensland conservative government has shown an antipathy towards clean energy grants, saying they were not needed in light of the carbon price that came into effect this week. The Queensland government has withdrawn grants from other, smaller solar projects, and threatened to cut the Solar Dawn funding earlier this year, but was unable to do so until the consortium announced it had failed to obtain a PPA.
Solar Dawn still the best placed for Australia
Wiseman, however, said Solar Dawn was the best placed of any large scale solar thermal project in Australia, because it had received council permissions and other approvals, and would bring 300 jobs to the state, as well as a $1.5 billion investment, including a $68 million research program at the University of Queensland.
Andrew Want, the head of the Australian Solar Thermal Energy Association, said the problems with the Solar Flagships programs reflected the continuing challenge of trying to close market gaps with grants-based funding programs. “Grants-based programs do not necessarily address the gaps to market,” Want said. “That was the view of the CSP industry that was put forward when the flagships program was first announced. There is clearly a role for grants, but we need to look at options that enable solar projects to realize the value of solar generation.”
Difficulties in securing PPAs
PPAs have been the principal blockage. Industry analysts and participants say it would be impossible to obtain a good PPA from utilities that have yet to witness the technology in action. It has been particularly difficult encouraging utilities to write a PPA to reflect the “daytime” value of solar energy, and in the scale required. PPAs have also been difficult to obtain for wind energy producers in Australia, partly because of low wholesale electricity market prices, and partly due to uncertainty about government policy.
This was a problem that was struck with the solar PV component of the flagships program, when the Moree Solar consortium comprising Spain’s FRV and Australia’s Pacific Hydro could not obtain a PPA for its 150MW project in NSW. In the end, the grant was rescinded and a new grant was awarded to AGL Energy, a generator and retailer that was able to write its own PPA for its proposed 159MW project in western New South Wales.
“One of the main priorities in Australia is to familiarize market participants with large scale solar thermal,” Want said. “We will learn a lot from this experience about the way that a PPA market works, and the network investment rules, which provide a range of disincentives in the market. We need to work through these.”
Possibility of smaller grants
Areva’s Wiseman said negotiations about a PPA were continuing with Ergon and other parties. It was possible that several small agreements, rather than one large off-take agreement, could be concluded. “We are competing in quite a dynamic energy market here – the PPA is a market place which requires those parties to be diligent with those decisions.”
It is thought that ARENA would most likely allocate smaller grants than those contemplated by round 1 of the flagships program, but Wiseman said that Solar Dawn had not made any plans to change the specifications of the project at this stage. The project was to have been built around two 125MW modules.
“We have got to talk to ARENA about the pathway forward,” he said.
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