Origin deal strikes record low prices for windfarm power

A new development for Origin Energy has made the price of power from windfarms more competitive with black coal.

Origin Energy is set to pay some of the lowest prices for windfarm energy seen in Australia.

A new development for Origin Energy has made the price of power from windfarms more competitive with black coal, and put the country’s biggest energy retailer within reach of meeting its renewable energy target.

Origin is set to pay China’s Xinjang Goldwind less than $60 per megawatt hour for power from the Stockyard Hill windfarm in Victoria under a sale and power purchase agreement struck over the weekend.

The price is close to the estimated $50/Mwh for power from black coal power generation and less than half the $122.25 cost for power for June 2018 delivery based on futures market prices.

As a bundled price it includes the cost of purchasing large-scale generation certificates that retailers such as Origin are required to have to meet the 2020 renewable energy target of 23.5 per cent of power coming from wind, solar and other renewable sources. That indicated the price that a new coal-fired power station would need to justify the expense of building new capacity.

“We have seen prices like this in international markets, but not in Australia,” ITK Consulting principal David Leitch said.

The sub-$60/Mwh sets a benchmark below the $65/Mwh at which AGL Energy contracted for supply from Silverton windfarm near Broken Hill in January.

Origin first announced the Stockyard Hill project in 2009 and has been working since then to get approvals in place for a final investment decision that was estimated to be close to $1 billion, although technological advances and development costs are believed to have fallen since then.

Goldwind, which is already building another farm at White Rock in NSW, will pay Origin $110 million, has agreed to the low power purchase price and will take on the development ahead of start-up in 2019.

The project has 149 wind turbines on a site 35km west of Ballarat and will be Australia’s largest single windfarm, generating 530Mw.

Royal Bank of Canada analyst Ben Wilson said the deal highlighted the availability and willingness of cheap capital in the renewables space, and downward pressure on wholesale and renewable energy certificate pricing.

Power retailers purchase RECs from renewable energy suppliers to help subsidise the cost of building new capacity.

The deal puts the company within 300Mw of reaching its 2020 target of producing 1500Mw of power — 20 per cent of its total — from renewable sources by 2020 and enough to run Ballarat, Newcastle and Adelaide for a year. It also helps Origin’s $800m divestment program announced last year.

Mr Leitch said certainty on the RET since the 2016 compromise had stimulated new investment to the point that developments slated and under way would exceed the lost capacity from the Hazelwood power station last month.