Doubts rise over high cost of Victoria's 9GW offshore wind targets

Victoria’s plan for an offshore wind-powered electricity generation industry by 2040 faces a significant risk of being derailed, says the nation’s top clean energy investor group.

Clean Energy Investor Group chief executive Richie Merzian has raised issues with Victoria’s electricity transmission plan.

Victoria’s plan to build a major offshore wind-powered electricity generation industry faces a significant risk of being derailed due to high costs and uncertain commonwealth support, the nation’s top clean energy investor group says.

Premier Jacinta Allan wants to install 500 offshore wind turbines by 2040, delivering 9 gigawatts of new electricity supply to replace the exit of coal from the power grid.

That forms part of the state’s broader plan to build renewable energy zones covering 7 per cent of the state’s land area, with 5.2 million solar panels, nearly 1000 onshore wind turbines and four new transmission projects.

However, doubts have surfaced over Victoria’s offshore wind goals due to high costs compared with onshore alternatives, logistic barriers, port capacity and uncertainty over the commonwealth stepping in to prop up the state’s funding.

The Clean Energy Investor Group wrote to Victorian Energy Minister Lily D’Ambrosio saying it “considers the risk of missing the 9GW target – either its timing and/or quantum – to be significant and strongly encourages updating the Victorian Transition Plan scenarios to account for this risk and the potential impacts”.

Victoria’s Energy Minister, Lily D’Ambrosio, Picture: Luis Enrique Ascui

Victoria aims to reach a 40 per cent renewable electricity target this year and then turbocharge the rollout of solar, wind and batteries over the next decade to hit goals of 65 per cent by 2030 and 95 per cent by 2035 when AGL Energy’s Loy Yang A coal plant is due to shut. But the focus on establishing an entirely new offshore wind industry from scratch to meet these targets faces fresh scrutiny amid a broader pullback of the technology source across the industry.

Victoria may need to consider importing more supplies from other states or building more solar to account for the risk of missing the offshore wind targets, with the technology still high cost compared to land-based solar and wind, according to the CEIG.

Its members include the Victorian government owned State Electricity Commission, the Andrew Forrest-backed Windlab and Blackrock’s Akaysha.

“While the Victorian government has legislated targets, a strong commitment, CEIG notes that a future government could change the targets or remove them altogether. In addition, the Commonwealth government has yet to announce whether it will support those auctions,” the CEIG said in its submission to the draft 2025 Victorian Transmission Plan. “This comes in a global context where the technology continues to face headwinds: projects underway have been cancelled due to supply chain, equipment availability, and other issues. These challenges are leading developers to seek more certain routes to projects that will make it to market. Other jurisdictions now take a base case of little or no offshore wind.”

Despite the concerns, the Victorian government remains committed to its strategy.

“We’ve set up the country’s first and most progressed offshore wind industry and are working with industry and the commonwealth to deliver our legislated offshore wind targets which are critical to the nation’s energy security and pushing down energy bills.”

Victoria’s Yallourn power station is to be decommissioned in 2028. Picture: Jason Edwards

The CEIG said it backed the overall direction of the state’s blueprint but favoured a scenario that modelled higher demand and increased onshore renewable deployment beyond 2030.

The first stage of the offshore wind industry targets 2GW of supplies by 2030, with developers needing to ascertain the feasibility of their projects before bidding in the state auction scheduled to kick off by September.

Such auctions set the minimum and maximum return a developer would receive once generating electricity. Projects typically are only viable once they have secured an agreement.

Under the scheme, should the wholesale electricity price fall below an agreed threshold, taxpayers will compensate the renewable energy project. Should the price exceed a metric, developers pay the government with the scheme design eliminating revenue risk for developers.

Transmission also looms as a major hurdle with the $4bn Victoria-NSW VNI West electricity interconnector hit with a fresh two-year delay in a major blow to Australia’s plans to reach ambitious renewable energy goals by the end of the decade.

The Horsham Rural City Council in its submission said there were “uncertain outcomes” from the transmission plan. The council “understand the value of the VTP, however endorsing it would, effectively, require a confidence that a range of largely unknown impacts on our communities, environment and economy can or will be addressed positively. There remains too much uncertainty to do so.”

The VNI West project will now be delivered in late 2030 compared with the original 2028 deadline, adding to fears over a shaky transition to renewables with major coal plants, including Victoria’s Yallourn station set to shut in 2028.

Opposition to the 240km VNI West has grown, with farmers and landowners concerned over the proposed route for the project.

Victorian government agency VicGrid said in May that both Victoria’s VNI West and Western Renewables Link faced delays as they worked to gain “social licence” among communities.

The VNI West development allows for up to 3400MW of extra renewable generation to be built across the solar-rich Murray River renewable energy zone and the wind power-driven Western Victoria zone.