Canberra must be wary of Victoria’s offshore wind ambitions

The federal government must think carefully before agreeing to subsidise Victoria’s offshore wind ambitions. Against the claim that renewable energy is the cheapest option, offshore wind tells a different story. Big offshore wind projects are being cancelled internationally because of higher costs and unexpected problems with technology and reliability. Community unease and environmental concerns pose further significant investment risks.

It was inevitable that Victoria would seek to pass these risks to Canberra and taxpayers. The latest plea is for offshore wind to be included in the already announced Capacity Investment Scheme through which the federal government will guarantee the profitability of renewable energy projects. As things stand, Victoria’s offshore wind proposals are unlikely to qualify to bid because they will not be far enough advanced. Victorian Energy Minister Lily D’Ambrosio says offshore wind is essential for the state’s energy plans, as is federal support. She says no other country that has built offshore wind energy has relied solely on a subnational government for funding.

But there are good reasons to be cautious. Electricity generated by offshore wind turbines will be much more expensive than what is produced currently by the state’s coal-fired generators. Without cheap electricity from brown coal, Victoria may not be the best place to generate electricity for the national grid. The cost of offshore wind projects is far from certain.

Major projects are being cancelled in New York despite US subsidies that pick up more than half of project costs. In Britain, prices at government-held power auctions were lifted from $84 a megawatt hour to $139/MWh last year to attract bids from developers. This was after a loophole that allowed developers to bid low but still charge consumers higher prices was plugged last year. The latest outrage in Scotland is that the Green Volt floating offshore wind farm could be paid a subsidy of £240 ($455) a megawatt hour, four times current market prices. Taxpayers and energy users will be forced to pay dearly for Victoria’s poorly handled offshore wind obsession.

The federal government’s new determination to pick industry winners of the future is a bad sign of what could happen. First, the federal government must decide if Victoria is the best place to invest and what the national interest benefit will be. All of the consortiums involved in the Victorian offshore wind plans are international energy giants, with Australian utilities being only minor players. Ms D’Ambrosio says federal funding is a must to meet the state’s high renewable energy target. This is a nonsense reason that must be seen for what it is: poor planning on the part of an economically irresponsible state government. Victoria should focus on its big untapped energy advantage – plentiful gas.