Wind energy crisis: The hidden numbers behind Australia’s renewable shock
The cost of wind installations has doubled in recent years, while the risks to a return on capital have grown. The plight of the wind industry exposes the central flaw in Chris Bowen’s claim that renewable energy is inherently cheaper than coal.
In an intellectual sense, Bowen is right. Wind as a source of energy is technically free, while coal costs money. Yet he seems confused about the difference between energy – a raw resource – and power, energy delivered in a form that has practical application. Converting energy to power requires scarce resources, land and capital, taking us from the dreamy world of abundance into realm of economics.
Australia, the sixth-largest country in the world, is situated on the second-least populated continent. Yet wind developers are learning a lesson that farmers absorbed a couple of centuries ago: some blocks are better than others. The stock of land in windy places close to the grid is virtually exhausted, forcing developers further afield. They have ventured further north into un-farmed parts of the Great Dividing Range, where topography and distance increase construction costs. The threat to biodiversity adds to the cost of compliance.
Understandably, banks have become reluctant to invest. The total number of turbine developments the banks have agreed to back in 2025 is zero. Historically, the renewable generation business model relied not just on the sale of electricity but on trading the Large-scale Generation Certificates that came as a bonus.
With the 2030 closure of the Renewable Energy Target scheme in sight, however, LGC prices are in free fall. Spot prices have fallen from $42 a year ago to around $12 today. Forward trades for 2029 are hovering around $6.
Regulatory risk, the prospect of delays and uncertainty about the market’s trajectory heap misgivings on top of uncertainty. It is little wonder investors seeking to enhance their ESG credentials have been turning to solar and batteries, where the engineering and logistics are simpler and costs increasingly competitive.
Prudence is a cardinal virtue in banking. In politics, less so. As banks walk away from wind in search of safer investment opportunities, the government steps in, offering to underwrite through its Capacity Investment Scheme.
The CIS is a no-win solution for Australians who end up paying for more expensive electricity through their power bills or taxes. If wholesale prices fall beneath the agreed threshold, the government will be obliged to top up private profits from the public purse.
Bankers aren’t the only people who have fallen out of love with wind. The big gen-tailers have, too. When their turbines are turning, they can be sure that those of their competitors are too, creating a glut that lowers spot prices, frequently into negative territory. That in turn reduces the profitability of the other generators in their portfolio, notably coal.
Bowen’s hopes of finding relief by moving the wind energy generation offshore are receding.
On Tuesday, Jacinta Allan disappointed delegates at the summit by announcing that the auction for tenders for the state’s first offshore wind plant had been postponed. Escalating costs, supply chain pressures and risk aversion have increased reluctance to bid at similar auctions in Europe.
You don’t have to be an economically conservative net-zero sceptic to conclude that 200m-high, 1000-tonne dinosaurs wedged in 800 cubic metres of concrete have had their day. Peter Cowling is a former Clean Energy Council chair. He describes himself on LinkedIn as “a passionate believer in renewable energy” and “a problem solver”. Yet even Cowling seems to be struggling to see a way through for wind, warning last week that the sector faced “an existential challenge” in the competition for capital with solar and batteries.
Labor’s fetish for flogging dead horses should never be overlooked. Yet if we haven’t crossed peak turbine threshold already, we will long before we arrive at peak coal or peak gas. The ambition to install 40 7.5MW wind turbines a month turned out to be less achievable than the government hoped. Since he announced that target three years ago, the monthly average is around 20. None have been as big as 7.5MW. The average capacity is 4.9MW, which is one of the reasons we’ll end up a long way short of Bowen’s 2030 target of 82 per cent carbon-free power.
Who knows what goes on behind closed doors, but one cannot help but wonder if Bowen is cradling his head in his hands, wondering how he stuffed it up so badly. The soaring cost of transmission lines and the glacial pace of approvals must be driving him to distraction. He must be kicking himself imagining that the answer to almost everything was green hydrogen, the molecule of broken dreams.
Which leads us to ask what else he has up his sleeve to justify his apparent confidence that his ambitious 62-70 per cent emissions target for 2035 can be achieved. After all, the modest reductions in emissions from energy generation under Labor’s watch represent the tiniest bite at low-hanging fruit. How will Bowen begin to tackle the two-thirds of emissions that come from transport, agriculture and other hard-to-abate sectors?
For Labor, however, it is all about bravado. Labor isn’t looking for the cheapest way to reduce carbon emissions. It’s looking for the cheapest way to win elections. The sweet spot isn’t a policy that fixes things. It’s a policy that promises enough to satisfy catastrophists and provides ammunition to attack the opposition.
That’s not a big ask these days since the Liberal Party effectively has no climate or energy policy. Theoretically, a year-long review of the opposition’s platform would be a wonderful thing at a time when the formation of serious policy is a dying art. Yet oppositions have seldom enjoyed that luxury in a three-year cycle.
Leader Sussan Ley must establish herself quickly as a conviction politician in the spirit of Robert Menzies, a leader who was less concerned about opinion polls than in what he could achieve for country. Ley must state a position and argue for it until she runs out of breath. If the Coalition sticks with net zero, it must tell the Australian public how it can be practically achieved. If it wants to abandon it, it must be able to argue why. Fantasy policies may be good enough for Labor. But they are anathema in the party of Menzies.
There was little good news for the wind industry as delegates gathered for a joyless summit in Melbourne last week.