By Nick Toscano and Mike Foley
Developers vying to build Australia’s first offshore wind farms fear deadlocked negotiations between state and federal governments could derail the financial support needed to keep the launch of the nascent industry “on track”.
The Albanese government last year awarded permits for a dozen companies to begin investigating the feasibility of building giant turbines off Victoria’s coastline that could turn ocean winds into electricity for homes and businesses and help compensate for the impending closures of ageing coal-fired power plants.
The federal government has selected several projects to start developing offshore wind farms near the Gippsland coast.Credit:
However, as the global offshore wind sector reels from rising interest rates, soaring equipment and construction costs and supply chain disruptions, investors are privately warning they now need concrete government commitments to demonstrate certainty to their lenders over electricity prices and revenue.
Some of the prospective developers of the first Australian offshore wind projects have already withdrawn from their early feasibility studies, including one in the Gippsland zone: BlueFloat Energy’s Gippsland Dawn project proposed between Paradise Beach and Ocean Grange.
While the Victorian government has previously said it would hold the first auction in September to award “contracts for difference”, including a cap and floor price to help mitigate revenue risk, industry sources said this week that it remained unclear when that would go ahead.
A dispute between Victoria and the Commonwealth about how much federal funding should be committed to Gippsland offshore wind projects had not been resolved, they said.
“We are seeing continued interest, but increased discussion between state and federal governments about what that support looks like,” said a source, who requested anonymity to discuss the private talks.
Southerly Ten, developer of the 2.2-gigawatt Star of the South project in Gippsland, regarded as the nation’s most advanced offshore wind proposal, said the auction would be a “crucial next step to keep progress on track for the whole industry”.
“Collaboration across all levels of government – with aligned ambition, policies and clear regulatory settings – will be critical to turning potential into reality,” Southerly Ten chief executive Charles Rattray said.
Australian political leaders have for years touted the prospects of a new offshore wind power sector creating hundreds of construction and service jobs in coal industry regions such as the NSW Hunter Valley and Victoria’s Latrobe Valley, which face a downturn as ageing fossil fuel generators reach the end of their lives.
Situating turbines way out at sea could also harness stronger and more reliable winds than land-based wind farms, they say, as well as reduce the risk of developments facing objections from nearby communities concerned about visual and environmental impacts. The Victorian government aims to source about two gigawatts – or 20 per cent of the state’s total power needs – from offshore wind by 2032, before doubling it to four gigawatts by 2035 and nine gigawatts by 2040.
The federal and Victorian governments did not address questions about their negotiations over funding for offshore wind development, but said they remained committed to the industry.
“The government is committed to working with all proponents to progress an offshore wind industry that will deliver regional jobs and lasting energy security for Australia,” a federal government spokesperson said.
A Victorian government spokesperson said it was working with the federal government to “deliver our legislated offshore wind targets”.
Tony Wood, senior fellow at the independent Grattan Institute, said there appeared little scope for the federal government to pay for offshore wind. Due to the giant projects’ long lead times, they were also unlikely to be ready in time to receive funds from the Commonwealth’s flagship renewable energy underwriting program, known as the Capacity Investment Scheme (CIS), he added.
“There is nothing in the budget,” Wood said. “Whether the federal government comes up with something else [as part of its ongoing review of post-2030 energy market rules] to follow on from the CIS, I don’t know.”
Cost forecasts for offshore wind have blown out in recent years. As recently as 2021, the CSIRO forecast that capital costs for fixed offshore turbines would fall to $2336 a megawatt hour by 2030 if global commitments to reach net zero emissions by 2050 remained in place. However, this projection blew out to more than $4500 by 2030.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.