Winds of change, change direction

WHEN Australia’s first gas streetlight was lit in Sydney in 1841 by Royal Charter, few would have thought the Australian Gas Light Company would become the country’s leading renewable energy company.
Throughout its 170-year history, AGL Energy (as it has been known since 2006), has built up an extensive portfolio of gas, electrical and sustainable energy assets.
The last decade has also seen the Australian Government develop a plan to create more clean energy solutions, known as the Renewable Energy Target (RET).
RET legislation stipulates that 20 per cent of Australia’s energy requirements (or 41,000 gigawatts of electricity per hour) must be provided by renewable energy
sources by 2020.
This has prompted Australia’s largest energy companies to increase investment in renewable technology.
AGL currently generates 27 per cent of its electricity (which supplies more than 500,000 homes) from renewable sources including its solar and wind farms in South
Australia, and hydro electricity assets in Victoria and NSW.
Furthermore, it has also invested significantly in low-emissions electricity generators such as biogas and landfill gas.
The world’s first wind farm was installed in New Hampshire in the US in 1980. Now the US and countries including China, Germany and Spain lead the way in wind power technology.
In Australia, South Australia, NSW, WA and Victoria all have excellent wind resources by world standards, and AGL’s Macarthur Wind Farm project is looking to
take advantage of them.
The project
Scheduled for completion in 2013, the Macarthur Wind Farm in Victoria will be the largest of its kind in the southern hemisphere.
The $1 billion project is a joint venture between AGL and New Zealand company Meridian Energy.
When fully operational, the farm’s 140 wind turbines will generate 420 megawatts of clean energy: enough to power 220,000 homes, saving 1.7 million tonnes of
greenhouse gasses per year.
The turbines will generate the same amount of energy used in their construction within the first three months of operation.
In September, after two years of construction, the first turbines began turning.
Project manager Jeff Trompf said he was pleased to see the major milestone achieved. “We are excited to see the turbines start to turn at Macarthur and look forward to the wind farm becoming fully operational,”
he said.
“Work is progressing well, with the last of the turbines lifted in to place recently. “We are progressively bringing each of the 140 turbines online, with over 50 of the
140 wind turbines now operational.” Up to 400 people have worked at the project site to date and once completed, the farm will be operated by about 20 employees.
These workers will be responsible for maintaining the turbines, which will have self-monitoring equipment installed and will largely look after themselves.
Standing at 83m, the turbines are some of the tallest in the world and are equipped with 55m-long blades.
These ultramodern models are more efficient than previous turbines, and can detect wind speed and direction: altering the pitch of their blades to maximise potential wind power generation.
They will be connected to the 33-kilovolt Macarthur substation, which will increase the voltage of the generated power before transmitting it through the Tarrone substation where the power, set at 500kV, will enter the national electricity grid.
While there was some opposition from locals concerned about the noise generated by the turbines, the potential disfigurement of the skyline and the possible impact on property values, AGL tried to appease them by spending more than $10 million on infrastructure. This included the development of local roads that improved
access to the wind farm.
Climate change
AGL head of economic policy and sustainability Tim Nelson said that the effective management of climate change risk was central to everything that AGL did.
“As the stationary energy sector is responsible for almost half of Australia’s greenhouse gas emissions, AGL is at the forefront of disclosure and effective strategies to maximise value in a carbon constrained future,” Mr Nelson said. “AGL understands the need to manage and adjust to the impacts of climate change on every facet of our business.”
The wind farm was built on three properties covering 5500 hectares that are used for cattle and sheep grazing.
While the project is a massive landmark in the Australian energy market, it will be relatively small by international standards.
The Jaisalmer Wind Park in India, for example, is the largest operating wind farm in the world and can generate 1064MW: more than two-and-a-half times the
Macarthur project’s output.
Meanwhile, the Chinese Government has approved the construction of six wind power megaprojects to maximise the country’s massive wind energy potential, including the Gansu Wind Farm: one of the world’s biggest wind farm projects.
The multiphase project currently generates up to 5160MW, and future expansion will see it generate as much as 20,000MW by 2020.
The problem
AGL’s earning guidance for the 2012 to 2013 financial year reported an expected profit of between $590 million and $640 million.
This is about a $100 million increase from the previous financial year. AGL chairman Jeremy Maycock said the expected profit could have been even greater had the Queensland and South
Australian governments not announced plans to introduce new pricing regulations.
The regulations, which include an electricity price reduction of $27.20 per megawatt hour in South Australia, will cost AGL an estimated $60 million annually. “Sharp increases in the price of electricity in recent years have raised the public profile of the energy industry,” Mr Maycock said.
“Over many years, we have called for a consistent and co-ordinated evolution of the National Electricity Market where competition replaces regulation as the driver of efficiency and productivity.“We have advocated consistently for policy responses such as smart meters and time of use pricing to address some of the root causes of the price increases such as the growth in peak demand for energy.”
Mr Maycock said he also believed the new regulations would deter future investors and investment in renewable energy.
“The ill-considered reactions of energy regulators in Queensland and South Australia to simply regulate down retail prices will cause significant long-term cost increases for consumers, damage competition and innovation, and make the National Electricity Market [NEM] an unviable investment proposition for new generation of all forms, including renewable,” he said.
“When these decisions are added to the current policy uncertainty around the future of carbon pricing and the 2020 Renewable Energy Target, no-one should be surprised to see new investment in the NEM evaporate, with all the consequences that would follow.
“The continued regulation of retail prices, and overlapping state and Federal regulatory structures, creates a real risk of systemic failure of the National Electricity Market.”
As a result, AGL has decided to scale back its SA and Queensland plans for expansion, and suspend all further investment in
renewable energy.
In a statement to shareholders, the company said that it would also be reviewing its level of retail activity in NSW as a result of the flow-on consequences of
the price regulation decision.
The regulation backlash has continued, with AGL managing director Michael Fraser stating that the Government had “effectively put a sign up saying do not
invest” in power generation in SA or Queensland.
“In a national electricity market, the consequences of regulatory decisions in different states cannot be viewed in isolation,” Mr Fraser said.
“We are reviewing our level of marketing activity in New South Wales in light of the direction of regulatory pricing outcomes and their effect on the competitive landscape.
“Although we have already gained approximately 35,000 new electricity customers in New South Wales in the first quarter of this financial year, we have always said our level of activity will only continue while it makes economic sense for our shareholders.”

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