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AGL Energy's Andy Vesey says innovation needed to fund renewables projects

AGL Energy is working on new ways of financing renewable energy projects in recognition that the traditional ways of underpinning ventures with long-term customer offtake contracts no longer work in today's changing market, chief executive Andy Vesey has revealed.

Mr Vesey told a luncheon in Sydney on Thursday that the 7000 megawatts of oversupply in the national electricity market (NEM) and the uncertainty of sales contracts to industrial customers demanded innovative measures to allow renewable energy investments to be made.

"We're of the view that the traditional pathways to financing won't work. You will no longer write 15-year PPAs [power purchasing agreements]," said Mr Vesey, who flagged that AGL might look at large-scale solar projects.

"We believe there will have to be innovative approaches to this.That will be something we are going to be working on and we are going to be thinking about and we will be talking about in the first quarter of next year, because it has to happen."

Under AGL's new greenhouse policy, the company has committed to moving away from coal and gas-based generation by 2050. But investment in new large-scale renewable energy projects is being stymied as retailers hold off from committing to long-term power purchase agreements that have traditionally underpinned new wind farms, and as oversupply in the NEM keeps wholesale prices subdued.

Mr Vesey said though AGL could support long-term PPAs for renewable energy projects because of its large retail customer base, the same didn't apply to commercial and industrial customers that were not that "sticky" and could switch supplier abruptly.

"We have to be very cautious about writing long-term contracts that apply to renewables for those customers," he said.
Renewable energy capacity needs to double by 2020 to meet the revised target of 33,000 gigawatt-hours by 2020. Chloe Munro, chief executive of the Clean Energy Regulator, agreed that would "require new financing models" given the oversupply in the market.

Commonwealth Bank managing director utilities Nick Sankey said financing was more difficult for renewable energy plants, which are smaller scale than baseload plants and produce only intermittently, making it difficult to forecast performance over 15 to 20 years.

But he said the bank was hoping more renewable energy projects would come to the market as "we are actively out there and really wanting to increase our exposure to the sector".

The RET regulations on their own provided financial incentives for new renewable energy investment but did not mandate the withdrawal from the market of fossil fuel generating capacity to allow it to happen, Ms Munro said.

Mr Vesey called for the "progressive closure" of old, dirtier power plants that were beyond their rated design life to make room for new renewable energy investment.

"Over 75 per cent of existing baseload capacity is beyond its original design life; the system is becoming less and less reliable," he said.

"It's not just about green, zero-emission technology; it's about renewing the infrastructure."
But he reiterated that he did not believe companies should be paid to close down old power stations.

Source: The Sydney Morning Herald

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