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Why the Port Augusta solar thermal power station couldn’t nail down finance

SolarReserve port augusta

The energy policy chaos claimed another victim last week, with SolarReserve’s solar thermal power station in Port Augusta set to be scrapped after failing to achieve financing.

The developer has announced it has stepped away from the project, despite having all the required approvals in place and an agreement brokered with the South Australian government for purchase of the plant’s energy output.

The 150 megawatt plant comprising heliostat mirrors to concentrate solar rays and generate energy also incorporated storage through molten salt, enabling it to deliver energy after dark.

The storage was designed to have 1100 megawatts of capacity – equivalent to eight hours of full load power, and enough to power around 35 per cent of South Australian households.

South Australian minister for energy and mining, Dan van Holst Pellekaan, said the government had given “every opportunity” to SolarReserve to meet the terms of the agreement signed with the previous SA government in 2017.

That included an extension of the date for financial close from 1 February 2018 to 31 May 2019 – a date the developer told the government it would not be able to meet.

No further extensions have been offered, and Mr van Holst Pellekaan said the government will now begin the process of returning to market to secure its future energy needs.

SolarReserve is now proposing to sell the project to a third party to take either the approved project or an alternate proposal forward at the site, he said.

“Any party that might purchase the project from SolarReserve will be able to tender for the new contract.

“I have long been a supporter of developing solar thermal technology in the Upper Spencer Gulf and this has not changed, but unfortunately SolarReserve has confirmed that it cannot be the company to do this.”

The project was considered a lifeline for the Port Augusta community

Repower Port Augusta, the community coalition that lobbied for the project has called on the state and federal governments to save the project, describing it as “too big to fail.”

In a statement, it said it is also seeking the intervention of Nick Xenophon and the Centre Alliance, “given federal funding for this project was a commitment to him which delivered his support for the federal government’s company tax cuts.”

Chair of Repower Port Augusta, Gary Rowbottom, who worked at the now decommissioned Port Augusta Coal Fired Power Station said that the future of the whole Port Augusta community is now at risk.

“The solar thermal power station is a lifeline to our community following the closure of the former coal-fired power station that we cannot afford to lose. It is also a project that was supported by all levels of government,” Mr Rowbottom said.

“Without this project, the Port Augusta community will lose our major hope for the future with 650 construction jobs and 50 permanent jobs gone. This would be a devastating blow for our community already battling very high rates of unemployment – particularly youth unemployment.”

No price for firmed electricity during the evening peak is likely to blame

Director of Energy Finance Studies for Institute for Energy Economics and Financial Analysis, Tim Buckley, told The Fifth Estatethe challenges faced by the developer are probably caused by lack of a price for firmed electricity during the 6pm – 8pm peak.

The SolarReserve plant would be capable of delivering firmed power due to its storage capacity, however, there is no long-term price for this type of power and no signs of a policy that might create one.

Solar thermal is therefore competing with solar PV farms and on-shore wind on pricing, and those two technologies have seen “ongoing double digit deflation” of their megawatt hour price for the past few years, Mr Buckley said.

Last year the price declined by 30 per cent for solar PV and onshore wind.

Solar thermal hasn’t seen that kind of price deflation, as world-wide it comprised less than one per cent of global investment in solar-based projects over the past five years.

Currently solar PV and onshore wind in Australia come in at around $40 per megawatt hour, Mr Buckley said. SolarReserve’s project would have been in the vicinity of $80 per megawatt hour.

Battery technology has also been deflating in price as demand ramps up, and pumped hydro such as the proposed Snowy 2.0 has also entered the picture. The Port Augusta project would have also been competing against these technologies for finance.

It would have been a proof of concept of international significance

Mr Buckley said that it would, however, have been a “globally important” proof of concept.

It would also have addressed the current need for “firming power, not just generic power,” he said.

Currently, firming costs around $70 to $80 per megawatt hour using either batteries of pumped hydro. Snowy 2.0 has floated a figure of $75 per megawatt hour.

The current federal government argument that coal fired power is needed to deliver firming power is however not based on sound economics, as Mr Buckley explained that new coal cannot compete with the costs of firming for renewables.

“The government can’t argue on the basis of cost, so they have been arguing it is reliable.”

Mr Buckley said gas-peaking generation capacity is also no longer able to compete on cost. In the US the figures show it is out-competed for price by solar and storage, despite the US having “the lowest gas prices in the world.”

Australia, with some of the most expensive gas in the world, is therefore unlikely to find new gas-fired economically competitive.

However, while firmed renewables are the best-priced provider, Mr Buckley said there is at this point no long-term pricing for them in Australia.

There are also no Power Purchase Agreements in place he is aware of that have a fixed and specific price for the peak period supply between 6pm–8pm, Mr Buckley said.

There simply isn’t a market, due to lack of “time of day pricing,” which is something of an anomaly.

Without this type of pricing, a developer struggles to get the private financial market to fund a project.

This is despite the government de-risking the Port Augusta project to some extent with subsidies and grants for the early project development stages.

In addition to lack of reliable and long-term pricing for its peak period power output, Mr Buckley noted the technology also carried the risk of not being proven “at scale” in Australia.

“But that’s why the project is [also] so important.”

The failure of this project unsurprising under current policy conditions

The have now had a “decade of energy policy paralysis,” Mr Buckley said, and the last five years have been nothing short of “toxic”.

“In that environment, [the failure of the SolarReserve project] is not surprising. You can’t survive a toxic policy framework with a high-risk demonstration project.

“If there had been a supportive policy environment, I believe it would have gone ahead.”

He said it is disappointing to see federal government policy chaos undermining its financial viability.

“But I do not think this is the end of solar thermal – with more variable renewables coming on line we will need more reasonable firming.”

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Comments

One Response to “Why the Port Augusta solar thermal power station couldn’t nail down finance”

  • Scott D says:

    If the world leader in this technology, with an agreed offtake agreement for its electricity to supply the state government, couldn’t get finance in place for it in a very sunny place, it seems odd to think that the site and approvals can be sold to someone else to build it.

    Complaining about NEM pricing policies and interconnector proposals doesn’t seem to stack up if the SA supply contract included pricing and quantity.

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