On 12 March 2014 the Australian Capital Territory Government announced that it would grant 20 year Feed-in tariff entitlements for up to 200MW of wind generation capacity under a reverse Wind Auction process. The Territory has indicated that it intends to grant Feed-in tariffs to at least two projects and is, unsurprisingly, expecting stiff competition.

The Wind Auction is the next phase in the Territory’s large scale Feed-in tariff scheme which commenced through 2012 and 2013 with a Solar Auction that resulted in the Royalla, Mugga Lane and OneSun Capital solar projects receiving Feed-in tariff grants for a combined total of around 40MW of solar capacity.

The Wind Auction will be open to wind farm developments located in the 'Australian Capital Region', an area encompassing some of NSW’s most prospective wind resource areas as well as the ACT. The region is already home to a number of operating and proposed wind farm developments.

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The Wind Auction will also be open to proponents of projects outside of the Australian Capital Region, but to be successful those proponents will need to offer 'exceptional economic development benefits to ACT renewable energy industries and minimise costs to electricity consumers' as well as meeting the criteria that are generally applicable to all prospective projects.

Feed-in Tariff Entitlement

The Feed-in Tariff entitlement is likely to be structured in broadly the same way as in the Solar Auction under the terms of the Electricity Feed-in (Large-scale Renewable Energy Generation) Act 2011 (the Act).

The total $/MWh rate of the Feed-in Tariff entitlement to be received by the proponent will be established as part of the auction process. The mechanism by which a successful proponent will receive the Feed-in Tariff entitlement is analogous to a whole of meter swap. The Territory will ‘top-up’ the proponent’s pool receipts to meet the Feed-in Tariff rate and the proponent will be obliged to pay pool receipts above the Feed-in Tariff rate back to the Territory. The difference payments made by the Territory are referred to as Feed-in Tariff support payments.

The proponent will receive the Feed-in Tariff support payments in respect of 'eligible electricity', being electricity generated using a renewable energy source, sent out into the electricity network, and in respect of which large-scale generation certificates are registered under the RET Scheme. The proponent is obliged to transfer all large-scale generation certificates created under the RET Scheme to the Territory.

The Feed-in Tariff support payments are to be administered by ActewAGL. The obligation on ActewAGL to make these payments is set out in the Act. ActewAGL is able to recover the cost of Feed-in Tariff support payments from ACT consumers as part of its network charges.

What is likely to change?

The Territory commissioned an independent report into the efficacy of the Solar Auction process (Review Report) which was completed in October 2013. The Territory has indicated that it will be implementing certain of the Review Report’s recommendations for the Wind Auction process.

Change in risk position

After being described as 'unreasonably limited' in the Review Report, the terms of the Feed-in Tariff contractual arrangements (the Deed of Entitlement) relating to force majeure and change of law are likely to be revised to allow broader relief for the proponent. These changes will be welcomed if, as intended, they bring the proponent’s risk position into line with industry standards, and as a consequence, improve project bankability.

Payment Arrangements

The Review Report also noted the fact that the payment arrangements with ActewAGL were underdeveloped at the time of the Solar Auction. This created uncertainty for proponents and made financing more difficult. In particular the absence of an approved form of agreement between ActewAGL and the proponent meant that the rights of recourse of any proponent against ActewAGL for non-payment were unclear and potentially limited.

The Territory intends to address this issue in two ways. Firstly it has indicated that a standard process for working out and paying Feed-in Tariff support payments is under development between ActewAGL and the current entitlement holders which will be rolled out for recipients of the next round of entitlements.

Secondly the Territory recently amended the Act to impose penalties on ActewAGL for any breach of its obligation to pay Feed-in Tariff support payments and to facilitate the passing of a new regulation in respect of the payment arrangements. The amending bill also made other changes to the Act to facilitate the Wind Auction. The amending bill became effective on 28 March 2014 however draft regulations were not yet available for review.

Whether the Territory’s approach in this area will fully address the concerns raised in respect of the prior auction process remains to be seen and further clarity in this area will be welcomed by proponents.

Renewable Energy Local Investment Framework

A new criterion will be imposed as part of the Wind Auction process being a project’s contribution to the Territory’s plans to establish itself as an 'internationally recognised centre for renewable energy innovation and investment'.

In the ACT Renewable Energy Local Investment Framework the Territory states that renewable energy companies seeking support under the ACT’s large-scale Feed-in tariff legislation will be required to demonstrate how their proposals and businesses contribute to the Territory’s four priority areas for renewable energy business development. These priority areas are:

  1. Deliver enduring benefits to local businesses through the inclusion of regional contractors and labour force.
  2. Build Canberra’s capacity as a national tertiary education and trades skills hub.
  3. Stimulate productive research partnerships that will develop the capacity and global recognition of the ACT’s tertiary institutions.
  4. Grow the local corporate footprint of national and international businesses.

Each proponent will need to consider and promote its contribution to each of these areas in making its application in the Wind Auction process.

Other Issues

Given that the Act requires that large-scale generation certificates under the RET Scheme must be created in respect of any electricity which is to be eligible for payment of the Feed-in Tariff support payments, the Federal Government’s current review process (RET Review) will be at the forefront of applicants’ minds as they progress through the reverse auction process. While any impact on the value of the LGCs coming out of the RET Review may influence applicant’s bids, the more critical issue will be to clarify the Territory’s position on eligibility for Feed-in Tariff support payments should the RET Review result in a change of law that prevents the creation of any further LGCs.

Applicants in the Wind Auction also face different risks to those of solar developers in the ACT in the areas of development and planning controls and electricity transmission constraints.

Depending on the status of their project, applicants and their financiers will need to factor delay risks associated with the development consent process into the auction process. The Feed-in tariff entitlement is likely to be available for a hard-wired 20 year term – if the project is not ready to operate on the date of commencement of that term the 20 year period will start to run regardless. This will reduce the total revenue the wind farm could earn from the Feed-in Tariff entitlement over the life of the project.

Wind farm proponents in the Australian Capital Region also face risks associated with local network constraints and the impact of these constraints on their ability to send out electricity. The analysis of these risks will be complicated for bidders in the Wind Auction who will need to take into account the Territory’s intention to award an entitlement to at least one other project in the region. Given the size of the projects to be considered, and the existing concentration of wind projects in the area, this may be a material issue for some bidders.

Wind Auction Timing

The Territory intends to conclude the Wind Auction process during 2014. The process is likely to commence shortly with a Request for Proposals due to be released in April 2014.

Interested parties who wish to receive a copy of the Request for Proposals should email [email protected]  - to be notified of its release.