Challicum Hills Wind Farm in Victoria.

The Victorian Government has released a consultation paper on the design of the auction process for developing new large-scale renewable energy projects.

The auction process is a key part of meeting the state’s renewable energy targets announced in June 2016, minister for energy, environment and climate change Lily D’Ambrosio said.

The targets aim to achieve 25 per cent of the state’s electricity generation from renewable sources by 2020, rising to 40 per cent of generation by 2025. Based on current generation and demand forecasts, this would involve the government auctioning up to 5400 megawatts of additional capacity over the life of the scheme.

In addition to reducing greenhouse emissions, the targets aim to create jobs and stimulate economic development, Ms D’Ambrosio said.

“We want to be in a leading position as the world transitions to renewable energy to promote Victorian jobs and the economy, while reducing our emissions.”

In its consultation paper, the government said that investment in the Victorian renewable energy industry had been limited recently due to uncertainty in the Federal Renewable Energy Target, and an inability to secure long-term future revenue to enable the attainment of project finance.

“This scheme will assist industry to overcome these barriers by providing support to renewable energy projects financially on a cost effective basis.”

It proposes awarding funding via long-term contracts between the scheme administrator and successful parties.

The majority of auctions are proposed to be technology neutral, and, based on current technology costs, the government said it expected wind to be the dominant technology.

However, it proposes auctioning around 20 per cent of the target capacity specifically for large-scale solar. While this is estimated to involve additional costs for projects, the differences in location of the best wind and solar resources across the state would spread jobs and economic activity.

“The construction of significant large-scale solar capacity in Victoria would also develop the Victorian solar industry, which would grow its capabilities to supply specialist skills and components for solar projects.”

In terms of funding, it proposes a Contract for Difference (CfD) scheme design, similar to that currently being used by the ACT for its renewable energy reverse auction process.

This structure would require proponents to put forward auction bids for funding based on a ‘“strike” price per megawatt hour of generation that reflects the cost of investing in a particular technology.

Projects offering the lowest strike price, as well as meeting other criteria, would then be awarded funding under the scheme in the form of a feed-in-tariff for the difference between the strike price and a reference price for electricity sold in the wholesale National Electricity Market. There is also the potential for projects to sell Large Scale Generation Certificates.

“In guaranteeing a set price for generation, a CfD payment structure secures a large percentage of a project’s revenue stream. This gives certainty and stability of revenue to proponents by reducing their exposure to volatile wholesale electricity prices, thus allowing project financing at lower cost,” the government said.

The government is considering having the scheme administered by either a statutory agency – either existing or newly created for the purpose – the state’s electricity distribution businesses or by AusNet Services, the state’s sole and privately owned transmission business.

Consultation closes 31 August.

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