Origin Energy managing director Grant King says construction costs are set to rise under the new renewable energy target deal as the industry scrambles to build $10 billion to $15bn of new capacity in about four years.
Speaking to The Australian after Monday’s deal between the Coalition and Labor to cut the target from 41,000GWh by 2020 to 33,000GWh, Mr King said the brunt of the costs would eventually be born by consumers for extra power capacity at a time of stagnant demand, meaning other power supplies would be forced out.
“If, at the end of the day, all the forces at work in the community say we want renewable energy and we’re willing for people to pay more for it, we’ll support that number,” he said on the sidelines of the Australian Petroleum Production and Exploration Association conference in Melbourne.
“But it’s important to remember there is no need for extra generation. If the extra 15,000GWh costs $10bn or $15bn, then that’s not a cost necessary to occur specifically to make sure people have enough power.”
When the scheme was conceived in 2010, demand growth was expected, and the renewable capacity was expected to feed new demand. But grid demand is now expected to fall because of increased efficiency, solar and slowing industrial use.
“The RET was never designed to force stuff out; it was designed to cause the future mix to be different,” Mr King said.
“With lower demand, what it’s trying to do is force stuff out and that’s a very different outcome than making the future choices different.”
Origin has a mix of coal, gas and renewable power after buying the Eraring black coal assets in 2013.
Mr King said there were still a lot of renewable energy certificates in the system from earlier rooftop solar subsidies, meaning new capacity was probably not needed until 2016 to meet the target. When it did, it would require a big jump in construction — mainly wind farms — to boost capacity from current levels of 16,000 or 17,000GWh.
“The industry somehow has to cause as much to be built in three or four years as has been built in the entire life of the scheme — and that’s at 33 (thousand GWh). Imagine it at 41,” he said.
“It’s an exponential increase in the deployment that is going to drive up costs.”
Turning to the $24.7bn Australia Pacific LNG plant being built at Gladstone with US oil major ConocoPhillips, Mr King said a recent pushing back of sustained production from the third to the fourth quarter of the year was unlikely to mean a full quarter’s delay.
“Our view is somewhere around September-October, sometime around the cusp (of the quarter),” Mr King said.
He said the start-up of BG Group’s Queensland Curtis LNG plant at Gladstone this year showed the process of liquefying and exporting coal-seam gas worked.
Shell’s planned $91bn takeover of BG was also boosting confidence. “The greatest value from our point of view is the Shell transaction with BG — it says gas is good globally, gas is good in Australia and, being one of BG’s chief assets is coal-seam gas in Queensland, they must be saying ‘we’re pretty comfortable with that’.”