October 2018

VREAS wrap up: More capacity, more solar

Rystad Energy
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• SERA product updates: In September 2018, 9 assets operated by 9 companies were added to the SERA Tracker, accounting for 1.4 GW of capacity. Of the 9 new projects, 6 are solar, 2 are wind and 1 is storage. Data for a further 19 projects, covering 3.4 GW, was updated in the Tracker.

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In early September the Victorian government announced the successful projects in the Victorian Renewable Energy Auction Scheme (VREAS). The scheme is designed to meet the state’s renewable energy target, the first phase of which targeted 650 MW of new generation capacity. With the effective achievement of the federal Renewable Energy Target (RET) and considerable uncertainty over the future of Australian energy policy, the VREAS has been a major driver of near-term project development.

Few details have been released regarding the details of the winning bids, but here we look at the successful projects and the overall results.

Six projects were awarded support agreements under the VREAS: three solar and three wind farms. In total, the winning projects will contribute 886 MW AC of new capacity, due to be online by September 2020. This represents an impressive 231 MW AC more than the target. (The government announcement stated 928 MW of total capacity, although this included the DC capacities for the solar farms).

Of the total capacity from the successful projects, 669 MW has been contracted under the state’s support agreements, leaving 217 MW AC of capacity that will be sold to the wholesale market or alternatively provided for other power purchase agreements (PPAs), most likely commercial energy users. 


The largest project – Tilt Renewables’ Dundonnell wind farm – accounts for the vast majority of the uncontracted capacity that has emerged from the auction process. About 124 MW of Dundonnell’s capacity is signed up to the state government’s support deed, leaving some 212 MW to be sold in other, probably more lucrative, channels.

Naturgy’s Berrybank Stage 1 is the second-largest project in the scheme at 180 MW. But the project has a 122-MW second stage, which we assume will benefit from some synergies with Stage 1, a shared grid connection for example. As projects with a state government support agreement will have a much easier path to financing than merchant projects, the success of Stage 1 makes Stage 2 far more likely, even though it is not covered by the scheme. We can perhaps then conclude that the VREAS has really facilitated the development of over 1 GW of new renewable capacity.

One of the striking features of the auction results is the share of solar in the winning mix. The government had ring-fenced 100 MW AC of auction capacity for solar but it ended up with more than double this: solar accounts for 212 MW AC of contracted capacity, with 462 MW AC of contracted wind.

Solar’s success in the auction may, counter-intuitively, be a result of wind power’s superior economics. Wind power remains cheaper per unit of generated electricity than solar, and the differential between wind and solar costs is probably most pronounced in Victoria: wind capacity factors are high and likely solar capacity factors are relatively low compared to other Australian states. With low breakeven prices for wind, it’s likely the successful wind projects bid into the auction with very low, or perhaps zero, financial support requirements under most probable future price scenarios. So based purely on commercial economics, wind projects should have taken all of the auction’s capacity.

But we anticipate the government wants to support a range of generating technologies, not least for diversity and stability of supply. And low-breakeven, low-support requirement wind farms provide greater headroom for the government to contract more expensive solar projects. Our analysis suggests that the government could support an equal mix of wind and solar while remaining budget neutral under most probable future electricity price scenarios, although it clearly didn’t go quite this far.

We consider this to have been a very successful auction: it has fostered large-scale project development, with a mix of wind and solar, and likely at a low cost to the government. But it is not without risk, and we highlight the tight timeframes developers need to adhere to in order to satisfy the scheme’s conditions.

In order to satisfy the support agreement, successful projects need to be in commercial operation by the end of September 2020, which we assume to mean full commissioning. Based on solar farms currently under construction, we estimate it is taking approximately one and a half years on average to build and commission a 100 MW AC solar farm. This is even more pronounced for wind farms: we estimate it takes approximately one year and eight months to build a 180 MW wind farm. So for the larger projects in the Victorian scheme, this does not leave a lot of time to reach financial close, or deal with any unforeseen delays along the way.

Please get in touch if you would like to discuss the details of our VREAS analysis.