The CEO of Squadron Energy, a renewable energy developer owned by Andrew Forrest, revealed that the cost of developing onshore wind energy projects in Australia has surged by up to 50% over the past four years.
This poses a significant challenge for the industry as it strives to deliver tens of gigawatts of new capacity.
Escalating Construction and Installation Costs
Rob Wheals, Squadron’s chief, highlighted that approximately two-thirds of the cost of delivering an onshore wind project comprises construction and installation costs. These costs have risen by as much as 50% since 2020, necessitating innovation and smarter project delivery approaches.
The increasing scale of wind projects, involving extensive road and civil works, along with the use of larger turbines and taller towers, has contributed to the escalating costs. Wheals emphasized the need for ingenuity in installation methods and crane utilization to mitigate these expenses.
Rising Turbine Costs and Supply Chain Issues
Contrary to expectations of further decline, wind turbine costs have surged due to the COVID-19 pandemic, the energy crisis triggered by Russia’s invasion of Ukraine, and subsequent supply chain disruptions. Labor costs have also risen, driving up the overall price of wind energy.
The cost of financing large-scale onshore wind projects has increased significantly since 2020, driven by the rise in cash rates. This directly translates to higher project costs and ultimately affects end consumers.
Bankability Challenges and Grid Connection Issues
Wheals highlighted the complexity of securing cost-effective finance, which is linked to project bankability. In Australia, investors are often asked to commit to projects before grid connection is established, or even before a grid exists. The lengthy and multi-tiered approvals process further complicates project timelines.
The lack of visibility regarding grid connection timelines has negatively impacted investment appetite. The complexity of the grid connection process in Australia is comparable to that of Mexico, as noted by Enel Green Power Australia’s CEO, Werther Esposito.
Positive Developments and Collaborative Efforts
Despite the challenges, there are positive developments. Network companies, market bodies, and governments are collaborating to enhance visibility and expedite project connection processes.
Wheals urged the industry to take immediate action and innovation to overcome the cost hurdles. He emphasized the need to focus on scaling up wind energy rather than getting sidetracked by debates on nuclear power. Continued investment in wind energy is crucial for energy security and economic development in regional Australia.