Backing a long shot

Punting millions on the world's biggest solar power plant guarantees an environmental windfall for a government that has been slow to act on climate change.

October 26, 2006, Matthew Warren of the Australian, Australia's largest daily newspaper

It's been more than two years since it announced the formation of its Low Emissions Technology Development Fund. The realisation of pulling together more than 30 starters and a forensic review of the form by a panel of eminent and expert Australians couldn't have come at a better time for a government seriously needing to back a political winner in the climate change stakes.

Howard's first wager certainly looks handy: a remarkable and innovative Australian solar technology that has enough wow-factor to make Australians simultaneously proud and impressed, with its fancy talk of using space technology, Boeing and even the US Department of Energy. It's enough to cast doubt into the minds of even hardened rationalists with its potential for delivering affordable and clean electricity in the future. It might even work.

Solar Systems managing director Dave Holland got the nod for his innovative approach to solar energy and a $420 million power station using hi-tech mirrors called heliostats which will pump sunlight on to super solar cells on the top of a 40m tower. The project has also received a $50million grant from the Victorian Government's Energy Technology Innovations Fund. In the spring, it seems, everyone loves a winner.

"If Holland can get his costs down to $50 per megawatt hour, he is right in the play," says Brad Page, chief executive of the Energy Supply Association of Australia. "This is quite an unusual approach. Where he has got some advantages is the volume of sunlight he is concentrating and capturing, and, second, the quality of the photovoltaics (converting light to energy) he is using. I think it's in the space where you have got to start feeling a bit more positive about some of these new approaches to solar that just aren't about stacking solar cells on your roof."

The global industrial economy has, naturally, been built on access to affordable energy. The relatively uncomplicated but effective, strategy has been to find resources on earth that are densely packed with energy and burn them: first on their own, then in engines and power stations. Wood, then coal and then gas. The processes of extracting the energy have become more refined, but the logic is still pretty much intact.

That was until the threat of climate change. The allure of renewable sources such as wind and solar has been self-evident: they are abundant, clean and free once the relatively expensive plant to capture them is built.

But the big problems have been twofold: they come and go as days pass to night and winds become calm. And they're also frustratingly un-dense.

Research and development on solar thermal power generation has been going on in Australia and overseas for at least 30 years. Conversion of the concept to commercial use has been run down by the low cost of coal and gas power and even, more recently, by wind power.

The diffuse nature of solar has meant that conventional photovoltaic systems, which transform parts of the spectrum of light rays directly into electrical energy, need too much to generate too little power. Their electricity costs about 10 times the power from fossil fuels and their applications are limited to specific remote applications.

The other problem with these cells is they cannot cope with high temperatures. Some solar technologies have looked to magnifying and collecting the sun's energy to generate high temperatures, which can then be used to run more conventional steam turbines. These solar thermal technologies are cheaper and more promising.

Solar Systems thinks it has gone one better. It has developed breakthrough photovoltaic cells that can withstand temperatures that would melt steel while delivering a wider band of the sun's light directly into electricity, claiming about 35 per cent transformation efficiency. "Like most good technology, it's a very powerful combination of smart engineering and simple concepts," Holland says.

The company will build its 154 megawatt power station in about six large areas covering 600ha to 800ha in yet to be determined sites across the Mildura region, chosen for its relatively high levels of sunshine and suitable topography for broad-acre solar farming.

The first power will come on stream in 2008, with the station fully operational by 2013. While coy about the start-up price, Holland expects to find renewable and boutique markets for all the electricity generated by the plant.

"The objective of this project is to bring the capital costs down to the point (where) you can produce power stations rolling on from this at a capital cost that can compete in the market," he says, "but this project has been put together on the basis that the power from it can be sold for the life of the project.

"Some people will pay a premium to buy electricity that they can market the fact that they are using." In other words, pay more for green power.

While his immediate concerns lie in ensuring a return on the nearly $300 million of private investment in the technology, the public purse has been opened for much longer-term goals. That is, can this or any of the other technologies being funded by the Howard Government under its LETDF make the big jump on the cost curve from development to application and become real players in an affordable low-emissions solution to climate change?

Solar Systems is betting it can get its costs down to about $50 a megawatt hour by 2025 or so, which is extremely ambitious by industry standards and not that much higher than the longer-term estimate for the latest technology in coal-fired power. A tough but not unrealistic price on carbon could conceivably close the gap.

But despite the excitement surrounding Solar Systems' windfall, 2025 is still a long way off and there are still a number of ifs. Aside from cost, the other big challenge for this and any other advanced solar technologies is night time.

But Holland is a realist. He sees his electricity as similar to that from a peaking power plant, which takes advantage of higher demand and prices into daytime markets when peak demand and prices are higher.

That suits his business case but does not fulfil the dream of Opposition Leader Kim Beazley and others who see a solar-base future for Australia replacing the tranche of reliable but ageing coal-fired power stations that supply about 75 per cent of Australia's electricity and all of its base-load supply.

Until technology can be found to cheaply and efficiently store the clean energy from Holland's power stations for use at night, or at least pick up the slack as the sun sets over Mildura, then even solar technology as clever as this is still a fringe player.

But these rational concerns are unlikely to dampen Howard's appetite for further subsidies for potentially green technologies. Not only do they add urgently needed environmental cachet to a government that has been slow to move on climate change, but as ACIL Tasman energy economist Mike Hitchens points out, they are possibly Australia's best way out of its energy catch 22.

He says while putting a price on carbon is a well-established way of driving business to invest and find low-cost, low-emission energy solutions, it would require either a genuinely global price on carbon or such a high domestic price that the ability to deliver solutions in 25 years may be significantly hampered by the impact such an energy spike would have on the economy.

"So in this scheme of public good arguments, this (scheme) is a good one," Hitchens says. "We know there is a market failure, we don't think we have the technologies we need to correct the market failure, and because there is no market there is not going to be private investment until we can create a market some time in the future."

Acting professor Tony Owen from the University of NSW's Centre for Energy and Environmental Markets agrees with the philosophy of investing in infant industries such as Solar Systems, but cautions that these are still relatively risky investments in new technology which will not continue to proceed without being able to benefit in some way from a carbon market.

"If you subsidise these sorts of immature technologies to the stage where they perhaps get economies of scale in production and their development costs are stabilised, and everyone has learned what they have to learn by doing (this), then that's quite acceptable," Owen says.

"Where I have a problem is that they might even still be financially non-viable then.

"And that largely could be due to the fact that there is no carbon price in the competing industries."

Matthew Warren is The Australian's environment writer