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Overcoming barriers to wind project finance in Australia

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S. Kann
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The wind power industry in Australia is expected to grow rapidly over the next decade, primarily due to a forthcoming expanded national renewable energy target (RET) which will mandate that renewable sources provide approximately 20% of Australia’s electricity production by 2020. However, development of new wind generation in Australia has stalled as a result of several barriers to project finance, the mechanism through which most wind farms have been developed historically. This paper provides an overview of wind power financing in Australia in light of recent political and financial trends. Drawing upon existing literature and a series of stakeholder interviews, it identifies three primary barriers to project finance:

regulatory risk surrounding legislation of the RET
semi-privatisation of electricity retailers in New South Wales
limited capital availability resulting from the recent global credit crisis.

The paper concludes that the confluence of these barriers limits the availability of long-term contracts that provide revenue certainty for pre-construction wind projects, while simultaneously making these contracts a necessity in order to obtain project finance. In an attempt to mitigate these effects, this paper identifies four alternative development strategies that can be pursued:

corporate financing arrangements
delaying development until conditions improve
develop and then sell the investment-ready project to a company with more financial backing
seek for joint development agreements with institutions with better access to capital.