Australian businesses, communities, First Nations, and workers stand to benefit significantly from the energy transition – so long as our governments prioritise local content requirements in the drive to decarbonise our economy and transition to net zero.
Local content legislation must specify that 60 per cent of all fabricated steel used in our renewable energy projects is manufactured in Australia by local welders.
The Federal Government’s Capacity Investment Scheme presents a critical opportunity to bolster local economic participation in the renewable energy transition. The Scheme, a federal initiative that complements state efforts, aims to expedite dispatchable renewable energy and storage, supporting the federal target of 82 per cent renewable energy by 2030.
The Scheme provides a national framework to encourage new investment in renewable capacity, such as wind and solar, as well as clean dispatchable capacity, such as battery storage.
When it was first announced in December 2022, the Federal Government estimated that the Scheme would drive approximately $10 billion worth of investment in renewables.
The Scheme’s expansion in November 2023 promises a substantial increase in clean energy investment.
The expansion will encompass a new revenue underwriting scheme that the Hon Chris Bowen, Minister for Climate Change and Energy, hopes will unlock $40 billion in private investment, adding another 32 gigawatts of capacity on top of the 28 gigawatts of clean energy already in the National Electricity Market.
The need for local content requirements
While the expansion of the Scheme and billions in private investment are obviously welcome, it is essential that local and First Nations content requirements are incorporated into Capacity Investment Scheme tenders. This will fortify domestic clean energy supply chains, boost investor confidence, and cultivate a skilled workforce for the energy transition, positioning Australia as a global renewable energy leader.
Australian businesses have long advocated for specific, measurable local content requirements in government contracts.
Even the recent House of Representatives committee report into manufacturing in Australia – Sovereign, Smart, Sustainable recommended stated that: “All levels of government have potential to drive developments in advanced manufacturing by targeted procurement of Australian products.”
The report continues, recommending that: “In partnership with the states and territories, the government should identify further steps it could take to increase locally manufactured content in renewable energy infrastructure and equipment installations, and other areas where governments are major customers.”
However, tangible examples of local content procurement policies are yet to materialise in Australia.
Global examples
Globally, since 2008, more than 140 local content requirement programs have been employed in a variety of sectors from automotive to extractive industries . However, policymakers have focused heavily on wind and solar power in recent years to foster economic and technological development. Prominent cases where solar or wind energy local content requirement have been introduced include the US, India, China, Brazil, Indonesia, South Africa, and Turkey.
In the United States, the Inflation Reduction Act requires that all structural steel in new products is manufactured in the US. In addition, the minimum percentage of domestic content for manufactured products in solar, battery, and wind installations (including the labour costs required to make them) must be 40 per cent for projects on which construction starts by the end of 2024, 45 per cent for projects starting construction in 2025, 50 per cent in 2026 and 55 per cent thereafter.
In India, the government implemented the ‘Make in India’ initiative in July 2019. Under this program, solar cells and modules must be manufactured domestically, and wind projects must be comprised of 80 per cent local content. Another driver is the $5 billion scheme known as the PM Kusum program to develop decentralised, small-scale solar for agricultural consumers. The program components focused on solar water pumps mandate the use of domestically manufactured cells, modules, and balance-of-system parts.
In addition, India has a national certification program requiring that any manufacturer wanting to sell turbines in the country must have quality certification for its devices together with a local assembly unit and an operations and maintenance (O&M) team. This is done to ensure that only quality equipment is installed domestically.
A commitment to sovereign manufacturing capability
The main competition for Australian wind tower manufacturers are overseas suppliers from Vietnam, China, and Indonesia. The issue is that the quality of imported wind towers is appalling. They do not adhere to Australian Standards. Local fabricators comply to internationally recognised Australian Standards and are certified by the relevant Australian authority. In this way, Government and private clients can ensure the quality and safety of projects. Imported steelwork, which does not meet these requirements, is often of inferior quality and may not meet the Australian safety requirements.
These quality and safety issues will only be exacerbated by increased global demand in the race to net zero. The whole world is looking to transition to renewable energy. Countries like Scotland, New Zealand and Sweden are all investing in wind power. Not only will increased global demand likely reduce the quality of wind towers manufactured overseas, but it will also increase scarcity of supply. There are already global supply chain issues—imagine how these will be magnified.
Local manufacturers like Keppel Prince Engineering and Crisp Bros. & Hayward cannot win jobs on their doorstep when governments and multi-national companies place a premium on price over and above quality and safety.
The Federal Government must commit to building sovereign manufacturing capability for renewable energy projects by legislating local content policy. Local content legislation must specify that 60 per cent of all fabricated steel used in our renewable energy projects is manufactured in Australia by local welders. This local content legislation must be drafted in conjunction with industry to eliminate the loopholes that so often arise in these types of policies.
This will create a capacity mechanism that generates a clear, long-term signal for investment by private equity and local manufacturers. The Federal Government must also mandate that all wind towers are constructed, erected, and inspected according to Australian Standards.
Local welding and manufacturing companies will then be assured of the security of sufficient orders to enable them to invest in the necessary workforce, plant, and equipment to deliver high quality, cost effective renewable energy assets. With long-term demand a reality, local manufacturers—like Oxycut who are world leaders in building wind tower anchors — will have the confidence to improve production efficiencies and global competitiveness.
Unless industry and governments come together now to formulate a plan of attack, when the time comes to manufacture the assets needed for our clean energy transition, there will be no fabrication facilities, no skilled workforce, and no regulatory frameworks in place. There will be no sovereign manufacturing capability. Specifying local welding companies in the Federal Government’s Capacity Investment Scheme tenders is imperative.
2024 National Manufacturing Summit
Building on the momentum of the 2023 National Manufacturing Summit, which focused on Renewable Energy: Challenges and Opportunities, the 2024 Summit embarks on an ambitious journey with its theme: Pathways to Success Making the Renewable Energy Revolution a Reality.
The 2024 Summit will delve into the practical aspects of manufacturing within the renewable energy sector, highlighting the essential components that will drive Australia’s transition to a sustainable future. It will be held at the Amora Hotel in Brisbane on 31 July and 1 August.
As we gear up for the 2024 Summit, we invite industry leaders, innovators, policy makers, and all stakeholders to join us in this pivotal event. Together, we can transform challenges into opportunities, setting a global benchmark in the renewable energy sector. Join us in shaping the future of manufacturing and renewable energy in Australia.
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