Victoria’s state Labor government has unveiled the first of its large scale renewable energy auctions – for 650MW of wind and solar capacity – in the first major move towards its renewed commitment to reaching 40 per cent renewable energy by 2025.

It also announced that two new solar farms will be built following a tender to supply the Melbourne tram network with renewable energy. They are the 100MW Bannerton Solar Park near Robinvale in the Sunraysia district, owned by Syncline, and the 38MW Numurkah Solar Farm near Shepparton, owned by Neoen.

Premier Daniel Andrews and energy minister Lily d’Ambrosio announced – as we foreshadowed on Tuesday – that the government remained committed to its renewables target, which is to reach 25 per cent by 2020, and 40 per cent by 2025, although they concede it could happen quicker than that.

They said the initiative would create billions of dollars in new investment, thousands of jobs and reduce the wholesale component of electricity bills by around $30 a year for households, $2,500 a year for medium businesses and $140,000 a year for large companies.

Great to be at #springst for announcement of 650MW #VRET reverse auction for Victoria Congratulations ! @DanielAndrewsMP @LilyDAmbrosioMP — Simon Corbell (@SimonCorbell) August 22, 2017

They said the VRET (Victoria renewable energy target) would be “enshrined into law” with Renewable Energy Jobs and Investment Bill. It will be the first of the state-based targets that is actually supported by legislation, and the first auction will be the largest ever, beating out similar auctions conducted by the ACT.

As well as cutting the average cost of power for Victorians, the VRET is expected to drive a 16 per cent reduction in the state’s power sector emissions by 2034-35.

It has modelled three different scenarios, a base case and one that assumes 3,400 MW of renewable energy generation capacity by 2025, and another that assumes around 5,150 MW of renewable energy generation capacity by 2027.

Under the VRET 3400 MW scenario, Victoria is forecast to achieve 25 per cent renewable generation during 2019 and 40 per cent by 2025. Under the VRET 5,150 MW scenario, Victoria also achieves 25 per cent target during 2019 but 40 per cent is reached one year earlier in 2024.

Under the VRET 5,150 MW scenario, the forecast is $2.1 billion of additional economic activity in Victoria’s renewable energy sector (from capital expenditure of about $7 billion), and around 9,000 2-year construction jobs and about 750 ongoing operational jobs.

The competitive auction, Andrews said, would provide enough electricity to power 389,000 households – or “enough energy to power Geelong, Ballarat, Bendigo and the Latrobe Valley combined.”

The tender documents will be released in mid October and the government will hold information sessions for industry. Some of the capacity is expected to be reserved for solar to ensure a diverse mix (solar likely to be more expensive than wind in Victoria).

The contracts will be signed by the minister for Energy on behalf of State of Victoria, but will not be for the government’s own energy use.

It is expected to be a variation of the contract for difference mechanism pioneered in Australia for renewables by the ACT government. (Indeed, no coincidence that ACT’s former climate and energy minister Simon Corbell is now Victoria’s renewable energy advocate).

The solar farm contracts for the tram supply continues the strong run of wins for French firm Neoen, which landed the three stages of the Hornsdale wind farm with the ACT government, the Tesla big battery with the South Australia government, and three solar farms in western NSW from the ARENA big solar tender.

It is also building a 190MW wind farm and 20MW/34MWh battery storage installation to power what will be Australia’s largest vegetable greenhouse near Stawell after signing a deal with the state government.

The Syncline solar farm was one of many that missed out on the ARENA tender, but under this contract will double its proposed size. When it missed out on the ARENA funding, it complained at the time of not receiving support from the state government, unlike projects in NSW and Queensland.

“More renewable energy means more jobs for Victorians – that’s why we’re setting these ambitious targets and promoting investment in this growing sector,” Andrews said in a statement on Wednesday.

“Renewable energy creates jobs, drives growth, and protects our environment – and most importantly, helps drive down power prices for Victorian households and businesses,” he said.

“The renewable energy sector will now have the confidence to invest in renewable energy projects and the jobs that are crucial to Victoria’s future,” said D’Ambrosio, adding that government investment would be capped to “ensure the best value for money for Victorian taxpayers.”

CEFC chief Ian Learmonth, who attended the announcements on Wednesday at Spring Street, said the VRET would create jobs and unleash capital.

Environmental groups are welcoming the VRET annoucement, with Friends of the Earth describing it as “a vital stepping stone” to deliver 5,400 megawatts of solar and wind by 2025 – taking Victoria to 40 per cent renewables.

“We welcome the Andrews government’s announcement of renewable energy auctions which demonstrate a strong commitment to grow renewable energy and create jobs,” said Pat Simons, Friends of the Earth spokesperson.

“The first round of competitive auctions is a vital stepping stone for the Andrews government to deliver its commitment to 5,400 megawatts of new solar and wind farms by 2025.”