WILL A “SUN TAX” SLOW DOWN ROOFTOP INSTALLATIONS?

Look around the suburbs and you will see rooftop solar PV installations have taken off. But Australia’s love of using the sun to power our homes has led to increased pressure being put on the distribution network. The high share of intermittent generation on the network, such as rooftop PV, has seen network operators warn consumers of an increased risk of congestion on the grid and possible blackouts. The increase congestion and the increase risk of blackout has led to the call for more market reform.

As part of ARENA’s Distributed Energy Integration Program, the Australian Energy Market Commission (AEMC) have rolled out their next phase of market reform in response to the increase congestion on the distribution network. The proposed changes include:

  • Changing distribution power networks’ existing incentives to provide services that help people send power back into the grid
  • Officially recognising energy export as a service to the power system.
  • Allowing power networks to develop new tariff options including two-way pricing.
  • Flexible pricing solutions at the network level.

The latest raft of reforms are designed to allow more solar and new tech energy into the grid. But Solar advocates have focused on the rule change that will allow distributors to charge solar households to export power.

Solar advocates have labelled the new legislation a “Sun tax” and have called upon state energy Ministers to “protect solar owners from this discriminatory charge’’.  The proposed reform, released for consultation last week, has been labelled a ‘‘sun tax’’ by community interest group Solar Citizens. Solar Citizens also called on state energy Ministers to ‘‘protect solar owners from this discriminatory charge”. It must be highlighted that this legislation is not a tax, and the new energy rule will include extra safeguards to ensure existing and new solar customers – and non-solar customers – are protected. The proposal does not mandate default charges for exporting power.

Market participants, including the distribution companies, agree the proposed reforms will allow more rooftop solar systems and batteries. This reform will also allow the smarter use of the network with distributed energy resources (DER) linking together to optimise the grid. This reform will enable more DER and how DER is managed. Currently as high levels of rooftop solar PV generation increase distribution companies restrict the power exported to prevent voltage spikes, frequency changes and in some cases blackouts.

Modelling by the AEMC shows a typical household with a roof top PV could lose out on $70 each year if this market reform goes through. The AEMC modelling also showed the reforms could impact around 20% of households. 80% of households will be no worse off and many may be better off by $15 as they would not be paying for the higher cost of distribution associated with building a grid to accommodate excess solar energy.

The AEMC have highlighted that these reforms are fairer as late adopters of rooftop PV are not disadvantaged with the current “first in, best dressed” structure.  AEMC CEO Ben Barr emphasised that the proposal would not mean that every kilowatt of energy exported into the grid would be charged, he believes distributors to offer a variety of options for solar households, which could include free exports up to a certain limit.

Energy Consumers Australia, which represents retail energy users, said the proposed reform was only the first step in a process that needed to focus on talking to consumers and putting their needs first.

EDGE IS HELPING BUSINESSES TO STEP UP THEIR CLIMATE EFFORTS

The world is changing……………………. you only had to look out the window this week, to see the impacts of this.

No matter how you think it is occurring or who you think is contributing to it, climate change is real.

Over the last decade it has been more evident that Australia is being impacted by climate change. We have seen higher temperatures, worsening droughts and most recently parts of Australia have been impacted by the worst floods in a decade.

Australia has always been affected by extremes in the weather, but science shows the impact and regularity is increasing.

At Edge part of our role is to advise our clients on how to best manage risk. This is not always financial risk as most people would assume but, indirectly climate risk. This is the biggest risk many companies are facing, and this directly relates to financial risk.

Investors are starting to push companies to align their operations towards emission reduction targets and the use of sustainable practices. Many companies across Australia are pledging to reduce emissions to ‘‘net zero’’ by 2050 however, many do not have a clear strategy to reach this target.

Edge has and is currently assisting our clients with the development of low carbon business models.

When investors are weighing up the performance of a company, they are now allocating more weighting to how the company manages it sustainability.

Edge works with a range of clients including, some of the largest mining and utility companies worldwide and over the last couple of years we have developed strategies to decarbonise their businesses.

The procurement of renewable energy is just one way in which Edge is assisting clients.

We have developed sophisticated mechanisms to provide the client with access to:

  • renewable energy
  • environmental certificates
  • emission offsets

and……………..we are still able to manage the price risk and uncertainty in the energy market.

IS GAS THE TRANSITIONAL FUEL?

 

Following feedback from industry that gas is not the transitional fuel for Australia to help move from Coal fired generation to renewables, AEMO is grappling with their plan to model a ‘gas led recovery’ scenario for the 2022 Integrated System Plan (ISP).

AEMO are now calling the ‘gas led recovery’ the ‘diversified technology’ scenario.

It appears that not all is dead for gas as an option as the transitional fuel and a fuel used into the future. Methane (CH4) is commonly thought of as the gas to power generation, however in this case it looks like ammonia (NH3) could be used. This carbon free fuel can be made by renewable hydrogen and is commonly used in fuel cells and rocket engines as a propellant.

Gas turbine generators are essentially modified rocket engines so it’s not hard to imagine ammonia to be used to fuel power generating gas turbines. Mitsubishi Power have developed gas turbines to operate on hydrogen but now they have gone a step further to develop ammonia-fired technology.

Mitsubishi Power is currently developing a version of its 40MW H-25 series gas turbine that would operate using ammonia, this commercial scale gas turbine is the first in the world to operate on ammonia as a fuel and is expected to reach commercialisation by 2025.

Ammonia is the chosen fuel as it is a highly effective transporter of hydrogen, using readily available nitrogen molecules to create a stable compound able to be easily stored and transported.

Apart from the usability of ammonia as a fuel source it comes with the added benefit of achieving a carbon neutrality fuel.

As with any technology there is always a downside, the combustion of ammonia results in the production of Nitrogen oxide (NOx).  NOx can have harmful effects on the environment by creating smog and in some cases acid rain. The NOx by-product can be reduced using catalytic similar to the ones used in car exhausts to reduce the level of emissions.

AGL BUYS TILT

 

In a $2.7B deal AGL has taken control over Tilt Renewables. The deal between Powering Australian Renewables (PowAR) a futures fund, which is 20% owned by AGL will buy Tilt Renewables.

Queensland Investment Corporation (QIC) is also a partner in PowAR. The futures fund together with Mercury NZ, paid $NZ7.80 per share in cash for Tilt Renewables. Tilt Renewables is a New Zealand company,  which owns wind and solar farms in both Australia and New Zealand.

The PowAR and Mercury consortium outbid APA Group, Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) and Australian fund manager, Infrastructure Capital Group which is associated with Engie.

PowAR will take Tilt’s Australian portfolio of projects, while Mercury NZ will take over the New Zealand business.

As Mercury NZ is currently a partial owner of Tilt Renewables with a 19% share they have been committed to the sale. The majority owner Infratil, with a 65.5% stake in the business has also  committed to supporting the sale.

The deal, which will make PowAR the largest owner of wind and solar generation in Australia, was funded by $341 million from AGL.

AGLs Chief Executive Brett Redman described the deal as “an exciting opportunity for PowAR to further extend its leadership in renewable energy generation”.

As the largest owner of coal fired generation in Australia, AGL will use this deal to complement its recent acquisitions of commercial solar companies Epho and Solgen. This will allow the company to move towards its climate commitments.

Edge News – March 2021 Newsletter

If your business isn’t looking at renewable backed energy deals, you are fast becoming the minority. All major market retailers and generators are seeing an exponential increase in enquiries for renewable backed energy deals and are scrambling to service this.

We only hope ownership remains diversified and we continue to see retail products take shape for smaller C&I and multi-SME consumers. They need access to renewables as much as the largest users.

YALLOURN EARLY CLOSURE

 

Early closures are now a reality, with Energy Australia’s announcement that they will close one of Victoria’s largest Power Stations four years earlier than planned. This is due to the impact of cheap renewable generation such as wind and solar, which reduces the company’s profitability.

Edge have held the view that early retirements would occur earlier than expected. This contrasts with the data published by AEMO that uses the engineering life of a power station to forecast plant closures, rather than the economic life of the power stations.

Edge have had this view for the last couple of years. It is exciting seeing our forecasts turning into reality!

Although the announcement of Yallourn’s closure is the first, it will not be the last.  Edge is forecasting early closures of coal fired power stations in Queensland and New South Wales.

To facilitate the early closure, Energy Australia approached the Victorian Government with a plan to retire Yallourn Power Station and transition to cleaner energy. The plan incudes a $10M package to support the workforce. Energy Australia have committed to building a 350MW battery capable of supplying power for 4 hours. The battery will be the largest in the world and is expected to be in service by 2026.

Energy Australia’s plan is to be carbon neutral by 2050 however, Yallourn currently accounts for 60% of the company’s emissions. Shutting down the power station will vastly improve the companies carbon footprint.

Yallourn Power Station currently supplies about 20% of Victoria’s power. The need to transition to more intermittent generation in the region, required a firming solution to be enabled.  This resulted in Energy Australia committing to the high-capacity battery. This battery will allow more renewable generation to be built and the renewable energy can be stored by the battery for use when required. This will eliminate the spill into the grid, which results in very low prices during daylight hours.

Energy Australia is owned by CLP Group, an electricity company in Hong Kong.  They have been vocal about the impact cheap renewables are having on the profitability of the company and how the current generation mix impacts its emissions targets.

With the closure of Yallourn, Victoria will still have over 3,000MW of coal fired generation across the two remaining power stations, Loy Y and A and B.

As the transition to cleaner energy gains momentum, Edge expects to see more announcements like this in the not-too-distant future.

RENEWABLE ENERGY TARGET PERCENTAGES ANNOUNCED

Yesterday the Clean Energy Regulator (CER) announced the annual 2021 liability percentages for Large-scale Generation Certificates (LGCs) and Small-scale Technology Certificates (STCs).

LGCs 18.54%

STCs 28.80%

Each year the CER uses actual data and estimates of rooftop solar PV installations to recommend a percentage to the Minister for Energy and Emissions Reduction as required under the Renewable Energy (Electricity) Act 2000 (the Act) to set the required number of STCs to be surrendered.

For 2021 the CER estimated 42.1 million STCs would be created. Under the Small-scale Renewable Energy Scheme (SRES) supply and demand are balanced, this requires liable entities to meet the demand. Liable entities are generally electricity retailers who pass the liability on to large end users.

As a result of the estimated creation of 42.1 million STCs and an 8.56 million certificate adjustment for the previous year (due to surplus STCs), the CER have calculated that 50.6 million STCs will need to be surrendered by the retailers to meet the SRES obligations, this translates into a Small-scale Technology Percentage (STP) of 28.80%.

The CER had originally estimated that the 2021 SRES liability to be 19.41%. Edge2020 has a number a large users who average 100MW of load. The higher SRES liability will result in cost increases in the order of $3.3m for these clients in 2021.

A similar process occurs for LGCs, but the liability calculation is somewhat different. The Renewable Energy Target (RET) legislation requires 33,000,000 MWh of renewable energy to be produced each year from 2021 to 2030. The liability percentage is set to meet the needs of this target, whilst also considering an aggregate ‘true-up’ for certificates over the life of the scheme, and large users who receive an exemption due to their Emission Intensive Trade Exposed (EITE) activities.

This year the CER have calculated that approximately 32.6 million LGCs will need to be surrendered to meet the RET obligations, which translates into a Renewable Power Percentage (RPP) of 18.54%.

Please reach out if you would like any further detail around the contents of this article or the RET scheme in general.

WHO WERE AUSTRALIA’S TOP EMITTERS?

Last Thursday the Clean Energy Regulator (CER) published the latest National Greenhouse and Energy Reporting (NGER) data outlining the largest 400 emitters across Australia.

As expected, Australia’s energy companies ranked highest in the list with AGL leading the list, with greenhouse gas emission reported as 42.2 million tonnes of scope-1 emissions for 2020 financial year. AGLs emitter was more than double that of the second highest emitter Energy Australia, at 17.9 million tonnes.

Other high emitters included:

  • Origin Energy with 16 million tonnes
  • Stanwell Corporation and CS Energy emitting a combined 30.3 million tonnes.

Following the list dominated by thermal generation came the oil and gas producers.

  • Chevron Australia emissions equaling 10.2 million tonnes
  • Woodside Petroleum reported 9.2 million tonnes
  • Santos emitting 7.3 million tonnes

As AGL owns the oldest and dirtiest power stations due to the fuel they burn, it is not surprising they top the list of emitters with 8% of Australian greenhouse gas emissions.

AGLs largest emitting stations was the brown coal fired Loy Yang A coal power station with 16.7 million tonnes and Bayswater Power Station at (14.0 million tonnes), which burns black coal.

With the release of these results, it will put increased pressure on the retailers to clean up their generation by moving towards renewable generation.

 

Emission reductions have changed across various sectors in the 2019-20 year, which was mostly due the impact of COVID-19 however as seen below the electricity generation sector had continued a historic trend of reduced emissions due to the higher penetration of renewables.

Emissions from the electricity sector dropped by 7.5 million tonnes compared to the previous year. Emissions from the oil and gas sector dropped by 3.4 million tonnes as result of reduced venting and flaring of gas.

IS SOLAR POINTING IN THE RIGHT DIRECTION?

 

Are we installing rooftop solar panels to produce the best outcome for our households?

Traditionally solar panels including residential, commercial and industrial scale have been orientated to catch the sun to produce as much solar energy as possible. This has resulted in solar panels being installed facing north in the southern hemisphere, to face the equator. The north facing panels would then produce the most energy from the sun when it passes the zenith in the middle of the day. This results in the most amount of energy being produced, usually when a majority of households are not using electricity, resulting in excess energy being exported or stored in batteries. The returns from the export credits are lower than the cost of electricity during the peak times of use and the capital cost of batteries, which are currently high.

We are all aware, the export of excess solar energy during the middle of the day is causing issues for the National Energy Market (NEM) and can result in negative spot prices during these times. There are currently 20% of households with rooftop solar installed and this is expected to grow in the coming years. The issue of excess solar energy being exported will worsen over time.

The University of South Australia (UniSA) is comparing rooftop solar installations compared to the usage patterns of consumers. UniSA see “the real challenge now facing the solar industry is finding ways to balance production and consumption by maximising self-consumption for the solar panel owner”. This has led to researchers exploring the orientation of rooftop solar panels, rather than to match the times of best generation but to meet patterns of consumption. Matching consumption will result in a reduction in overall energy generation but exports will be minimised.

The UniSA research found “by orienting panels in different directions rather than just facing the equator, it’s possible to minimise the shortfall between load and generation for a community precinct…This benefits the end-user by decreasing the amount of electricity required to be imported, and the stability of the grid by decreasing the amount of variability between peak and low loads.” The research found it was better to face the panels North West to match the afternoon loads. To optimise for the morning and afternoon consumption, by placing panels North East and North West, the load in the middle of the day was still met, but a greater proportion of the morning and afternoon load was also delivered from the solar panels.