POWER BILL ON THE WAY UP

With Australia moving back to more lock downs it is interesting to see how COVID is impacting individual households.

Household electricity use has increased by 10% as people have been working from home and as a result household power bills increased by 7%. The bill increases are related to the increased consumption even though the underlying wholesale electricity prices have dropped by 4.8%.

The Australian Competition and Consumer Commission (ACCC) reported that even though household consumption increased it was at the demise of small business electricity use which decreased by 17%.

With wholesale prices dropping they are putting pressure on the profits of the retailers but despite the pressures the ACCC expects household bills to drop further as the wholesale prices flow through to the end user.

Low spot prices following COVID and the penetration of renewable energy triggered profit warnings from Origin Energy, AGL Energy, Stanwell, and Energy Australia.

As safeguards end on 1 July, the ACCC has warned retailers they are obliged to pass on the lower wholesale prices. This is despite the increases experienced in May and June when spot prices increased following the failure at Callide power station.

The “big stick” legislation that started in June 2020, obligates retailers to adjust their prices in line with their costs of securing electricity.

The ACCC is currently investigating several electricity retailers’ prices to see if recent wholesale price reductions were being passed on to consumers.

PIPELINE RUNS DRY FOR WIND

On Friday BloombergNEF released its latest Global Wind Market Outlook. It showed wind farm development has slowed in Australia with no wind farm project reaching financial close to date in 2021.

Delays in the projects are resulting as investors are more cautious to put money into projects that could be exposed to lower spot prices and potentially constrained off due to the continuing network challenges. In the previous your Covid-19 impacted our lives and slowed developments. Last year only 449MW of wind projects reached financial close, significantly lower than the boom year of 2018 when 2,500MW reached financial close.

Based on AEMO data, there is substantial pipeline of wind projects under construction across the NEM with 3,600MW being built. Many of these projects are experiencing delays due to the approval of connection agreements in some cases requiring additional infrastructure to be added.

BloombergNEF analysis predicts up to 700MW of generation could be delayed and not see first generation until 2023. It is understood we may see some progress in wind farm development before the year is out, with the MacIntyre wind farm and the Kaban Wind farm both approved by AEMO, the next barrier is financial close.

As system strength increases across the NEM due to greater interconnection and more stringent connection requirements the flow in the pipeline will increase. With the announcement of Project EnergyConnect which will link between South Australia and NSW it is expected to lead to more than $5B in new projects.

NSW is adding new Renewable Energy Zones (REZ), and these REZs are expected to allow up to $30B of new projects, however development has stagnated as developers wait for the REZ roll out.

While lower electricity prices are good for end users, the low-price environment is making investors nervous resulting in banking a project hard to achieve. With the power purchase agreement (PPA) market seeing more interest from large companies looking to reduce their carbon footprint we will continue to see deals being done and projects starting to be built through the remainder of 2021, 2022 and beyond.

Edge News – June 2021 Newsletter

As we head into a new financial year consider the usual activities at this time of year. Consumers on financial year contracts would (should!) be recontracted by now, leading to a temporary decrease in demand for forward contracts from a consumer perspective. Wholesale contract traders will be squaring away positions for financial year end, so we should expect some profit taking from those in long positions and vice versa!

One thing we all know with contracting energy… timing is everything!  Edge2020 clients provide tips on how to contract better.

We’ve been working with some amazing clients these past couple of months, and we highlight one in particular who was an absolute pleasure to work with (and who we helped save nearly half a million dollars).

We also review Callide – what happened and what now?

COAL FIRED GENERATION SHUT DOWN

Just weeks after the evacuation of Callide Power Station we have seen another thermal power station evacuated and units shut down.

Yallourn is the latest coal fired power station to be taken offline as it has been impacted by the flooding in Gippsland’s Latrobe Valley. The flooding has stopped production at the Yallourn Coal mine. The power station, operated by Energy Australia, has been operating at minimum level to conserve coal and this will continue until coal production resumes.

Part of the coal conservation strategy has been to shut down units and operate the remaining unit at minimum levels. This is not the first time Yallourn has been impacted by flooding. In 2012 the nearby Latrobe River broke its banks and water flowed into the mine shutting down operations for weeks.

Unlike the situation we had in Queensland a few weeks ago, there was no need for load shedding.  AEMO made a statement outlining there was no supply problem in Victoria. The six remaining coal fired units at Loy Yang remain online and not materially impacted by the flooding.

As occurred in Queensland, other generators filled the supply gap, Newport Gas fired station ramped up as Yallourn shut down units. Jeeralang power station operated at full capacity over the following evening peaks after the Yallourn units were taken offline and other units adjusted their bids to generate more if required.

Similarly, to the Queensland event, when the thermal units were taken offline there was insufficient renewable generation to fill the gap resulting in gas powered generation filling the shortfall.

RENEWABLE ENERGY ON WOOLWORTH’S SHOPPING LIST

Woolworths have signed a 10-year agreement to purchase electricity from the Bango Wind Farm. The new 82.8MW wind farm is located in New South Wales near the town of Yass.

The output from the wind farm will cover about 30% of Woolworths NSW electricity needs which will be used to provide renewable energy for 108 supermarkets and offset 158,000t of emissions each year.

The project being developed by CWP Renewables is expected to commence supplying electricity under the PPA in January 2022.

Woolworths has a target to move to 100% renewable electricity by 2025 as part of its larger ambitions to become carbon neutral and then take more carbon out of the atmosphere than they produce by 2050.

Woolworths operate in an energy intensive sector with supermarkets consuming large quantities of electricity. They implemented strategies to use their scale to benefit the community and the environment. Woolworths prioritise their support for new renewable energy project builds which invest in renewable energy while also supporting jobs in regional areas.

The Woolworths Group accounts for around one per cent of Australia’s total energy use. Woolworths continues options to invest in more renewable projects and is also looking to partner with energy retailers on new build renewable projects. Woolworth procurement strategy will assist in accelerating the availability and affordability of renewable energy for all Australian households and businesses as it continues its target to converts to 100% renewable sources by 2025.

The 100% renewable energy target by 2025 will support Woolworths’s transition to its carbon reduction target of 63 per cent by 2030.

Apart from the use of renewable energy in its supermarkets, Woolworths have also reduced its carbon footprint by around 25% by using energy efficiency initiatives such as converting its supermarket lighting to LEDs and optimising its air conditioning and refrigeration systems.