BILLION DOLLAR GREEN ENERGY HUB

Spark Infrastructure, the partial owner of SA Power Networks, Transgrid, Powercor, CitiPower and the Bomen Solar farms is looking at developing a 2.5GW renewable energy hub in the middle of the South West Renewable Energy Zone (REZ) in NSW.

The Dinawan Energy Hub is strategically situated along the route of the planned interconnector between South Australia and NSW. The EnergyConnect project will be a 330KV interconnector running between Wagga Wagga and Robertstown in South Australia and will open up more than $20B of new renewables projects.

The Dinawan Energy Hub will be located halfway between Coleambally and Jerilderie and due to its location will support the existing network and the Humelink and Karanglink interconnectors.

The hub is expected to be completed by 2025 and is expected to include 1GW of wind, solar and battery storage. The $1.5B project will be undertaken in stages with the first stage expected to

commence construction in 2024.

Spark Infrastructure have completed the project identification stage of the development and now will undertake engineering studies and community consultation. The final investment decision is expected in 2024.

In some ways the Dinawan Energy Hub will compete with the NSW government’s plans to develop the REZ however Spark infrastructure believe the REZ and the energy hub can be developed together.

Spark Infrastructure is also in the news with a potential takeover bid for the multi-billion-dollar business.

Leading global investors including Kohlberg Kravis Roberts (KKR) and Ontario Teachers’ Pension fund have showed interest in investing in renewable energy and infrastructure projects in Australia.

It is understood these investors are looking at investing $5B to take over Spark Infrastructure.

If the takeover goes to plan, KKR and Ontario Teachers’ Pension Plan may add the Australian market to their target markets having recently bought a stake in Finland’s largest electricity distributor. KKR is also in the process of buying John Laing, a developer with interest in renewables assets in Australia.

AGL DEMERGER

Last week AGL shared its plans to split the existing business into two. The announcement on Wednesday was not taken well by investors as shares dropped 10% when chairman Peter Botten made the announcement. The share price continued to fall through the week closing on Friday at $8.13 well below the $17.72 price a year ago. Investors are concerned that the two entities will lack the financial capacity to grow the businesses.

Accel, the coal fired part of the business will be led by current AGL CEO Graeme Hunt while Christine Corbett will run the retail business. Accel will earn its returns from carbon intense assets so institutional investors are steering clear of the business, Accel will also retain a 15-20% ownership of AGL Australia. Apart from a lower share price pushing investors away, it is also expected dividends will continue to fall for the 2022 financial year. AGLs retail business will retain the clean energy assets and the retail business.

The previous CEO of AGL Brett Redman proposed the demerger to evolve the business in a rapidly changing marketplace. Prior to the demerger AGL had consolidated to form a vertically integrated business, this worked well over recent years however the business structure is no longer optimal.

Customers are after a cleaner alternative to coal fired generation so the retail business that will retain the customers will be merged with the carbon neutral portfolio of assets resulting in customers sourcing their power from cleaner green generation sources.

While AGLs demerger does not seem to be seen by investors as a positive direction, Edge has previously highlighted that the splitting up of generation businesses is gaining momentum overseas with many fossils fuelled businesses creating businesses to develop a green focus and meet the customers’ demands. Time will tell if the demerge strategy will benefit to AGL.

Despite the negative outlook for Accel with its fleet of coal fired assets there is a positive light at the end of the tunnel. As the existing coal fired assets are retired Accel will retain their key location on the grid. Their favourable locations on the grid will allow Accel to transform the connection points from a high carbon emitting locations to low carbon hubs as new cleaner generation and storage is installed.

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.

Edge News – May 2021 Newsletter

Electricity prices are market driven, and markets respond to price drivers. Too high, respond with action that drives them lower. Too low, respond with action that makes them higher. Sounds simple yes? Add in policy uncertainty, ongoing network capacity issues, and a genuine sustainability movement, and it’s not that simple at all.

We look at Q1 2021 electricity prices. Why they did what they did. What the real drivers are. Where they can go in 2021, and beyond.

We also look at Sustainability. In as little as 12 months it feels like we’ve seen Sustainability go from a compulsory annual report to a real movement with real action and actual commitments.

TAX ON ELECTRIC VEHICLES (EVs)

The Victorian government has introduced a Zero Emissions Vehicle (ZEV) Subsidy. The subsidy is designed to reduce the cost of purchasing an ZEV. ZEV’s, which are more commonly known as Electric Vehicles (EVs) are increasing in popularity and the Victorian government would like to see Victorians choosing to buy an EV sooner. Buyers of electric and hydrogen vehicles will be subsidised with the goal of achieving half of all new cars sold to be zero-emission by 2030.

The subsidy is part of the Victorian Government’s Zero Emissions Vehicle Roadmap, a $100 million plan to fast track the transition to ZEVs. To achieve the 50% ZEV target, $46M of funding has been allocated to support the purchase of 20,000 ZEVs. The first round includes 4000 subsidies of $3,000 to reduce the up-front cost of an EV. Further rounds will subsidise a total of 20,000 EVs over the next three years.

Victorian residents and businesses can apply for the first round of the subsidy, with electric or hydrogen vehicle purchases up to $68,740 before on-road costs eligible for the subsidy. More expensive EVs, hybrids, zero-emission motorcycles or heavy vehicles are not eligible at this stage.

The Victorian government has also committed to buying $10M worth of zero-emissions cars over the next three years, this will equate to about 400 vehicles. $19M of funding has been allocated to building 50 EV charging station throughout Victoria.

Previously, the Victorian Government released plans to tax EV drivers 2.5 cents per kilometre driven each year to counteract the expected loss from fuel excises.

An average driver covers 15,000km each year so, the extra 2.5/Km would cost EV drivers an extra $375 each year on top of registration. These changes will take effect from July 2021.

FEDERAL FUNDING WITHDRAWN FOR WINDFARM

The Northern Australian Infrastructure Facility (NAIF) is a $5B government backed financier that provides loans to infrastructure projects in the Northern Territory, Queensland, and Western Australia. NAIF’s mission is to be an innovative financing partner in the growth of northern Australia.

South west of Cairns, developers plan to build the Kaban Green Energy hub.  The hub will consist of 157MW of wind turbines and a 100MW battery. This project was to supply clean energy and support local employment during construction and the ongoing operation.

The $340M project has reached the due diligence stage of its application for a $280M loan however the federal Resources Minister has vetoed the projects application.

The deal had been finalised by the NAIF board in January however the Federal Resources Minister Keith Pitt vetoed the deal at the last minute. The Minister stepped in as he did not believe the project would help deliver lower power prices to the National Electricity Market.

The NAIF has supported $2.9B of projects, forecast to generate $9.4B in economic benefit, and supporting around 9000 jobs. Queensland has received $1B in investment through the NAIF and this will be used to develop 10 projects.

STANWELL CEO RESIGNS

Just days after the shock announcement that Brett Redman was leaving his role as CEO of AGL, Richard Van Breda, CEO of Stanwell has also resigned.

Richard has been the CEO of Stanwell since 2012 and has led the company through many challenges including potential asset sales, the retirement of Collinsville and Swanbank B power stations, droughts, a drop in the spot and contract prices and COVID-19.

Earlier in the week Richard announced that Stanwell had long term plans to transition from a largely coal fired generator to a renewable energy and storage business.

He said, “We are taking early steps to bring our people, communities, unions and governments together to put plans in place.”  Mr Van Breda also said  “Over the coming years, Stanwell will respond to the renewable energy needs of our large commercial and industrial customers through the introduction of new low or zero emission generation technologies”.

Mr Van Breda will continue full time in the CEO role until May 28 when an Acting CEO will take over and the process to recruit a permanent replacement will commence.

ORIGIN DOWNGRADING

With the downturn in the Electricity market, most companies are finding it hard to make a profit. As a sign of things to come Origin Energy has downgraded its guidance for full-year profit.

Previously, Origin had highlighted it was partially insulated from the impacts of the Electricity market downturn. However, following a ruling on a gas dispute with Beach Energy, this has resulted in Origins gas supply costs increasing by up to $40M this financial year, then increasing to $80M the following year. The dispute occurred due to Origin and Beach Energy not being able to agree on pricing under the contract which is reviewed every three years.

Origin has previously amended its guidance for gross earnings to $1.14B, with earnings expected to be $1.02B. As a result of this news, shares in Origin dropped 4.5%.

Beach Energy is a major supplier of gas to Origin.  The gas pricing determination will affect the cost of gas and impact the profits from Origins network of end users and power generation assets.

Origin’s coal fleet profits have been impacted as wholesale prices fall. Origin was hoping gas would be the solution to it’s drop in profits. Chief Executive Frank Calabria said the company is “disappointed in this decision which we believe is wrong and entirely inconsistent with our prior experience in the gas market”. “This will result in a gas price that does not reflect market prices, and it is therefore a very poor outcome.”

Origin will still benefit from the performance of Australia Pacific LNG which Origin owns 37.5% of and is expected to return cash distribution of $650M.

Origin guidance of “challenging” conditions in energy markets remain unchanged and expect returns not to improve in its electricity and gas businesses until the 2022 financial year