SNOWY 2.0

With the release of the latest Electricity Statement of Opportunities (ESOO) some of the assumptions used in it have raised concerns of the viability of Snowy 2.0 and the impact it will have on security of supply for the market. Snowy 2.0 had been given the green light under AEMO assumptions even though the project would not have hit the hurdle rate AEMO uses for all other projects.  The second concerning point is when you build one of the largest generation assets in the country it is crucial that it is linked to the market via appropriate transmission lines. Information from transmission line providers suggests the full capacity of the powerlines will not be in place when Snowy 2.0 comes online. Our third concern is the cost of the new transmission line projects are rapidly rising. These costs will go directly to the end user.

Transmission provider TransGrid outlines information on HumeLink, the transmission line earmarked to connect Snowy 2.0 to the NEM. TransGrid estimates HumeLink costs have increased from $1.3B in the draft assessment to $3.3B. The more worrying statement is TransGrid saying the final cost could be up 50% or more.

Apart from HumeLink, to be full unconstrained, Snowy 2.0 will need the Victoria to NSW interconnector West (VNI West) transmission to be built. HumeLink is labelled the largest transmission project in history, VNI will be a similar size and most likely a similar price however costing have not been released.

The cost of these two transmission lines will eventually be passed down to end users via increases in transmission tariffs. Modelling has indicated that the $3.3B for HumeLink will add 40% to NSW costs. While these costs are met by all end users, large users will be impacted the most as these fees are paid for on a proportional basis.

Latest costing suggests HumeLink, VNI West and Snowy 2.0 has the potential to cost $12 billion. This will make Snowy 2.0 the most expensive generation and transmission project in history.

The question is, with far cheaper renewable projects that do not require 2 huge transmission lines to make them effective for system security, are there better options the federal government and the consumers of NSW could be spending their money on.

SOLAR SLOWING DOWN

Recent data shows there is a slowdown in the rooftop solar industry, and this is likely to continue as prices rise. Installations in August dropped, most likely due to the current lockdowns in NSW and Queensland. NSW installations have been the heaviest impacted followed by Victoria then the largely COVID free Queensland.

The early growth in the roof top PV market has gradually reduced with 2021 largely being flat across Queensland and Victoria. Early adopter states like South Australia are gradually declining due to early adopters reaching capacity. The growth in the early adopter segment is now replacement of existing systems with larger systems.

It is likely that the continued growth in states like Queensland are a result of COVID related home improvement plans funded by government financial stimulus.

Recent talk of a ‘sun tax’ has prompted people to install roof top PV before the changes occur while residents in SA would be concerned about installing a system that can be switched off when system conditions occur potentially leaving them exposed to high electricity cost. The other driver slowing the uptake of roof top PV is the lower feed in tariffs offered by retailers. The lower feed in tariffs do not make the installation of roof top PV as attractive and large-scale renewable energy should also bring down the retail cost of electricity.

With recent changes to the exchange rate the cost of imported panels will increase and as a result roof top installation will become more expensive. Higher installation costs and lower feed in tariff reduces the incentive for households to install solar.

As the number of installations drops, operational demand is less impacted during solar hours as consumption increases over time. Under the small-scale renewable energy scheme, liable entities are required to surrender the number of small-scale technology certificates (STCs) equal to that produced each year so as the number of certificates created each year increases the number of certificates they need to procure also increase. Any slowdown in the installation market may even reduce the percentage of certificates the liable entities need to surrender. STCs are likely to stay in their narrow trading range even if the number of certificates created each year fluctuates.

NEW RENEWABLES ON THE HORIZON

The next phase in the development of the renewable industry may just be about to occur. The Australian Energy Market Operator (AEMO) have been studying locations for new renewable developments. The majority of the market has been focusing on Renewable Energy Zones (REZ) on land but the solution maybe further off ashore. AEMO have located four offshore wind zones off the coast of NSW, Victoria, and Tasmania. The potential opportunities could add up to 40GW into the grid. To keep transmission costs down, AEMO have found locations close to land where significant ports are established that will allow the renewable output for the wind farms to be used at renewable hydrogen export hubs.

This year, AEMO updated its inputs into the Integrated System Plan and one of the significant changes from previous years is the volume of offshore wind availability. The 40GW identified is likely to be constructed over the next 20 years. At this stage the only offshore wind farm is the Star of the South wind farm located off the coast of Victoria and is likely to be 2,200MW. The Start of the South project is likely to connect into the grid via the Latrobe Valley and will feed in electricity as the coal fired generation in that region retires.

As the Hydrogen market also grows, offshore wind developers will focus on sites adjacent to the proposed hydrogen export facilities around Newcastle.

Offshore wind developers are concerned the legislation hurdles may stall the industry, so they are looking for support from governments to allow the industry to grow.

Oceanex Energy is looking to develop and construct up to 4 offshore windfarms off the coast of NSW with output likely to be over 7,000MW.

Oceanex Energy CEO Andy Evans says the clarity over the legislation is important given that project developers would likely need to spend up to $200 million to get a project to financial close.

He said it was an industry that would be likely dominated by major energy players – such as RWE, Iberdrola, Macquarie, and Equinox, along with big oil companies such as Shell and BP that are also expanding into offshore wind.

HYDROGEN PLANT CRITICAL

Andrew Forrest is one step closer to building a hydrogen fuelled power plant in NSW with the project being declared as a critical state significant infrastructure (CSSI) project. The CSSI status granted by the NSW Department of Planning, Industry and Environment show the $1.3B project has government support.

The duel fuelled 635MW power station is also hoping for support through the federal government’s Underwriting New Generation Investments scheme but at this stage no funding has been released to any project. The power plant forms just one part of Andrew Forrest’s plans for Port Kembla with his company Squadron Energy also developing the LNG import terminal.

The duel fuelled power station is designed to run on 50% green hydrogen but is likely to utilise the LNG available close by.

The Port Kembla power station is aiming for financial close by August 2022 and operational by Q125.

NSW Deputy Premier John Barilaro said the move to grant the project “critical state significant infrastructure” was driven by its “game changer” status in terms of supporting new renewable energy in NSW as coal power plants close.

The timing of this announcement is also good news for renewable energy project developers who have recently been invited to an expression of interest for the New England Renewable Energy Zone (REZ). The synchronous power station will not only provide an opportunity to burn clean green hydrogen but also provide much needed system strength services such as inertia.

The government has received 34GW of renewable energy interest which is 4 times the proposed capacity of the REZ. This has raised concerns from communities that fear over development of the area.

Matt Macarthur Onslow, from the Responsible Energy Development for New England, said the major expansion envisaged lacked “social licence”, and major divisions within local communities regarding renewables and concerns that they feel are being overlooked.

MORE WRITE DOWNS

In a sign that not only coal fired generators are impacted by changes in energy industry, last Friday more bad news came out the Australian Stock Exchange with Genex Power announcing a $16.5M write down on the value of its recently completed Jemalong solar farm due to dropping power prices.

In its FY21 results presentation, Genex Power outlined its revenue was underpinned by long term contracts for its operating assets and its projects in construct.

The Jemalong solar farm was completed on time and on budget so any losses could not be directed at this. The project located in western NSW was bought from solar developer Vast Solar.

The Jemalong assets were commissioned in July and are operating ahead of expectations however its recognition of the merchant revenue from the project in a falling market has caused value to be written down.

Despite the forecast for falling electricity prices, Genex is powering ahead with other developments including the Kidston Pumped Storage Hydro plant that will sit alongside the existing 50MW Kidston Solar farm that is planned to expand by a further 270MW in the future.

Genex is banking on the 250MW Kidston pumped hydro storage facility providing an arbitrage opportunity for the company as it can charge its storage by filling the upper reservoir during low day time prices and generate up to 250MW over the higher price parts of the day most likely the morning and evening peaks. If all modelling goes to plan Genex may also add up to 150MW of wind at the Kidston energy hub by 2025.

The company is also looking to diversify its portfolio geographically by installing a 50MW/100MWh battery at  Bouldercombe, in Queensland. The battery is likely to be operational by 2023 with the 250MW Kidston pumped hydro storage facility likely to generate by 2024.

NATIONAL CUSTOMER CODE – PROCUREMENT CHECKLIST

Edge2020 & Edge Utilities are proud members of the National Customer Code.

If you are considering using an energy broker or consultant to support you in your energy needs, please read this first – National Customer Code-Procurement-Checklist

This guide has been created by the National Customer Code for Energy Brokers, Consultants and Retailers to assist you navigate key terms and conditions in your energy procurement contracts to ensure that you are making informed decisions about costs, commissions and fee structures, including any ongoing fees and terms.

It also includes practical questions to ask your broker or consultant if you need more information.

If you have any questions about your energy needs, please call us on 1800 334 336 or email save@edgeutilities.com.au

 

END USER TO PAY TO KEEP COAL FIRED GENERATORS ONLINE

Large companies with coal fired generation are pushing for the market to pay them to remain operational rather than retiring their assets. As profit margins fall across the industry, owners of coal fired assets are hoping that households and businesses could pay them to stay available. End users would be hit with increases to their electricity bill if the proposed new subsidy is approved by state and federal energy ministers.

The Institute for Energy Economics and Financial Analysis (IEEFA) and Green Energy Markets have released costings for capacity payments made to thermal generators, under the proposed plan. The report indicates it could cost end users as much as $6.9B. Previous estimates put a cost on end users of between $182 and $430 a year.

Federal and state energy ministers met on Friday to discuss the Energy Security Boards (ESB) proposal for a ‘Physical Retailer Reliability Obligation’. The capacity payment would see large coal and gas generators receive payments to remain operational. The Morrison government hopes the capacity payment will prevent the early retirement of Australia’s fleet of coal fired generators.

The ESB developed the new mechanism following consultation with industry. In previous weeks the owners of the coal fired generators have been very supportive of the concept as many are facing financial difficulties on the back of falling wholesale electricity prices.

Apart from the physical presence of the coal fired generators on the grid to provide system security services it is also hoped that any payments could be used to improve reliability of the assets. Recently the AER raised concerns over forced outages of thermal generators.

Following the energy Ministers meeting it is understood that each state has a different view of the market post 2025.

The biggest areas of concern are over the concept of the capacity market and the proposal for a physical retailer reliability obligation. The states are concerned that end users will pay for the capacity and obligations, but the companies will spend excessive amounts of money on aging assets and the reliability of these assets will not improve.

AEMOs latest plans include a scenario to decarbonise the grid by around 2040 and is now putting together a more ambitious plan to meet the targets by mid-2030. A key to the success of AEMOs plan is the utilisation of new and existing transmission assets.

While AEMO pushes forward a plan for a grid capable of reaching 100% renewables, the federal government is lobbying the CEOs of the large coal fired generators to support the ESBs proposals and the inclusion of capacity payments.

Industry has labelled the capacity payments as “coal-keeper”, but a growing number of companies are pushing back on the concept. Even companies like Snowy Hydro, which is owned by the federal government fear an incentive like this will discourage investment in renewable energy and more new flexible technologies like battery storage.

The Clean Energy Council cautioned the market to look beyond the capacity markets and PRRO, and the “congestion management model”, and said it wanted to see more clarity about what is proposed for distributed energy resources.

On the flip side, the coal generation companies wrote to ministers urging that an “appropriate body” draft new rules on the PRRO or alternatives by June 30 next year.

The Minister for Energy and Emissions Reduction, Angus Taylor, released a statement late Friday saying that ministers agreed on the need for more design work on the mechanisms to support “dispatchability”, and a “final package” of reforms would be presented to ministers in late September.

BATTERIES THE END TO COAL GENERATION

Batteries could be the end of Origins Eraring Coal fired Power station. Following the announcement of Origin Energy’s $2.3 billion loss for the last financial year, Origin have announced they are close to “pulling the trigger” on its first big battery storage projects. Until now Origin has not embraced new technologies and focused on its existing coal and gas fleet of generators.

Origin CEO Frank Calabria said that it has several big battery storage projects in the pipeline, including at the site of the Eraring coal generator in NSW.

Origin has previously flagged plans for a 700MW battery co-located at the site of its Eraring coal fired power station in the Hunter region but now they say they are very close to “pulling the trigger” on the project. The battery is likely to co-locate at the site with the existing units closing by 2032 leading to further opportunities to expand the battery capabilities. Origin CEO said, “It’s just all timeliness right now, and we’ve got a number of sites ready to go,”.

Origin is also looking at a 300MW solar and battery storage facility in South Australia and is also looking at a big battery next to its Mortlake power station in Victoria.

Eraring coal-fired power station remains a challenge to Origin with its 2,880MW of generation exposed to the wholesale market until its retirement ear market for 2030. With the influx of cheaper renewable generation like wind and solar eroding value in the power station.

Along with other coal fired generators, Eraring is looking to increase the flexibility of the units to limit operation during low spot price periods when electricity prices are below its cost of production.

Eraring will be a major beneficiary of the schemes being proposed by the Energy Security Board (ESB).

Origin said that it would take advantage of the disallowed three-year window during which it could delay the surrender of Large-scale Generation Certificates under the federal RET, this will improve Origins financial position by up the $50M. This loophole will allow Origin to save on environmental purchases as the certificates are expected to fall significantly over the coming years.

Origins $2.3B loss is similar to AGLs $2B loss announced the week before. We are definitely seeing a major change in the energy market as it transitions towards renewables and storage, and away from coal and gas.

ALL COAL FIRED GENERATORS SUPPORT KEEPING COAL ONLINE

On Thursday last week, Australia’s largest energy company released its annual report. The 192-page document contains a lot of information but not a lot of good news for investors. One of the sections is titled “a year of continued evolution”, first there was the planned demerger, then the exit of its CEO following the demerger announcement, now to cap it off the news of on-going challenging market and operating conditions due to declining wholesale electricity prices.

The FY21 financial results demonstrate the huge reliance AGL has on the wholesale electricity market with profits dropping 33.5% to $537M. These results have not been favourable for investors with dividends also down to $0.75 per share.

Revenue from consumer customers increased 1.1% thanks to an increase in customer numbers but large business customers revenue fell by 12.4% because of COVID related consumption drops and finally there was a drop of 4.6% for wholesale customer revenue driven by lower volumes and lower prices.

With the restructure of the business, AGL is looking to lead into a new future. Part of the new future is the decarbonising of the business and the move towards renewables.

AGL Energy CEO has called for a national plan to phase out coal fired generation to protect consumers and jobs if the energy transition falls into chaos.

The concern for the industry is that events like the Callide C4 turbine failure or the flooding of the Yallourn mine could trigger price shocks and blackouts. Other concerns include the increased penetration of cheap renewable energy and batteries that will make coal fired generation uneconomic, leading to early retirement.

AGLs idea has been endorsed by the majority of companies with coal fired generation assets. The Energy Security Board (ESB) has also flagged a scheme may be required to enable the orderly retirement of assets while keeping the grid stable.

AGLs CEO said “a plan is needed that goes beyond the reforms proposed for the National Electricity Market to give certainty to industry, investors, consumers and others about the pathway towards the eventual shutdown of plants”. This is something that would work in Queensland that has historically been reluctant to announce the early retirement of power station following the impact on regional jobs.

Alinta’s CEO has supported the AGL idea. Alinta operates Loy Yang power station which supplies a large quantity of baseload electricity in Victoria.

Origin’s CEO also supports the plan, saying they want to avoid a messy transition to low carbon energy.

We all agree a transition plan to reach renewable energy and emission targets is useful for owners and operators of coal fired generation to manage the life of their plant, but we must remember the owners of these assets are ultimately responsible for the utilisation of their assets. If they are under financial pressure and the units are becoming uneconomic, they can notify the market and retire the units or simply mothball the units.

Apart from sudden shocks to the market like what occurred following the Callide failure, other units in the generation mix pick up the difference very quickly. If the market is working correctly, the lowest cost solution is always found.

The Energy Security Board is working on plan to transition to a low carbon market to alleviate the concerns of generators with other enhancements including a two-way market to benefit consumers.

It is understood the ESB is developing a strategic reserve mechanism for generators to ensure adequate supply and certainty of available capacity. This mechanism will include capacity payments for dispatchable generation to supply the much need system security service they provide rather than just the electricity they generate.

With increased pressure on the federal government to reduce emissions to meet net zero by 2050, coal will need to make room for renewable energy. The question is, should coal generation be pushed out based on economics or should the industry and ultimately end users’ subsidies the coal generators to keep the lights.

LIQUID BATTERY

Is metal battery technology the next game changer? Bill Gates has put some of his money behind the concept supporting a Massachusetts company to commercialise and grow its long duration energy storage systems.

Ambri has obtained $196M in funding from its largest shareholder, Bill Gates with Reliance Industries Limited from India and various other institutions including a Japanese Energy Fund.

Currently Ambri’s batteries have capacities of between 400kWh and 1,000kWh. 250kW batteries can provide storage from 4 to 24 hours.

Liquid metal batteries are constructed of a liquid calcium alloy anode, a molten salt electrolyte, and a cathode comprised of solid particles of antimony. The material used in the construction are relatively low cost and easy to assemble keeping the overall price down.

Ambri claim calcium and antimony electrodes are less than one third the cost of lithium, nickel, manganese, and cobalt currently used in lithium-ion batteries.

The new battery technology is also likely to last 20 years with very little performance degradation over time.

Batteries are likely to cost up to 50% less than equivalent lithium-ion systems from 2022 to 2030.

The longer-term plan for Ambri is to construct high volume manufacturing facilities in the United States and globally while in the short-term Reliance New Energy Solar will develop and manufacture the batteries in India.