EDGE IS HELPING BUSINESSES TO STEP UP THEIR CLIMATE EFFORTS

The world is changing……………………. you only have to look out the window, 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 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 our clients. We have developed sophisticated mechanisms to provide the client with access to renewable energy, environmental certificates and emission offsets while managing the price risk and uncertainty in the energy market.

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.

MULTIPLE UNIT TRIPS, CAUSE BLACKOUTS IN 375,000 QLD HOMES AND ENERGY PRICES TO RISE.

Apart from the power going out in 375,000 Queensland homes we would not have seen any real impact on the NEM as prices remained stable as supply and demand was managed by AEMO.

AEMO published a market notice at 2:21pm advising of the power event at H24 Calvale.

H24 Calvale substation is next to Callide Power stations, which connects to the 275KV transmission line that links Callide in central Queensland via Tarong into South East Queensland.

As a result of this transmission line outage, all the power from central Queensland was redirected down the transmission lines closer to the coast.

Following the simultaneous trip of the Callide units, Stanwell power station also tripped.

Initially there were various rumours regarding the cause of the failure including:

  • explosions at Callide
  • a fire in the turbine hall
  • a fire at the substation

It is now becoming evident that the cause could be a fire in the turbine hall at Callide. The station has been evacuated and emergency services are on site.

At the time of writing this update, 4:30pm, the Callide units have not returned to service however, Stanwell is gradually returning 3 of its 4 units to service.

As demand increases, solar generation diminishes, and thermal generation slowly increases the market has been put under stress. This has resulted in several price spikes and increasingly higher prices.

As we move into the evening, predispatch shows the price is likely to hit over $14,000/MWh for the next couple of hours, however this is unlikely to occur as the gas turbines and other coal fired generators increase their output.

Tomorrow when all the market data is published, we will provide a more accurate update on what is currently occurring.

Update:

  • At 16:13 AEMO flagged its intension to negotiate with RERT panel members for additional generation between 17:30 and 20:00.
  • At 16:16, AEMO notified the market that the transmission line out of H24 Calvale had been returned to service, this will allow generation to flow unconstrained.
  • It looks like 3 Gladstone units also tripped following the event at the same time as the Stanwell trips.

RENEWABLE GAS IN THE PIPELINE

Australia’s largest electrolyser has started producing green Hydrogen which will be distributed through the gas network. The 1.25MW electrolyser is located at the Hydrogen Park South Australia (HyP SA) which forms part of the Tonsley Innovation District south of Adelaide.

The facility received $4.9M of funding from the SA government under a grant to leverage its renewable infrastructure to be a world class renewable hydrogen supplier.

The facility is operated by Australian Gas Networks (AGN). Its parent company Australian Gas Infrastructure Group sees “green hydrogen” as a potential saviour for its sunk investments in gas pipelines.

The green hydrogen will be blended at 5% with conventional natural gas and distributed through the existing gas network to 700 homes. Longer term plans are for the percentage of hydrogen to be increased to 10% and extending the pilot to more end users.

Emission reductions from 5 or even 10% hydrogen will not result in house holders reaching net zero emissions, but it is a start for people that want to remain with gas usage for heating and cooking. To reach net zero emission it is likely that gas appliances will need to be replaced by renewable powered electric devices.

In the rapidly changing energy mix, AGN must adjust its business model to prevent its assets from becoming stranded due to the shift to renewable electricity. AGN is marketing the 5% gas blend as renewable gas and clean burning gas.

The renewable hydrogen plant will cost $14.5 million and can produce 20kg/hr of green hydrogen with onsite storage of 40kg. In one of the driest states of Australia it is also noted that it takes 15l of water to make 1 kg of Hydrogen.

SA wants to become a green hydrogen powerhouse with plans to export green hydrogen via three new hydrogen hubs. To power the electrolysers capable of producing the required volumes of green hydrogen for export will need 12GW of renewable energy.

Apart from the reticulation of the green hydrogen gas blend, the facility is using BOC to transport the green hydrogen by road to industrial customers in Whyalla. Previously BOC transported hydrogen from its Victorian manufacturing facility. BOC will use hydrogen tube trailers to transport the gas from the Tonsley facility saving 117,000km in annual driving and 122,000 kg of carbon emissions per year.

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.