FEDERAL FUNDING WITHDRAWN FOR WINDFARM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.

GOVERNMENT CONTINUES TO KEEP ITS FOOT ON THE GAS PEDAL

Tomorrow night the federal government is expected to announce $58.6 million in funding to drive its gas-led recovery. Prior to the budget, on Friday the federal government released its interim National Gas Infrastructure Plan that advised where the funding would be used.

Building on Australia’s gas fired recovery plan released in September 2020, the interim report outlines $38.7M will be spent on early works to support critical gas infrastructure projects, $3.5M for the development of a long-term Future Gas Infrastructure Investment Framework, $4.6M to develop initiatives that empower gas reliant businesses to negotiate competitive outcomes, $6.2M to design, consult and implement reforms to continue accelerating the development of Wallumbilla as Australia’s Gas Supply Hub and $5.6M to develop a further National Gas Infrastructure Plan for 2022.

This funding is to ensure there will be enough supply to meet demand on the east coast gas market, part of the funding could go to Australian Industrial Power, a company setup to build a gas import terminal and power station at Port Kembla.

Other beneficiaries of the funding include the Golden Beach gas production and storage project in Gippsland, Victoria that could receive a short-term loan of up to $32 million and support for a business case for the expansion of the South West pipeline. The South west pipeline will allow additional capacity to be used at the Iona storage facility. These projects are expected to deliver 1,000 new jobs.

Modelling for the Interim National Gas Infrastructure Plan continues to show a potential shortfall in gas supply by 2024. These shortfalls are expected to occur during peak demand times so as a result funding is designed to stimulate the availability and reliability of high gas volumes close to the demand centres at very short notice. The report also noted the requirement for supply flexibility.

Pipeline developers are concerned that funding for an LNG import terminal will take the focus away from the existing Australian resource projects.

The final National Gas Infrastructure Plan is due by the end of the year and pipeline developers such as the Hunter Gas Pipeline are increasingly frustrated as they have to wait until the final plan to see if they can receive support to build a new pipeline from Queensland to Newcastle.

Other developers are concerned projects such as a pipeline in the Bowen basin should be fast tracked to allow the export of up to 15,0000PJ.

Australia’s first net zero emissions, hydrogen/gas power plant gets the green light.

EnergyAustralia has announced that the expansion of its existing Tallawarra power station in the Illawarra region is proceeding, following an agreement reached with the Government of New South Wales.

Tallawarra B will be Australia’s first net zero emissions hydrogen and gas capable power plant, with direct carbon emissions from the project offset over its operational life. EnergyAustralia will offer to buy 200,000kg of green hydrogen per year from 2025.

The 300+ megawatt power station will be powering New South Wales homes and businesses in time for summer, following Liddell power station’s retirement.

Not only will the new power station deliver reliable power to around 150,000 homes but it will also contribute $300 million to the economy and create 250 well-paid jobs during construction.

“EnergyAustralia has a goal of being carbon neutral by 2050. Today we provide further evidence of another energy project that can help keep the lights on for customers with reliable, affordable, and cleaner energy,” Managing Director Catherine Tanna said.

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

ORIGIN DEMERGER

Last week it was AGL. Is it now Origin Energy’s turn to announce a demerger?

On Thursday Origin Energy’s CEO put an end to the speculation, saying that they would not be taking AGLs lead and demerging their business for now.  In the announcement, AGL’s rival highlighted the benefit for the company to stay whole, but to diversify their earnings.

Commentary around the potential demerger has been highlighted by Edge and others over the last couple of months. Edge saw an opportunity for Origin to either spin off its retail business or split the business into 2, being electricity and gas.

Origin is a complicated business, operating across both electricity and gas, and across wholesale and retail. Parts of the business are also tied up in joint ventures such as the LNG export terminals in Australia and its part share in Octopus Energy in the UK. Origin has reported that it ‘‘will continue to assess the portfolio’’.

Origin’s structure is different to AGL’s.  Origin’s LNG business is currently propping up its domestic gas and electricity business units. If the pressure from a dropping international gas price puts stress on LNG returns, we may well see Origin have a closer look at its portfolio and structure.

Currently the APLNG venture returns $800M to Origin after tax.

CEO Mr Calabria said “Origin’s energy market business already looks very much like the ‘’new AGL’’’, with the notable difference that Origin has a more gas fired portfolio, with Eraring (the only coal unit) flagged to shut down from 2030.

Mr Calabria has also shown limited expectations in the short term for the energy industry, unless we see hotter summers leading to higher demand or the shutdown of coal power generation as a result of the unsustainable low spot prices.  He remarked that the market is in an ‘‘unstable equilibrium’’ as an increased amount of renewable generation enters the market and the resulting wholesale prices squeeze profits of the generators and retailers.

As we move through this unstable equilibrium, Origin sees opportunities for State governments to take NSW’s lead and introduce policies to motivate investment rather than wait for increases in spot price.

NB: Spot prices have historically been the leading indicator for investment in new generation. If government led roadmaps became predominant, it may lead to a smoother transition to a renewable future and the orderly retirement of coal and gas generation.

So, with APLNG subsidising Origin’s other business streams we are unlikely to see a demerger, but can Origin utilise this upper hand in the market to push out the competition – demerged or not?

CARBON PRICES INCREASE

As the next round of auctions are set to take place under the Emissions Reduction Fund, prices for Australian Carbon Credits (ACCU) have increased steadily since January and are now trading at $18.40 per certificate, 10% higher than in January.

The growth in the ACCU market is partially from the Federal government’s Safegaurd mechanism, but also due to an increasing number of companies implementing zero emission targets and using ACCU’s to offset their emissions.

As more companies choose to aim for a net zero emission position, the supply / demand balance in the ACCU market has shifted and the price of the commodity is increasing. Some forecasts predict ACCUs could reach as high as $45 per certificate by 2030.

The biggest jump in the price for ACCUs was recorded in February when the Prime Minister endorsed a net zero target by 2050.

As highlighted in previous articles, many companies are responding to shareholder pressure to reduce emissions and decarbonise.  The European market, Emissions Trading System (ETS), a block of 27 countries, has seen EU carbon permits jump from €23 in November to €41 in March.  They were trading closer to €5 only two years ago. The price increase has been the result of the EU’s tougher climate change policies.

Large emitting companies had until February 2021 to purchase their ACCUs to comply with their Safeguard liabilities, hence the  increases in price. However as seen from the chart above the prices of ACCUs has remained high. This leads to the assumption that voluntary purchases of ACCUs are maintaining upward pricing pressure.

Across Australia, large emitters such as AGL have been joined by large energy users including the Coles Group and Woolworths to commit to net zero greenhouse gas emissions by 2050. Other large gas and petrochemical exporters have started to sell carbon neutral LNG and other carbon neutral products, this is achieved by carbon offsets such as ACCU’s.

As the demand for carbon offsets increases the ACCU price is likely to continue to rise until cheaper abatement solutions develop such as improved farming practices resulting in improved soil carbon storage and broad acre management such as Savanna burning.

Common to all markets, the offset market is currently in a state of flux.  Demand will most likely increase the price of ACCUs while new project and pressure from international carbon offsets will put downward pressure on prices. The positive takeaway is businesses are clearly proactively moving to reducing their carbon footprint.

What are you doing to reduce yours?

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.

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.