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.

THE EDGE ENERGY MANAGEMENT SYSTEM

Edge has invested heavily in bespoke infrastructure and specialised personnel to develop systems that allow Edge to receive data electronically and process that data for analysis, forecasting, reporting and snapshots. The ability to store and receive data with immediacy means we can supply data to you directly or via our online portal, EdgeLIVE.

ONLINE PORTAL – EDGELIVE

EdgeLIVE is a secure cloud-based information portal that gives you instant access to contracts, portfolio information, reports, data and so much more. The portal provides you with the information you need to make informed choices regarding your energy portfolio.

EdgeLive allows you to use interactive graphical dashboards to view your consumption and costs. The functionality of the dashboard allows you to drill down to specific sites, regions, or filter the data to specific criteria that is important to you.

THE EDGE ENERGY MANAGEMENT SYSTEM (TEEMS)

Edge has built bespoke proprietary in-house systems to efficiently and effectively manage the entire portfolio.

TEEMS also ensures we meet the highest quality standards expected not only by ourselves, but as required under our QMS and ISO certification.

TEEMs is utilised as follows:

  • storing details relating to your energy portfolio, down to individual site details such as tariffs and rates;
  • validation of meter data, ensuring that any data received through our FTP servers is qualified (actual / substitute / missing), and data quality issues are raised with relevant meter providers / data agents to ensure timely resolution;
  • receipt, calculation, and reconciliation of invoices – with site costs calculated from first principals efficiently and accurately (as per TEEMS’ billing engine capability);
  • calculation of accrual and cash call reporting (on any day) – with month-to-date actual data extrapolated to full month data sets for accurate forecasting;
  • calculation of snapshot reporting (budgets) – marked-to-market each day;
  • distribution of all reporting;
  • logging of all contracting recommendations for each client portfolio and reasons for recommendations to be progressed or not (this includes all recommendations to buy or hold in scheduled weekly or monthly reporting);
  • capturing of all deals, to ensure adequate tracking of deals and associated documentation, and to ensure all account and portfolio management reporting is from a single data source with portfolios accurately marked-to-market each day.

If you would like to view a demonstration of EdgeLIVE please email us and a demonstration user log in can be sent to you.

E: save@edgeutilities.com.au or P:1800 334 336

 

ORIGIN STILL IN THE RED

More bad news for electricity retailers with Origin Energy announcing an impairment of $1.6B after further writing down the value of its generation assets and reducing the value of its renewable energy contracts.

In a statement, Origin said the write downs were a result of falling wholesale prices, mostly driven by the influx of new wind and solar projects. High gas prices also reduced the returns from their fleet of gas-powered generation.

Origin owns the largest coal fired generation unit in the NEM, so the market pressures weighed heavily on the balance sheet. Origins large exposure to the non-renewable segment of the market through its Eraring coal fired power station which resulted in a $583M post-tax impairment. This comes because of Origin’s assumption of a lower outlook for wholesale electricity prices driven by new supply expected to come online, including both renewable and dispatchable capacity, impacting the valuation of the generation fleet, particularly Eraring Power Station.

Eraring is expected to be the cause of much of the impairment, but the gas-powered generation (GPG) units did not fair much better. The GPG were affected due to the increased cost of gas and the decrease in the spot and contract electricity market price.

Strategically Origin has chosen to source renewable energy through PPA rather than build physical generation so are not exposed to the physical renewable market. Origin was an early mover in the renewable PPA space so the PPA’s on their books are very expensive compared to what the market offers are today. This has resulted in Origin writing down some of the value of these existing PPAs.

Origin says it will write down $995M in value of goodwill for these renewable PPA’s and the gas contracts that are out of the money. Origin expects the spot market price to be up to $20/MWh below where they previously anticipated the price to be.

Origin expect their FY2022 profits to be lower than expected at $450- 600M which will again be largely supported by the LNG export part of the business.

On a positive front, Origin expects the market to recover in FY2023 where earnings are expected to increase by $150-250M on the back of a material rebound in energy market earnings.

NEM BACK IN BLACK

On Wednesday last week the Energy Security Board (ESB) released a statement outlining that they had finalised advice on the redesign of the national electricity market (NEM) and handed the report to the Energy National Cabinet Reform Committee. This advice comes from a 2019 request to redesign the market to support the orderly transition to a modern energy system that allowed a rapid increase in the growth of large and small scale renewable energy.

Details of the advice is not publicly available but wording in the media release indicates that coal fired generation will play a key role in the transition. The statement outlines that there must be a coordination of the exit of aging coal fueled generation to maximise the opportunities and minimise risks associated with the transition to deliver affordable, smart, and clean energy.

The ESB consulted widely with industry stakeholders, conChanges to the generation mixsumer bodies, academics, government bodies and interested parties over the last two years. An options paper was released in April and the final advice is expected to closely reflect the options discussed.

Key areas we expect to be tackled in the final redesign advice is preparing for the older coal fired generation retirement, backing up power system security, unlocking benefits and opening the grid to cheaper large-scale renewables.

In preparing for the retirement of the older coal fired generation, the ESB want to give an incentive for the right mix of resources including renewables and non-renewable generation. This was to restore confidence in consumers that energy will be available when required and the mix will include intermittent generation like wind and solar as well as firm dispatchable generation like gas.

To tackle the need for a more secure power system, the ESB will require different ancillary services like inertia, voltage, and frequency control. A market for these services will be required to ensure the procurement and dispatch of these services save money while keeping the network electrically secure.

Further work will also include unlocking the benefits for all energy consumers to gain the advantages of rooftop solar PV, batteries, and smart appliances. Improvement in these areas may also include how consumers source their energy.

As generation is only part of the equation the need to reform the way electricity is transported is also a key redesign topic. Upgrading the network with the construction of transmission lines will reduce congestion and allow cheaper generation to be built in regional areas and improve the diversification of the grid by opening up more geographic locations.

The question most end users are asking is who is paying for all these improvements. As usual the end user will pay. The ESB is understood to be recommending capacity payments for electricity generators to remain online. These generators are likely to be the older coal fleet so consumers will be paying to keep higher carbon intensive technologies online rather than supporting renewables.

This situation will pay generators an available payment to generate when required. In reality, these units will not generate unless the market is at the point of load shedding.

Capacity payments are used in the Western Australian electricity market, under their current arrangements, generators receive capacity credits in line with their units generating capacity.

In the NEM if capacity payments are introduced, they will essentially offset the Reliability and Emergency Reserve Trader (RERT) costs currently used to provide a similar service.

EDGE NEWS – JULY NEWSLETTER

In this issue we look at the following;

  • We recently contracted 3 of Brisbane’s Largest Towers. How do we do it?
  • What is causing the increase in the spot &futures market prices?
  • What is aggregated electricity procurement and should you do it?

National NAIDOC week was celebrated during July and Edge acknowledge the Turral and Yuggera peoples as the traditional owners of the land on which our offices sit. We pay respect to elders past, present and future.

CHANGES TO THE GENERATION MIX

Last Tuesday saw a new record set for wind powered generation with NEM wide production reaching 5,899MW late in the afternoon. Wind made up 20% of the total generation at the time and on occasion peaked to 26% of NEM wide generation. As seen from my market commentary in recent weeks we have seen large fluctuations in available generation from intermittent sources such as wind and solar. In the past 6 months although peak wind production reached 26% it has also reached a low of just 2%. As more wind farms come online and are built across different regions, we will see more diversification of output. Currently Victoria leads the pack with the most wind generation followed by NSW and SA with TAS and QLD only contributing small amounts of wind generation.

In line with the increase in renewable generation, last year operational demand increased by 350MW primarily driven by cooler Q2 conditions and the opening up of the economy following the Covid lockdowns the previous year. LNG export prices have also increased as the world economy improved, this led to an increase demand in QLD for electricity in the gas production value chain. Overall wind and solar generation have reached record highs peaking at 57% market share in April.

Although the average operational demand has grown, the increased penetration of roof top PV reduced demand by 298MW between 10:00 and 14:30. Generation from intermittent sources such as wind and solar reached a record 7,368MW in the second quarter, 457MW more than the same quarter a year ago.

Coal fired generation dropped for a few reasons over the quarter, initially coal generation was being offset by renewable generation then interruptions in coal supply and unit failure lowered production.

The largest contributors to these reductions where Victoria’s Yallourn power station where flooding in the neighbouring mine reduced the output and a catastrophic failure at Queensland’s Callide C4. Following the failure of Callide C4, network protection took out a significant amount of coal units over the next couple of hours while the network was reinstated to isolate Callide power station. As a precaution the undamaged coal fired units at Callide remained offline for the following weeks while the cause of the initial failure was investigated.

With low and sometimes negative prices during the day due to high levels of rooftop PV, large scale solar and wind, the remaining generators tried to extract value from the morning and evening peaks. Historically this would have been taken up by coal fired generation but in Q2 gas powered generation (GPG) operated more due to the scarcity of coal fired units.

A record amount of 57% renewable generation occurred at 11:30 on 11th April, this was made be solar, roof top PV, hydro, and biomass, and was 1% more than the previous record seen in October 2020.

Although renewable generation has been high, restrictions on the network are limiting further output. Curtailment occurred for about 4% of semi-scheduled intermittent generation which was higher than Q1 primarily due to higher negative prices. Intermittent generation now their output at times of negative pricing to limit their exposure to the market. We also see an increase in the amount of curtailment resulting from network congestion and network constraints. In regions with very high levels of renewable penetration such as South Australia saw intermittent generation curtailed to manage AEMOs System strength concerns.