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.

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.

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.

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?