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?
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
