In an effort to combat climate change, Australia has initiated a series of environmental regulations known as the Safeguard Reforms. These reforms began in July 2023 and are currently undergoing ongoing updates. In a nutshell, the goal is to align Australia’s industries with international standards for environmental practices, especially those concerning greenhouse gas emissions.
So, how are we going about this? Well, the government department overseeing these changes is closely studying what’s been successful in other countries. They’re identifying top-performing industries around the globe that are producing less waste and pollution. Then, they’ll use these examples to set ‘benchmarks’—or standards—for Australian industries.
Now, here’s where it gets interesting. Suppose a country like Japan invents a new, super-efficient technology that significantly reduces emissions. If it’s among the best in the world, it will set the standard for Australian industries, even if it was tailored specifically for Japan’s unique economic needs. So, Aussie companies will need to keep pace, adopting any new technology and training staff to use it.
There’s still much to be decided in this ongoing process. For example, annual benchmarks will initially drop by 4.9% each year until 2030. After that, it’s suggested that changes will occur in 5-year increments. This will be confirmed in consultations planned for 2027.
By the end of this year, we can expect to see the finalisation of these benchmarks. They’ll be incorporated into law and take effect in the financial year of 2024.
One area under specific review is the coal industry. A new rule is being introduced that covers all emissions related to coal mining, including waste gas. The goal is to have a single standard, or ‘production variable’, that covers all activities in the industry. This could potentially revolutionise how we manage waste and emissions from mining, and it will certainly keep coal companies on their toes!
However, these new regulations are still open for debate. Public consultations are currently ongoing, giving citizens and industries a chance to voice their opinions and concerns. If you want to have your say on these changes, make sure to submit your thoughts before the deadline on August 11.
Australia is taking a significant step towards greener industries. By adopting these internationally informed practices, we’re pushing for a cleaner, more sustainable future.
The team at Edge Utilities are passionate about renewables and sustainability, we are energy brokers with an eye on the planet. We are committed to helping businesses reach their net zero goals through renewable power contracts.
To discuss options and plans for your business contact us at save@edgeutilities.com.au or call us on 1800 334 336 to discuss.
With coal-fired power generation retiring, the need for renewable power sources is increasing. One potential solution is to use the existing connection points to install new power generation or energy storage. Retiring sites typically have good transmission infrastructure.
Finding favourable sites for new solar and wind projects is becoming increasingly difficult for developers. While most prefer sites close to transmission infrastructure, finding sites with good solar or wind potential is challenging. To address this issue, some developers are considering redeveloping existing generation sites rather than starting anew. While there are benefits to a brownfield site, the registration and connection process is just as challenging as developing a new site. Additional connection studies are needed, and new projects must meet more stringent approval processes.
Overseas data suggests that repowering existing sites with larger and more efficient wind turbines is beneficial. However, no Australian wind farms have been repowered yet. The average age of an Australian wind farm is 15 years, and some are close to 30 years old.
As the offshore wind industry grows, we may see more large and efficient wind farms developed on the same grounds as the early industry pioneers.
If you would like a strategy to ensure your company procures energy to support sustainability and growth in renewables, please reach out to discuss your options. To save on electricity spend, you can also join our Edge Utilities Power Portfolio, read more: https://edgeutilities.com.au/edge-utilities-power-portfolio/ or call us on: 1800 334 336 to discuss.
During 2016 a series of storms caused a widespread power outage in South Australia. As a result, a significant amount of work has been undertaken by AEMO to build a more secure grid. In 2017 AEMO released a review of the events which blacked out the state, a significant cause was the extreme weather that resulted in transmission lines being knocked over as well as some windfarms not meeting protection standards.
On November 12th a similar event occurred with a series of storms passing through South Australia causing the tripping of multiple transmission lines. Some transmission towers were damaged and fell over resulting in the South Australian grid being disconnected from the NEM. During this period, South Australia was powered by wind and solar for up to two thirds of its electricity demand with gas providing the difference.
The South Australian network has now been re-synchronised to the NEM and electricity is flowing between South Australia and the other states of the NEM as before.
During events like this AEMO invokes its power to manage system security, however this time it went a step further and restricted roof top solar PV to maintain a secure level of Distributed PV (DPV) generation. AEMO switched off as much rooftop PV installations as possible during the middle of the day, by curtailing the rooftop PV they were able to manage scheduled and semi scheduled generation assets to maintain system security.
System stability is a fine balance of the supply of electricity, the types of generators providing the electricity and the demand of electricity from end users. Part of the solution this time was to encourage end users to consume more electricity enabling a higher level of generation. Prior to the curtailment, South Australia was being supplied by over two thirds of it demand via renewable generation.
While high levels of renewable generation is good to keep electricity costs down, the savings can be eroded by high frequency control costs and the need for more expensive gas fired generation to fill the gap when the sun is not shining and the wind is not blowing.
The Private equity company EIG Global Energy Partners is betting big money on gas, offering $18.4b for Origin Energy is which was a ~55% premium relative to its last close price. This premium suggests EIG Global Energy Partners believes gas will set price as the Chairman of EIG stated, “it is willing to ignore government threats of export controls and price caps and invest in Australia for the next 20 years because it believes the nation’s gas resources will play a crucial role in the transition to clean energy”.
As federal politics look to potentially intervene in the domestic coal and gas markets, the investors do not appear to be concerned. It seems the thought process is that gas is a sound investment for the next 20 years as we transition to renewables. No doubt they will be keeping an eye on the regulatory environment but with a track record of investments in the UK and German markets where market inventions are currently enabled, they are in a good position to understand the risks and rewards.
As Origin owns a fleet of gas generators that traditionally operate over the periods where electricity prices are at their highest, it puts them in a position to take advantage of the market, producing and selling electricity at high market prices securing a nice profit.
As entry to the industry and source project finance is difficult, Origin’s gas turbines will have time to continue to produce electricity and make money at these heightened energy prices. With new investment being stalled due to funding constraints pressure on electricity prices will continue to occur.
The question for investors, politicians and the public is, do you view gas as the transitional fuel to renewables? While investors may see a distinction between gas and coal, do the end users of electricity hold similar assumptions?
Edge Utilities offer market leading services for business and strata energy users. We help you navigate the ever-changing energy landscape, focus on renewables and save on your power bills through our Edge Utilities Power Portfolio (https://edgeutilities.com.au/edge-utilities-power-portfolio/). Reach out, we would love to assist you: info@edge2020.com.au or call on:1800 334 336
On Friday last week, the Australian Energy Market Commission (AEMC) released a draft report outlining changes required to the gas and energy retail rules to allow hydrogen and renewable gases into the Australian market. This is the next critical step as Australia transitions from a carbon economy to a cleaner economy. The next step for the gas industry is the development of a national hydrogen and renewable gas industry with associated strategies, policies and procedures.
The AEMC’s recommendations have been made to allow for the more efficient delivery of new services through the operation of markets that enable new entrants to emerge and for efficient investment to be undertaken. Other recommendations allow for: continued innovation in developing new services for customers, the implementation of recommendations that aim to be fit for purpose and proportionate to the issues they seek to address and achievable for market participants, provide clarity on the roles and responsibilities for the quality, safety, reliability, and security of supply of gas, to maintain operational safety of infrastructure and customer equipment and appliances, and allow existing consumer protections to be maintained during the transition to the increasing use of hydrogen and renewable gases.
In its draft recommendations, the AEMC argue the importance of setting up a national regulatory framework to allow the blending of existing gas networks with low level hydrogen and renewable gases. This framework needs to cover pipelines and infrastructure all the way to the end users.
Key draft recommendations are to:
extend the economic regulatory framework
extend the market transparency mechanisms of the Gas Statement of Opportunities (GSOO), the Gas Bulletin Board, the Victorian Gas Planning Report, new AER gas price reporting functions and reporting obligations for non-pipeline infrastructure
streamline the arrangements for the Short-Term Trading Market (STTM)
adapt the Victorian Declared Wholesale Gas Market (DWGM)
allow new services and commodities to be priced or traded within the retail gas markets
enable consumers to be informed about the transition to natural gas equivalents
retain the new regulatory sandbox rules in their current form
provide an exemption framework for minimum ring-fencing requirements, including the regulator’s power to impose additional requirements and the associated contract approvals process.
We are all becoming more aware of the possible usages of Hydrogen, but this is only one gas that can be used as low carbon, low or zero-emissions fuel used in businesses and homes so the regulatory framework needs to accommodate for these possibilities.
In the short term, the gases flowing through the pipes and infrastructure will be natural gas equivalents but, over time, different blends will be introduced.
The natural gas equivalents mean that end users will not be required to change their appliances to utilise this new gas blend meaning the impact on end users will be minimal.
As these recommendations are brought into law, the likes of AEMO will need to update procedures across the various gas markets including the Short-Term trading market (STTM) and the Declare wholesale gas market (DWGM).
Although the government sees these reforms as a priority under the Australian Government’s National Hydrogen Strategy by providing the delivery of an efficient, safe, and secure network of gas to the benefit of consumers, the question needs to be asked, is gas the right direction to be going as Australia is currently moving away from gas towards electrifying many industrial processes.
The AEMC and AEMO are currently running stakeholder consultations in parallel with relevant consultations which are open for submission until 19 May 2022.
The final report will be published on 8 September 2022 with a set of rules for the Energy Ministers to approve by 14 November 2022.
In the past 2 years, the market has dropped from highs of over $75/MWh in August 2019 then following the events outlined on the chart below the market price dropped to historic lows of around $36/MWh. Following some volatility at the start of 2021 driven by a hot summer, the market firmed and increased further because of the catastrophic failure of Callide C4 and the tripping of many other power stations.
The chart below shows that the underlying spot price (light blue line) has continued to spike and trend up resulting in increases in the contract prices. Another interesting aspect of price curves is how market announcements such as the cost of coal and gas can impact the curve. In months, the curve softened but spiked due to conflicts in Ukraine causing coal and gas, a key input to thermal generation, to increase in price.
The spot price of these commodities is not directly linked to the fuel price used by generators in the next quarter, so the market has now softened.
Future years are also becoming cheaper year on year as renewable energy takes a larger share of the market and renewable energy is expected to continue to fall in price.
Having recently undertaken a few requests for proposals (RFP) for our clients, we are aware there is good value for companies willing to take up longer term renewable PPAs. More and more projects are becoming available post 2023/24.
Undertaking a renewable PPA will go towards meeting many companies’ sustainability targets through the procurement of renewable energy and environmental certificates.
Below are the contact details for Alex. He would be happy to discuss your company’s sustainability targets and how we can help the business reach them.
With the new F1 season on the weekend eve of re-starting, I wanted to look at the evolving platform this immense sport has and the new role it is taking in being vocal on many issues.
It is now a common sight at the start of the race to see Lewis Hamilton taking the knee and many wearing the #WeRaceAsOne messages on their front. Although the Silver Arrows are returning to Mercedes this year the Black coveralls remain, a sign that their quest for equality continues. This is in addition to the Mission 44 – Hamilton Commission promoting diversity and inclusion in motorsport and the Mercedes “ignite” program promoting better representation of diverse students studying STEM and engineering, as well as wider parts of the industry.
They are not the only vocal voice on the pit wall however, Sebastian Vettel has taken several, some would say controversial, I personally call them impassioned, stances this year. This varied from wearing rainbow colours ahead of the Hungarian Grand Prix to stand against the anti-LGBTQ+ legislation, to what was certainly the boldest stance following his organisation of a women’s only kart race ahead of the inaugural Saudi Arabia Grand Prix.
But as a wider sport, they are acknowledging the impact such a global sport has on climate. To try and be a global leader on this issue, in 2019, the F1 governing body announced an ambitious sustainability plan. Their aim is to cover the F1 cars on track activities, in addition to the rest of the operations’ carbon footprint, to achieve a net zero emissions target by 2030.
Further to this, they have guaranteed that by 2025 all events must be sustainable. This isn’t just in offsets but includes the use of only sustainable materials at events thus removing tonnes of single use plastics.
They are also looking to be able to improve the travel facilities to ensure fans can reach the circuits in more sustainable fashions. No one is suggesting we adopt the Zandvoort approach where nearly all cars were banned from journeying to the track and surrounding towns, and almost equal numbers of fans chose to bicycle, from the designated park and ride facilities where bikes were provided, as those who chose to take the train. Yet what it does show is with real co-operation there are alternatives to the status quo.
The cars themselves have always been at the forefront of technological changes with many facets of the car making it into your car on your drive. These range from the sat nav to energy recovery systems and aerodynamic innovations. So why should such an innovative industry not lead from the front again?
This year’s car has been adapted to take 10% ethanol into the fuel mix, yet its most ambitious target is yet to come. With the aim that by 2025 the new generation of the power unit will be there to take sustainable ‘drop-in’ fuel it is hoped this will be the same fuel which could be used in cars we drive and fill up at the servo without any modification.
This will be crucial with waitlists for electric cars going through the roof and the number of combustion cars on the road only increasing, if they can be run cost effectively and sustainably and deliver less than 65% emissions than current cars the benefits could be huge.
This would mean once again F1 has led the way to ensure not only has the sport become sustainable, but they have advanced the offerings so much that we can benefit from their excellence.
In the meantime, let’s see what this year’s raft of changes will bring as it is almost time to say “lights out and away we go”.
In what has turned out to be an unsuccessful bid, Mike Cannon-Brookes and Canada’s Brookfield made an $8B bid for AGL. The consortium ensured they would invest a further $10B to replace its coal fired generators by 2030. Mike Cannon-Brookes is a well known investor in renewable energy through his involvement in the $20B Sun Cable project.
This latest move comes days after Origin Energy’s announcement to shut down Earring Power Station in 2025 and AGLs earlier announcement about the early retirement of Bayswater and Loy Yang Power Stations in the 2030s.
Over the weekend the AGL board met but rejected the $7.50 per share offer. As expected, this first approach was a lowball offer with room for the offer to increase.
The idea of the takeover will likely cause a headache for the federal government as we approach an election. Cannon-Brookes has indicated as well as a business plan he has a $20 billion war chest to spend on renewable energy to replace retiring coal-fired plants. The other headache is for the consortium partner, Brookfield which is currently procuring AusNet Services, the owner of electricity and gas transmission and distribution assets in Victoria.
AGL Energy’s board rejected the offer, telling shareholders to stick to a proposed demerger, which will separate the company’s coal fired generators from its retail business and investments in renewable energy projects.
The federal energy minister has been tight lipped on the offer but is likely to remind Australians of the increased risk to energy security if the Cannon-Brookes plan to accelerate the retirement of AGL’s coal fleet occurs.
If the proposal is eventually accepted it would allow a truly integrated business with Brookfields stake in AusNet, the group would control gas transmission, generation, electricity transmission, retailing and electricity distribution. This is likely to flag competition issues with the ACCC and the foreign investment board.
Following the rejection of the offer Cannon-Brookes said “AGL shareholders would be worse off if they stick with the power company’s demerger rather than if they accept his $5 billion joint bid with Brookfield to take the company private and get out of coal by 2030”.
Despite the offer being below the valuation of the whole AGL business, it is in line with the value of the retail arm of AGL.
Is AGL waiting for a counteroffer from another group such as Iberdrola or Ampol or do they believe coal fired generation will form an important part of the NEM for many years to come?
Last week the Clean Energy Regulator (CER) released its targets for liable entities to meet their Large scale Generation Certificate (LGC) and the Small scale Technology Certificate (STC) obligations for 2022.
The 2022 Renewable Power Percentage (RPP) was set at 18.64%, up marginally from 18.54% in 2021.
The 2022 Small scale Technology Percentage (STP) was set at 27.26%, down marginally from 28.80% in 2021.
What are these targets?
These targets are set under the Renewable (Electricity) Energy Act to stimulate and support the development of renewable electricity production in Australia.
Liable entities are individuals or companies who make relevant acquisitions (mostly the purchase of wholesale electricity) from a grid with an installed capacity greater than 100MW. Liable entities are most commonly electricity retailers. Under the Renewable Energy Target (RET) legislation, liable entities are required to surrender a specified volume of certificates equivalent to a set percentage of their relevant acquisitions across the year.
There are two types of certificates under the RET, LGCs and STCs. The percentage of LGCs required to offset relevant acquisitions is set by the RPP, and for STCs it is set by the STP. Retailers produce or procure certificates and surrender them to the CER to meet their liabilities. They then pass on the costs associated with meeting these liabilities to retail customers based on their proportional contribution to the relevant acquisitions.
What do these targets mean for large users?
The key point to understand is that in most situations the liable entities are the retailers. But a retailer’s liability is directly derived from what is consumed by the retail customers. Each user’s contribution to a retailer’s liability can be calculated utilising the relevant liability percentages, and the consumer’s loss adjusted gross consumption.
The higher the RPP and STP the greater the percentage of a customer’s usage needs to be covered by the relevant certificates. Assuming a customer’s annual consumption remains on par from one year to the next, higher liability percentages result in more certificates being required to offset that user’s contribution to a retailer’s liability.
Can large users control the costs associated with these targets?
Short of reducing consumption, users cannot control the number of certificates that their retailer will need to cover their contribution to the retailer’s liability. These percentages are regulated.
Emissions Intensive and Trade Exposed (EITE) users can apply for exemptions through the CER. These are issued in the form of Partial Exemption Certificates (PECs) that when provided to the liable entity can be used to directly offset the liability.
Large commercial and industrial users can negotiate electricity sale agreements with their retailers that allow them to proactively work with retailers to determine how and when certificates are obtained by the retailer to meet the liabilities associated with that user. This can involve the user having the ability to instruct the retailer when to purchase or price a set quantity of certificates, or to self-surrender certificates acquired or produced elsewhere by the user to the retailer, or to ask the retailer to sleeve third-party agreements (such as renewable power purchase agreements – PPAs) negotiated by the user to facilitate the provision of certificates at prices and terms negotiated by the user.
Where do these certificates come from?
LGCs are created by accredited power stations that produce electricity from renewable energy sources. For every megawatt hour (MWh) of electricity produced from renewable sources equals one LGC.
STCs are created by eligible energy systems. Like the LGC an STC is equivalent to 1 MWh of renewable electricity produced, however, the number of STCs a system can produce is calculated over a period of 1 to 10 years based on the technology. STCs can be produced by rooftop PV systems, small scale wind and hydro and even the electricity displaced by a solar water heater or heat pump over its lifetime.
How are these certificates traded?
LGCs can be acquired by purchasing them directly from renewable energy power producers or through the secondary market. The price of LGCs can vary depending on if the certificates are acquired via the market or directly from the project, and if they are settled and transferred upon entering a transaction (spot) or at some time in the future (forward contracts). Currently, the spot LGC price is around $46 per certificate, and the forward curve for LGCs falls away year on year.
Once an STC is created it can be traded through the STC market or through the STC clearinghouse. The STC clearinghouse is operated by the CER with a set price of $40 per certificate. It’s operated on a first in first served basis, which means sellers need to join the end of the queue and wait for their turn to sell. The market is more liquid and affords sellers the ability to sell certificates once a deal is negotiated. The price of a certificate is based on the supply/demand balance, with STCs currently trading around $39.40 per certificate.
What can I do to reduce my costs associated with LGCs and STCs?
Like many large users that aren’t already managing these components, your costs are no doubt going up. This doesn’t have to be the case. If you’re a large energy user, reach out to our team. We can assess your portfolio and certificate requirements, how you currently get charged for these components, and advise how you can be better manage this with your retailer.
Edge2020 traded over 1.75 million LGCs and 1.17 million STCs in 2021 for our portfolio of large users. These were either managed through retail sale agreements or directly with renewable producers through power purchase agreements (or similar).
Our team are specialists in ensuring large users minimise their costs utilising products and strategies that deliver value. These products may be a pass-through cost for retailers, but that doesn’t mean they shouldn’t be managed and minimized. We work closely with retailers, in a collaborative and positive manner to achieve outcomes that reduce their costs whilst not impacting their operational processes or retail returns.
