I WISH THAT I HAD DUCK FEET

Rain rain go away, come again another day. This is a nursery rhyme we are all feeling we can relate to at the moment.

As we shared with you in October La Nina has well and truly arrived, with the BOM finally declaring the climate driver to have arrived for the second time in as many years in the last week of November.

The phenomenon is already breaking records with many areas expected to experience the wettest November on record and some areas recording over three times their average rainfall. This was good news for the Wide Bay-Burnett areas which have benefited from these above average rainfalls after missing out during last year’s La Nina event.

The combination of the La Nina, a negative Indian Ocean Dipole (-0.34°C) and slightly warmer than usual sea surface temperatures anomalies as well as a positive Southern Annular Mode are all combining to ensure we are now experiencing the gumboot weather we are seeing in Eastern and Southern Australia.

So, will it change or going into Q1 should we all start reading Dr Seuss’ “I wish that I had duck feet” for tips to survive? As we spoke about in the last outlook the IOD is returning to a neutral position by Christmas. This leads to the monsoon troughs moving South over the Indian Ocean which in turn will prevent any real effects of this on the Australian Climate.

But before we all start reaching for the sunblock and thongs, we need to look at what else could affect us.

La Nina which is now fully established will not likely weaken before the start of February. Thus, the chance of the rainfall remaining above average in the North and East of Australia for the summer isn’t going anywhere. It is also the gift that keeps giving with higher-than-average chance of tropical cyclones and tropical lows over the summer, the first was established 3 weeks earlier than we expect the season to begin (Tropical Cyclone Paddy).

The Southern Annular Mode (SAM) is also remaining positive and unlikely to significantly weaken before January. A positive SAM will move our westerly winds further South towards Antarctica and in parallel with La Nina will increase the risk of higher-than-average rainfall into the start of 2022, especially in SE Queensland.

Temperatures (both daytime and evening) in most areas are expected to be above average. Daytime temperatures in SE Queensland may be below average but the evening temperatures will remain above average.

As the systems weaken into the new year Queensland will join most of the Eastern parts of Australia with higher-than-average maximum temperatures, (likely to be in the top 20% of those on record). However, with the increased rainfall so comes the humidity.

So will this be a Summer to remember – probably not but for those drought-stricken areas (especially in SE Queensland) it is a welcome deluge? Surely, we can’t get a third La Nina in a row next year, but for now, if the weekends turn nice for a day or two, expect the beaches to be as packed as a sardine in a tin!

GIANT RENEWABLE ENERGY ZONE FOR NSW

Renewable Energy Zone (REZ) are starting to be put in place to systematically replace the existing coal fired fleet of generators with renewable generation and storage. As the largest energy user in the country, NSW has compiled 5 REZ across the state. NSW is closing 10,000MW of coal fired generation over the coming years so needs to offset this reduction with new generation.

Of the 5 REZs planned, the New England REZ is by far the largest accounting for 8,000MW of wind, solar and storage.

The map forms part of the draft declaration of the New England REZ released on 15 October. The process will take time with regulatory and legal approvals required followed by the tender and auction process to build the renewables and storage projects.

The initial EOI for the New England REZ attracted over 34,000MW of wind, solar and storage projects.

EOIs for other REZs attracted a large amount of interest with the Central West REZ seeking 3,000MW but attracting 27,000MW of proposals.

An interesting note following the weekends’ National party rooms discussions regarding net zero emissions is that the New England REZ is in Barnaby Joyce’s electorate.

The newly created Energy Corporation of NSW (EnergyCo) is the statutory authority to deliver the NSW REZs so they will be responsible for the infrastructure planning and will put forward future network infrastructure projects. EnergyCo will also coordinate the access framework for the REZ which could prevent projects from connecting to parts of the REZ if they have not received development approval.

So all looks good for the development of renewable energy in NSW, it appears there are amble developers capable of delivering the electricity powered by renewables to offset the closure of coal fired generation, there is a storage solution available to firm up the intermittent renewable generation and we have a NSW government controlled statutory authority leading the delivery.

PENSIONERS TAKE OVER AUSNET SERVICES

AusNet Services informed the market today that it has accepted a takeover bid from the pension fund, Canada’s Brookfield. The all-cash offer was for $2.65 per share, an increase of $0.15 per share. The offer is at a 34% premium over Friday’s close price.

The major shareholder, Singapore Power has agreed to the offer however we will see if the State Grid of China, which holds a 20% stake in the company, will sign off on the deal.

The bid for AusNet will need to be signed off by the Foreign Investment Review Board and finally, the Treasurer.

It looks like competitor APA Group has been unsuccessful with the announcement of this offer.  APA Group has been in AusNet’s data room working to firm up its offer, which was proposed at $2.60.

AusNet has told the market that Singapore Power will back the deal so long as a better offer doesn’t appear.

APA Group was seeking to acquire AusNet to create Australia’s largest energy transmission and distribution infrastructure utility with a combined $35 billion enterprise value. It has said the deal would create a “flagship Australian company” with the scale and capability to accelerate the country’s energy transition.

So, what is the value to the energy user of Australia with this deal, time will tell but the higher price offered by the pension fund implies there is value in the energy market for infrastructure owners?

QUEENSLAND STILL POWERING AHEAD WITH COAL

Scott Morrison finally got a deal with the Nationals prior to his trip to COP-26. While the deal has been kept secret, some information is starting to leak out. The first compromise was that the Nationals scored an extra seat around the cabinet table.

The second bit of information is linked to keeping the Nationals on side and keeping an election promise that a decision on a new coal-fired power station in North Queensland would be deferred until after next year’s federal election.

The government’s updated climate policy is focused on renewable energy and low-emissions technology so this makes it hard to build a new coal fired power station.

Former resources minister Matt Canavan has been vocal in his lack of support for the revised climate policy. Matt Canavan had previously called for the federal government to underwrite a new coal-fired power station in North Queensland. At this stage, the governments have not committed to the new power station but have agreed not to block a new project. Last week the PM said a feasibility study into the Collinsville coal fired power station would be due by June next year, and it would be up to private company Shine Energy to “get it across the line”.

Mr Morrison said, “Any investments that people wish to make, well, they have to meet the necessary planning and other regulatory approvals for them to go ahead,” “They have to make sense to them commercially and if they stack up, they stack up.”

Leaving the approval of the Collinsville coal fired power station on hold until after the election goes against the Morrison government commitment where it offered $4M to a North Queensland power station.

Last year, Shine Energy was awarded a $3.6 million grant to undertake a feasibility study into a 1 GW high-efficiency, low-emissions (HELE) power station in Collinsville in the northern Bowen Basin.

The current status of the project is it has successfully completed the pre-feasibility study and the feasibility study is underway. The flexible HELE coal fired plant will load follow and allow the increased dispatch of renewable energy while maintaining high reliability levels. Findings from the pre-feasibility report show the power station is economically viable, has no material risks relating to transmission constraints and will operate with 25% less Carbon dioxide than the average coal generator in the NEM.

With the federal Energy Minister Angus Taylor saying the government’s long-term climate plan was not about “shutting down coal or gas production”, the PM outlined the hurdles required to get the project to “stack up” while backing support for renewables and low emission technology, this project looks like it may just get over the line as it will improve NEM reliability and security while keeping coal jobs in the region and allowing renewable energy projects to also operate in the area.

STATES WORKING TOGETHER TO REACH ZERO EMISSIONS

The Net Zero Emissions Policy Forum is probably the best thing to happen in the climate space for many years. It sounds like a talkfest, but this forum will bring together the NSW, ACT and SA Governments with the objective to collaborate and solve the practical problems of reaching net zero emissions.

In a series of announcements, the NSW Treasurer and Energy Minister Matt Kean said, “the forum will provide a repository of policies and resources that can help members reduce their emissions and grow their economies without reinventing the wheel”.

The ACT Chief Minister and ACT Minister for Climate Action, Andrew Barr said “the forum will prove vital in providing sub-national Governments a shared suite of tools to address the policy challenges of achieving net zero emissions”.

SA Minister for Environment and Water, David Speirs said “to combat climate change on a global scale we need to speed up the transition to net zero and solve the technical, economic and policy problems of getting there”.

The ACT Minister said the “Sub-national Governments have a vital role to play in getting to net zero emissions because we have some of the most important levers such as

The Net Zero Emissions Policy Forum will allow the collaboration between governments to design the policies to solve the challenges of getting to net zero emissions. It should also allow for the streamlining of policy creation and should speed up the implementation process.

NSW will be first to chair the group and will hold this position for the next 12 months. The Forum is an Under2 Coalition initiative supported by the Climate Group and ClimateWorks Australia. The Under2 Coalition is a global community of state and regional governments committed to ambitious climate action in line with the Paris Agreement. The Under2 Coalition brings together 260 governments representing 1.75 billion people and 50% of the global economy.

EX AGL CHIEF TO HEADUP TRANSGRID

A few months ago, we reported that AGLs CEO would be resigning after the announcements of major restructures across the business. The former AGL leader has reappeared in the transmission space. Brett Redman will head TransGrid, the NSW electricity transmission operator.

Brett Redman left AGL after tailoring ambitious plans to break up the AGL business into two companies in an attempt to reduce the company’s losses. Earlier in the year, AGL announced first-half losses of $2.3 billion as a result of the impact of renewable energy, low demand and COVID19 had on the market.

Mr Redman left AGL in extraordinary circumstances the night before the business was to work through their plans to restructure the business including a demerger. Mr Redman stated he could not make the “long-term commitment” the company required for another five years to see the demerger through.

Redman’s plan was to separate the coal fired generation into a separate business and make the retail arm of the business a zero-carbon electricity retailer.

TransGrid is the operator of the high voltage transmission lines in NSW and ACT and is fundamental to connecting the new renewable and low carbon generation assets across NSW and ACT with end users.

Brett Redman will take up the role on 16 November and undoubtedly will have ambitious targets for TransGrid as they commit to transitioning the market to a renewable based sustainable energy system.

Conference of the Parties: The Youth Strikes Back

We all know Greta Thunberg, the girl who rose to fame at 15 for sitting outside the Swedish Parliament with a sign saying, “School strike for climate”. This movement grew to the worldwide strikes by school children known as ‘Fridays For Future’, whilst she rose to fame for her address to the UN Climate action summit and three consecutive nominations for the Nobel Peace Prize (2019, 2020 and 2021).

However, there is a quieter youth revolution occurring, one which is now in its 16th year and although not receiving the media attention of strikes such as those organised by Greta et al, this one is dubbed the most significant youth gathering for its capacity to directly forward the official youth position in the UN Climate Negotiations.

Conference Of Youth 16 or COY16 is the lesser-known child of the Conference of the Parties. It was established in 2005 at the Montreal COP11. By 2009 the United Nations Framework Convention on Climate Change (UNFCCC) and all member states at the convention officially recognised youth as its own constituency observer.

By 2011 the constituency was given its own status and title, YOUNGO. There it was also given a significant role and voice allowing YOUNGO to be formally heard by the UNFCCC in all discussions.

Now it brings together thousands of young changemakers from over 140 countries in the week before the COP.

Not only does it give them leadership advice and policy training so they can successfully prepare for their participation at COP. They are immersed in event management including how to mobilise people by engaging around different impacts in different sectors through to gaining scholarships and internships in areas of Climate Change and influence.

However impressive for the individuals, this isn’t the main purpose of the gathering. It is there to produce a policy document which is presented at the COP the following week to ensure the youth are represented at the UN Climate Negotiations. The Statement to be presented this year at COP26 can be found here https://ukcoy16.org/wp-content/uploads/2021/10/Global-Youth-Statement.pdf . But to sum up the document they are asking for a seat at the table. This is as they say theirs to inherit and as well informed voices they don’t want to be ignored or given empty promises, they want leaders to commit to change and stand by their word. They are asking for specific recommendations to be taken on board and these are well articulated and well presented arguments to do so.

How much they succeed and what impact they have is unknown, but they are gaining momentum and as the leaders of the future it will create a step change in politics whether the old guard want it or not.

 

SOLAR LEADING THE WAY

Each week new records are broken across the energy market. Be it historic record low demands, reducing levels of thermal plant availability or the increased availability from renewables.

Last week saw solar reach more than 50% of Australia’s demand. This came as record generation levels came from both rooftop PV and large-scale solar sectors.

Ironically this record occurred on Sunday while the National Party room was meeting to discuss their stance on net zero emissions. As the Nationals push to lift the profile of the coal industry and power the country from coal fired power stations, solar generation reached 51.8% of the NEMs demand.

While regions like South Australia have passed the 50% solar milestone during the weekend it was the first time the NEM reached more than 50%. As expected, solar provided most of the electricity between 11:00 and 13:00, peaking at 11:55.

The 50% hurdle could have been higher as negative prices in South Australia economically constrained some large-scale solar plants. On the previous day, the record would have been broken if not for Queensland economically constraining off 1,800MW of large scale solar due to negative prices.

As mentioned above the NEM is also experiencing low operational demands and in line with the high rooftop PV generation, the demand dropped to a record low across the NEM of 12,936MW on Sunday as solar reached over 50% generation. As rooftop PV is not economically constrained, it accounted for 38% of the underlying demand.

As solar generation increased, it displaced coal fired generation with black coal generation throughout Queensland and NSW reaching historic lows of 6,105MW.

These statistics were surely discussed in the Nationals party room over the weekend and along with AEMOs forecasts showing the NEM can reach 100% renewables by 2025 as their base case scenario in modelling such as the ISP and the ESOO, the question about the role of renewable and coal in the market must have been discussed.

During the Spring months, skies are clearer and air temperatures are conducive to low air conditioning and heating loads, we could realistically see a situation where rooftop PV could cover demand. Of course, this will cause issues for AEMO who are required to keep various synchronous units online for system security however recent changes have allowed AEMO to employ systems to switch off solar in the event of a grid event to maintain grid security.

Written by Alex Driscoll Senior Manager Markets, Trading & Advisory

Summer Weather Outlook

The Australian Bureau of Meteorology (BOM) has officially put La Nina on a watch status for the second year running. This means there is around a 50% chance (double the normal chance) of the phenomenon re-forming in 2021.

This is seconded by the US National Oceanic and Atmospheric Administration (NOAA) climate prediction centre forecasting a 70% chance of La Nina forming for the second consecutive year.

The Summer and Autumn of 2020 – 2021 were the wettest and coolest experienced in Australia for the past 5 years, and this was driven by the La Nina effect. Although not as extreme as the 2011 La Nina event, which was one of the strongest la Nina’s seen on record, we would expect that if it does form again this year it would most likely follow last year’s pattern.

There are other drivers looking to encourage a wet summer as well.

The lesser known Indian Ocean Dipole (IOD) is the temperature difference between the Eastern and Western Indian oceans. A positive phase of the IOD would lead to less rainfall and a negative IOD leads to more rainfall in the South and East of Australia throughout Spring.

In 1974 a negative IOD occurred with a strong La Nina and Australia recorded the wettest year on record. Although the two can coincide it is a complicated relationship and a significant area of research within the Climate community.

This year the latest BOM outlook has 3 of the 5 international climate models moving the IOD negative from October. Although not sustained into 2022 and a weaker index than some previous years, a negative IOD would still be expected to increase the chance of a wet Spring. The weakening of the index into the Summer is a standard trajectory for the IOD.

On the other side of the continent, the Southern Annular Mode (SAM) (related to the Antarctic Oscillation (AAO)) is showing a slight positive indicator. This correlates with a strengthening La Nina index as the two tend to be more correlated than other indices. A positive SAM will lead to more rainfall in the East and reduces the chance of a hot Spring and Summer.  Although as per the La Nina index these are not strong signals and could therefore change going into the later Summer and are mainly Spring indicators at the moment.

A final influence could come from the Madden-Julian Oscillation; however, these can only reliably be forecasted 14 days in advance as they pass around the planet every 30 to 60 days. If one forms you can expect North-Eastern Australia to experience significant rainfall as the system passed into the Pacific. They can bring monsoons and tropical Cyclones if occurring in the Spring and Summer and if this forms at a period of heavy rainfall we can expect it will significantly increase the flooding risks from the ground which is already saturated.

So, what does that do to our Summer? Well for us on the Eastern Coast it means don’t put away the gumboots and rain mac just yet. It is likely to be a rather wet Spring and depending on the development of some systems it could go all the way through our Summer. It also means we can expect the Spring to have cooler days across Eastern and Southern Australia and increased cloud cover leading to milder evenings.

From a generation point of view, increased cloud cover could lead to reduced Solar capacity for both large scale and roof-top systems and this will likely be coupled with below average winds in the Southern NEM.  There is a winner though, the Hydro plants in NSW and Victoria will be happy campers, if not a little sodden, with a higher than average rainfall expected in those catchments this Spring.

Article Written by Kate Turner Senior Manager Markets, Analytics & Sustainability