Sustainability – now with the Royal seal of approval

Prince Charles has been discussing sustainability and has suggested people should eat less meat and dairy to reduce the harmful effects on the environment. He personally turns vegetarian twice per week and cuts out dairy once per week.
He is well placed to do this as he has been advocating for the environment and sustainable living since the 1970s. He has even gone as far as to install biomass boilers on some royal estates and to convert his Austin Martin to run on old wine and cheese. The prince is now being highly utilised to increase the messaging around Climate Change prior to COP26 in Glasgow.
But he isn’t the only royal speaking out, the Queen (who never does anything by accident) was heard airing her frustrations at leaders who “talk but they don’t do” and Prince William has created and celebrated the inaugural Earthshot prize. (If it sounds familiar the name is based on Moonshot, JFKs space program which challenged all Americans to claim a leadership role in space and land a man on the moon before 1970.)

Earthshot is a 10-year commitment, to awarding projects which have the most inspiring solution to the earths complex and growing environmental challenges. His idea is to “mobilise collective action around our unique ability to innovate, problem solve and repair our planet”

Each of the 5 prizes is worth £1m (AUD 1.85m) and are based on Protect and restore nature, Clean our air, Revive our oceans, Build a waste-free world and Fix our climate. The prizes were allocated by a panel including Sir David Attenborough, Cate Blanchett, Shakira as well as Naoko Yamazaki (an Astronaut from Japan).

With COP26 looming and even the royal family in the UK putting their heads above the parapet and very publicly speaking out on the environment and climate change, the messaging is getting louder and louder that something must change, and the status quo will not continue. In Prince William’s own words “We can’t have more clever speak, clever words but not enough action (at COP26) and that’s why the Earthshot Prize is so important because we’re trying to create action.”

The five winners were:

Protect and Restore Nature: The Republic of Costa Rica

The Earthshot Prize said: “With an innovative policy paying citizens to protect the rainforests and restore local ecosystems, the people of Costa Rica and their Ministry for Environment have reversed decades of deforestation. Since the programme launched, Costa Rica’s forests have doubled in size, leading to a boom in ecotourism and contributing $4 billion to the economy”.

Clean our Air: Takachar, India

The Earthshot Prize said: “New Delhi-based Takachar has developed pioneering technology to help end the burning of agricultural waste, which causes severe air pollution. Their cheap, small-scale, portable technology attaches to tractors and converts crop residues into sellable products like fuel and fertiliser and helps reduce smoke emissions by up to 98%”.

Revive our Oceans: Coral Vita, Bahamas

The Earthshot Prize said: “Coral Vita’s innovative approach to coral farming of growing coral on land then replanting it in the ocean can grow coral up to 50 times faster than traditional methods and improves coral resilience to the impact of climate change”.

Build a Waste-free World: The City of Milan Food Waste Hubs, Italy

The Earthshot Prize said: “As the first major city to enforce a city-wide food waste policy, Milan’s Food Waste Hub programme recovers food from local supermarkets and restaurants and distributes it to citizens in need, recovering about 130 tonnes of food per year, an estimated 260,000 meals equivalent”.

Fix our Climate: AEM Electrolyser, Thailand/Germany/Italy

The Earthshot Prize said: “The AEM Electrolyser from Enapter turns renewable electricity into emission-free hydrogen gas with a technology that has been developed quicker and cheaper than ever before and can transform how we power our homes and buildings and fuel transport”.

This article was written by our own “Brit” Kate Turner Senior Manager Markets, Analytics & Sustainability.

COP26, should we pay attention now?

Ok so as said by the wonderful Julie Andrews, let’s start at the very beginning.

COP or Conference of the Parties is, although a rotten title for explaining what is happening, the largest, most important and influential meeting on Climate Change which occurs. It brings together the most powerful people, usually annually, although last years was delayed due to the COVID-19 outbreak.

This year it is the 26th conference, hence COP26, and it will go ahead, in Glasgow UK between the 1st and 12th November.

It has had a lot of press coverage as it is seen to be the one place where the leaders of most countries are brought together to work collaboratively and address the climate emergency. The importance of these conferences cannot be understated. The “Paris Agreement” came out of COP21 in Paris and committed 196 countries to keep a global average temperature “well below 2 degrees Celsius”. The number may seem arbitrary and small but in ensuring this reduction scientists believe it will sustain a safe level in which all living things on Earth can survive.

So, Paris, or COP21, gave some dramatic results, but that was the conference back in 2015, so what has changed since then? Well, the simple and quick answer is not enough. There is still no resolution on how to help poorer countries cut emissions. There has also been a smaller than anticipated movement to renewable energy sources and the increase of extreme events such as increased flooding in Germany, drought in Madagascar or the extreme summer heat seen in Canada, has only increased the eyes looking to COP26 for real targets.

These targets however need to deliver real commitments, real targets and real costs to countries who are not signatories or as Prince Charles has stated “if we don’t make the decisions that are vital now, it’s going to be almost impossible to catch up”.

It is now looking likely Scott Morrison has been adequately lambasted into appearing at the conference. His shirkyness was highly likely to Australia still not submitting any long-term climate action proposals. The governments rhetoric of “practical solutions” and a loose interpretation of Paris, which incidentally is not enforceable in Australian law, is placing Australia at the naughty countries table!

Yet with major support for 2050 net zero targets coming from all corners, including most recently the Mineral Council of Australia, could the business industry support be the straw that breaks the coalitions back.

Scott Morrison must now balance an international government and domestic business desire to be net-zero and set significant targets to achieve this, with his own coalition especially those from the Nationals vehemently against a net-zero target and even pushing for the ambitions to have a pause button inserted into any legislation if there is a detrimental affect to regional communities.

This was never going to be an easy line to walk but with mounting pressure from all sides, the time for the government to jump off the fence is fast approaching.

Ultimately yes this is going to be one to watch as there will inevitably be ripples, regardless of Scott Morrison’s next move.

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

Things to check when procuring a new energy contract

Brokers and Consultants play valuable roles in assisting you to go to market to review your energy costs and your needs. They can help you to efficiently review several energy retailer offers.

This Guidance Note has been created by the National Customer Code for Energy Brokers, Consultants and Retailers. It aims to help you navigate your energy procurement to ensure that you are making informed decisions about costs, commissions and fee structures, including any ongoing fees and terms. You’ll also find some practical questions to ask your broker or consultant if you need more information.

https://www.theenergycharter.com.au/wp-content/uploads/2021/10/Energy-Charter-Broker-Procurement-Checklist-Final-Oct-2021.pdf

WHAT IS CAUSING THE INCREASE IN THE SPOT AND FUTURES MARKET PRICES?

A constraint designed to maintain power flow in the Gladstone region, primarily to maintain the continuous current rating on the 132kV feeder bushing at Boyne Smelter, is constraining off hundreds of MWs in Queensland.

Constraints on the interconnectors out of Queensland are also limiting QLD generation. A constraint to avoid voltage instability on the Sapphire to Armidale 330kV transmission line is reducing NSW generation.

Constrained gas supply is also impacting spot prices. BHP’s Gippsland Basin joint venture with Exxon in Victoria, is not operating at full capacity due to a processing train at the Longford plant out of service since 28th June. This was due to an unplanned maintenance issue.

The unplanned issue at Longford has also reduced the output from the Bass strait gas fields that feeds the plant. The Iona gas storage facility operated by Lochard Energy is also running low.

The reduced level of generation from coal fired generation, resulting from the loss of Callide power station, the delayed return of Callide C3, and the reduced output of Yallourn in Victoria due to flooding have all added to the extra requirement for gas powered generation in QLD and VIC.

The requirement for extra gas-powered generation has led to higher prices in the gas market, which in turn leads to higher dispatch prices of the gas-powered generation. Higher dispatch prices lead to higher spot prices.

Domestic pressures on gas prices on the Australian wholesale market have been impacted by the overseas gas market demand and prices. As the Australian gas market is export dominated, any changes to overseas prices are reflected domestically. The benchmark Japan Korea Marker (JKM) is linked to the LNG netback price.

The JKM is also used as a floor for gas contracts in Australia and with the JKM lifting to $19/GJ this reflects in Australia. Today the Declared Wholesale Gas Market (DWGM) prices in Victoria is $58.44/GJ with a demand of 1,100TJ.

The futures market has responded to this week’s higher spot prices, along with the announcement that Callide C4’s return to service would be delayed until the end of 2022. The unit was planned to be in service by the end of 2021 and capable of supplying power over the 2021 summer however, the delay has pushed up the Q122 quarter prices as well as most of the quarters until 2023.

AGL DEMERGER

Last week AGL shared its plans to split the existing business into two. The announcement on Wednesday was not taken well by investors as shares dropped 10% when chairman Peter Botten made the announcement. The share price continued to fall through the week closing on Friday at $8.13 well below the $17.72 price a year ago. Investors are concerned that the two entities will lack the financial capacity to grow the businesses.

Accel, the coal fired part of the business will be led by current AGL CEO Graeme Hunt while Christine Corbett will run the retail business. Accel will earn its returns from carbon intense assets so institutional investors are steering clear of the business, Accel will also retain a 15-20% ownership of AGL Australia. Apart from a lower share price pushing investors away, it is also expected dividends will continue to fall for the 2022 financial year. AGLs retail business will retain the clean energy assets and the retail business.

The previous CEO of AGL Brett Redman proposed the demerger to evolve the business in a rapidly changing marketplace. Prior to the demerger AGL had consolidated to form a vertically integrated business, this worked well over recent years however the business structure is no longer optimal.

Customers are after a cleaner alternative to coal fired generation so the retail business that will retain the customers will be merged with the carbon neutral portfolio of assets resulting in customers sourcing their power from cleaner green generation sources.

While AGLs demerger does not seem to be seen by investors as a positive direction, Edge has previously highlighted that the splitting up of generation businesses is gaining momentum overseas with many fossils fuelled businesses creating businesses to develop a green focus and meet the customers’ demands. Time will tell if the demerge strategy will benefit to AGL.

Despite the negative outlook for Accel with its fleet of coal fired assets there is a positive light at the end of the tunnel. As the existing coal fired assets are retired Accel will retain their key location on the grid. Their favourable locations on the grid will allow Accel to transform the connection points from a high carbon emitting locations to low carbon hubs as new cleaner generation and storage is installed.

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.

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?