QUARTER ONE ELECTRICITY PRICES FINISH LOWEST SINCE 2015

Along with Easter, last week brought with it the close of Quarter One (Q1). Prices across the NEM were the lowest we have seen since Q1 2015.  Prices were down from the same quarter last year by:

  • 21% in QLD
  • 56% in NSW
  • 68% in VIC and
  • 37% in SA

In comparison to the five-year Q1 average from 2016 to 2020, Q121 prices for the regions were down:

  • 54% in QLD
  • 55% in NSW
  • 73% in VIC and
  • 61% in SA

This compared to operational demand declines of:

  • 3% in QLD
  • 9% in NSW
  • 7% in VIC and
  • 14% in SA

The real story lies in the quantity of utility scale solar and wind entering the regions on any given day. Australia’s energy transition is well underway, with large quantities of utility scale solar and wind generation supplying high percentages of our regional demand in any given day.

On Friday, 26th March we saw approximately 1,700MW of utility scale solar and wind generation supplying Queensland.  That’s nearly 30% of the Q121 average during daylight hours.

Whilst there is no shortage of renewable developers and investment funding to shift our transition into yet another gear, there remains some major obstacles, and the reality is prices like that seen in Q121 are part of the problem.

On a macro level grid capacity and energy policy, uncertainty remain speed bumps to an even faster shift to renewable energy resources. Closer to the deal tables however, securing revenue certainty at bankable levels is becoming increasingly impossible.

Developers are relying on large Commercial and Industrial (C&I) consumers to pay the price to meet sustainability objectives.  The pool of potential C&I off-takers is drying up fast.

Q121 brought with it the early retirement announcement by Energy Australia (EA) for Yallourn Power Station. With prices like that seen in Q121, this is just the start. Many generators will be coming off higher forward contract prices and shifting into periods of much lower forward contract prices and / or low spot prices.

Revenue at these levels is not sustainable. However, there is no denying that traditional energy generators will need to delay the inevitable for as long as possible. Whilst the renewable projects remain in hiatus, relying mostly on sustainability driven C&I off-takers, the market will struggle to shift to the next gear in our energy transition.

As soon as coal (in particular) starts to break, and plants start to mothball and / or retire earlier than otherwise expected, increasing spot prices will yet again become the oxygen that breathes life back into the utility scale development pipeline.

And so, the cycle will continue until batteries (including pumped storage hydro) finalise our move to a renewable energy future.

FORREST GROWS GREEN HYDROGEN

 

At an Asian Investment Conference last week, Iron ore miner Andrew Forrest detailed his company’s plans to produce the world’s lowest cost green hydrogen and green ammonia via a potential pipeline of 1000 GW of renewable energy assets.

The Fortescue Group announced the companies within the group would aim to achieve carbon neutrality on its Scope 1 and 2 emissions by 2030, through absolute emissions reduction rather than the use of offsets.

The Fortescue boss plans on developing green iron ore, running his trains and trucks on renewable energy and operating ships on green ammonia.  He also invests heavily in renewable energy and clean technology through his private company Squadron. Squadron recently took a 75% stake in WindLab, a wind energy development company and is potentially a cornerstone to Forrest’s clean energy ambitions.

As part of his plan to provide Australia with dispatchable renewable energy, Forrest has declared he will meet federal Energy Minister Angus Taylor’s April deadline for a commitment to build new generation capacity in NSW, if state and federal development approvals and underwriting occurs.

Squadron Energy will develop a 635MW gas and hydrogen-fired power station at Port Kembla.   Equipment supply will be fast-tracked to meet first generation in 2023 in line with the closure of Liddell power station. This may also prevent the federal government building its own 1,000MW gas turbine using conventional gas.

Initial plans for the power station were larger, however AEMO flagged the 1000MW single unit to be a potential risk to system security. The proposed smaller 635MW unit now meets AEMO guidelines with Squadron expected to build a second generator of the same size at the same site.

The proposed $1.2B Port Kembla power station would be located next to the LNG import terminal under development. Squadron was already investing “millions of dollars” in the power project, which would be complemented by hundreds of megawatts of wind power projects planned by the newly acquired wind developer Windlab.

As wind and solar power is key to the success of Forrest’s clean energy ambitions, he has put pressure on politicians on the west coast as well as the east coast to allow more development of renewable energy. The West Australian government is set to implement changes to land tenure laws so thousands of hectares of land covered by cattle stations can be turned into large scale solar and wind farms to support green hydrogen production.

So, with Australia’s new leader in renewable generation and emission reductions emerging, backed by his proven business ability, the renewable energy industry, and the energy sector as a whole, looks like we are in for a shake-up.

WILL A “SUN TAX” SLOW DOWN ROOFTOP INSTALLATIONS?

Look around the suburbs and you will see rooftop solar PV installations have taken off. But Australia’s love of using the sun to power our homes has led to increased pressure being put on the distribution network. The high share of intermittent generation on the network, such as rooftop PV, has seen network operators warn consumers of an increased risk of congestion on the grid and possible blackouts. The increase congestion and the increase risk of blackout has led to the call for more market reform.

As part of ARENA’s Distributed Energy Integration Program, the Australian Energy Market Commission (AEMC) have rolled out their next phase of market reform in response to the increase congestion on the distribution network. The proposed changes include:

  • Changing distribution power networks’ existing incentives to provide services that help people send power back into the grid
  • Officially recognising energy export as a service to the power system.
  • Allowing power networks to develop new tariff options including two-way pricing.
  • Flexible pricing solutions at the network level.

The latest raft of reforms are designed to allow more solar and new tech energy into the grid. But Solar advocates have focused on the rule change that will allow distributors to charge solar households to export power.

Solar advocates have labelled the new legislation a “Sun tax” and have called upon state energy Ministers to “protect solar owners from this discriminatory charge’’.  The proposed reform, released for consultation last week, has been labelled a ‘‘sun tax’’ by community interest group Solar Citizens. Solar Citizens also called on state energy Ministers to ‘‘protect solar owners from this discriminatory charge”. It must be highlighted that this legislation is not a tax, and the new energy rule will include extra safeguards to ensure existing and new solar customers – and non-solar customers – are protected. The proposal does not mandate default charges for exporting power.

Market participants, including the distribution companies, agree the proposed reforms will allow more rooftop solar systems and batteries. This reform will also allow the smarter use of the network with distributed energy resources (DER) linking together to optimise the grid. This reform will enable more DER and how DER is managed. Currently as high levels of rooftop solar PV generation increase distribution companies restrict the power exported to prevent voltage spikes, frequency changes and in some cases blackouts.

Modelling by the AEMC shows a typical household with a roof top PV could lose out on $70 each year if this market reform goes through. The AEMC modelling also showed the reforms could impact around 20% of households. 80% of households will be no worse off and many may be better off by $15 as they would not be paying for the higher cost of distribution associated with building a grid to accommodate excess solar energy.

The AEMC have highlighted that these reforms are fairer as late adopters of rooftop PV are not disadvantaged with the current “first in, best dressed” structure.  AEMC CEO Ben Barr emphasised that the proposal would not mean that every kilowatt of energy exported into the grid would be charged, he believes distributors to offer a variety of options for solar households, which could include free exports up to a certain limit.

Energy Consumers Australia, which represents retail energy users, said the proposed reform was only the first step in a process that needed to focus on talking to consumers and putting their needs first.

EDGE IS HELPING BUSINESSES TO STEP UP THEIR CLIMATE EFFORTS

The world is changing……………………. you only had to look out the window this week, to see the impacts of this.

No matter how you think it is occurring or who you think is contributing to it, climate change is real.

Over the last decade it has been more evident that Australia is being impacted by climate change. We have seen higher temperatures, worsening droughts and most recently parts of Australia have been impacted by the worst floods in a decade.

Australia has always been affected by extremes in the weather, but science shows the impact and regularity is increasing.

At Edge part of our role is to advise our clients on how to best manage risk. This is not always financial risk as most people would assume but, indirectly climate risk. This is the biggest risk many companies are facing, and this directly relates to financial risk.

Investors are starting to push companies to align their operations towards emission reduction targets and the use of sustainable practices. Many companies across Australia are pledging to reduce emissions to ‘‘net zero’’ by 2050 however, many do not have a clear strategy to reach this target.

Edge has and is currently assisting our clients with the development of low carbon business models.

When investors are weighing up the performance of a company, they are now allocating more weighting to how the company manages it sustainability.

Edge works with a range of clients including, some of the largest mining and utility companies worldwide and over the last couple of years we have developed strategies to decarbonise their businesses.

The procurement of renewable energy is just one way in which Edge is assisting clients.

We have developed sophisticated mechanisms to provide the client with access to:

  • renewable energy
  • environmental certificates
  • emission offsets

and……………..we are still able to manage the price risk and uncertainty in the energy market.

IS GAS THE TRANSITIONAL FUEL?

 

Following feedback from industry that gas is not the transitional fuel for Australia to help move from Coal fired generation to renewables, AEMO is grappling with their plan to model a ‘gas led recovery’ scenario for the 2022 Integrated System Plan (ISP).

AEMO are now calling the ‘gas led recovery’ the ‘diversified technology’ scenario.

It appears that not all is dead for gas as an option as the transitional fuel and a fuel used into the future. Methane (CH4) is commonly thought of as the gas to power generation, however in this case it looks like ammonia (NH3) could be used. This carbon free fuel can be made by renewable hydrogen and is commonly used in fuel cells and rocket engines as a propellant.

Gas turbine generators are essentially modified rocket engines so it’s not hard to imagine ammonia to be used to fuel power generating gas turbines. Mitsubishi Power have developed gas turbines to operate on hydrogen but now they have gone a step further to develop ammonia-fired technology.

Mitsubishi Power is currently developing a version of its 40MW H-25 series gas turbine that would operate using ammonia, this commercial scale gas turbine is the first in the world to operate on ammonia as a fuel and is expected to reach commercialisation by 2025.

Ammonia is the chosen fuel as it is a highly effective transporter of hydrogen, using readily available nitrogen molecules to create a stable compound able to be easily stored and transported.

Apart from the usability of ammonia as a fuel source it comes with the added benefit of achieving a carbon neutrality fuel.

As with any technology there is always a downside, the combustion of ammonia results in the production of Nitrogen oxide (NOx).  NOx can have harmful effects on the environment by creating smog and in some cases acid rain. The NOx by-product can be reduced using catalytic similar to the ones used in car exhausts to reduce the level of emissions.

AGL BUYS TILT

 

In a $2.7B deal AGL has taken control over Tilt Renewables. The deal between Powering Australian Renewables (PowAR) a futures fund, which is 20% owned by AGL will buy Tilt Renewables.

Queensland Investment Corporation (QIC) is also a partner in PowAR. The futures fund together with Mercury NZ, paid $NZ7.80 per share in cash for Tilt Renewables. Tilt Renewables is a New Zealand company,  which owns wind and solar farms in both Australia and New Zealand.

The PowAR and Mercury consortium outbid APA Group, Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) and Australian fund manager, Infrastructure Capital Group which is associated with Engie.

PowAR will take Tilt’s Australian portfolio of projects, while Mercury NZ will take over the New Zealand business.

As Mercury NZ is currently a partial owner of Tilt Renewables with a 19% share they have been committed to the sale. The majority owner Infratil, with a 65.5% stake in the business has also  committed to supporting the sale.

The deal, which will make PowAR the largest owner of wind and solar generation in Australia, was funded by $341 million from AGL.

AGLs Chief Executive Brett Redman described the deal as “an exciting opportunity for PowAR to further extend its leadership in renewable energy generation”.

As the largest owner of coal fired generation in Australia, AGL will use this deal to complement its recent acquisitions of commercial solar companies Epho and Solgen. This will allow the company to move towards its climate commitments.

Edge News – March 2021 Newsletter

If your business isn’t looking at renewable backed energy deals, you are fast becoming the minority. All major market retailers and generators are seeing an exponential increase in enquiries for renewable backed energy deals and are scrambling to service this.

We only hope ownership remains diversified and we continue to see retail products take shape for smaller C&I and multi-SME consumers. They need access to renewables as much as the largest users.

YALLOURN EARLY CLOSURE

 

Early closures are now a reality, with Energy Australia’s announcement that they will close one of Victoria’s largest Power Stations four years earlier than planned. This is due to the impact of cheap renewable generation such as wind and solar, which reduces the company’s profitability.

Edge have held the view that early retirements would occur earlier than expected. This contrasts with the data published by AEMO that uses the engineering life of a power station to forecast plant closures, rather than the economic life of the power stations.

Edge have had this view for the last couple of years. It is exciting seeing our forecasts turning into reality!

Although the announcement of Yallourn’s closure is the first, it will not be the last.  Edge is forecasting early closures of coal fired power stations in Queensland and New South Wales.

To facilitate the early closure, Energy Australia approached the Victorian Government with a plan to retire Yallourn Power Station and transition to cleaner energy. The plan incudes a $10M package to support the workforce. Energy Australia have committed to building a 350MW battery capable of supplying power for 4 hours. The battery will be the largest in the world and is expected to be in service by 2026.

Energy Australia’s plan is to be carbon neutral by 2050 however, Yallourn currently accounts for 60% of the company’s emissions. Shutting down the power station will vastly improve the companies carbon footprint.

Yallourn Power Station currently supplies about 20% of Victoria’s power. The need to transition to more intermittent generation in the region, required a firming solution to be enabled.  This resulted in Energy Australia committing to the high-capacity battery. This battery will allow more renewable generation to be built and the renewable energy can be stored by the battery for use when required. This will eliminate the spill into the grid, which results in very low prices during daylight hours.

Energy Australia is owned by CLP Group, an electricity company in Hong Kong.  They have been vocal about the impact cheap renewables are having on the profitability of the company and how the current generation mix impacts its emissions targets.

With the closure of Yallourn, Victoria will still have over 3,000MW of coal fired generation across the two remaining power stations, Loy Y and A and B.

As the transition to cleaner energy gains momentum, Edge expects to see more announcements like this in the not-too-distant future.

RENEWABLE ENERGY TARGET PERCENTAGES ANNOUNCED

Yesterday the Clean Energy Regulator (CER) announced the annual 2021 liability percentages for Large-scale Generation Certificates (LGCs) and Small-scale Technology Certificates (STCs).

LGCs 18.54%

STCs 28.80%

Each year the CER uses actual data and estimates of rooftop solar PV installations to recommend a percentage to the Minister for Energy and Emissions Reduction as required under the Renewable Energy (Electricity) Act 2000 (the Act) to set the required number of STCs to be surrendered.

For 2021 the CER estimated 42.1 million STCs would be created. Under the Small-scale Renewable Energy Scheme (SRES) supply and demand are balanced, this requires liable entities to meet the demand. Liable entities are generally electricity retailers who pass the liability on to large end users.

As a result of the estimated creation of 42.1 million STCs and an 8.56 million certificate adjustment for the previous year (due to surplus STCs), the CER have calculated that 50.6 million STCs will need to be surrendered by the retailers to meet the SRES obligations, this translates into a Small-scale Technology Percentage (STP) of 28.80%.

The CER had originally estimated that the 2021 SRES liability to be 19.41%. Edge2020 has a number a large users who average 100MW of load. The higher SRES liability will result in cost increases in the order of $3.3m for these clients in 2021.

A similar process occurs for LGCs, but the liability calculation is somewhat different. The Renewable Energy Target (RET) legislation requires 33,000,000 MWh of renewable energy to be produced each year from 2021 to 2030. The liability percentage is set to meet the needs of this target, whilst also considering an aggregate ‘true-up’ for certificates over the life of the scheme, and large users who receive an exemption due to their Emission Intensive Trade Exposed (EITE) activities.

This year the CER have calculated that approximately 32.6 million LGCs will need to be surrendered to meet the RET obligations, which translates into a Renewable Power Percentage (RPP) of 18.54%.

Please reach out if you would like any further detail around the contents of this article or the RET scheme in general.

ELECTRIC VEHICLES CHARGED BY FUTURE FUEL FUNDING

 


The first round of the Future Fuels Fund is now open and is designed to boost the Electric Vehicle (EV) market, by increasing the number of charging stations available to the public.

Australian Renewable Energy Agency (ARENA) has $71.9M of funding available for round one, which closes on Tuesday 6 April 2021. Of the $71.9M, $16.5M is available for the development of fast charging stations across capital cities and key regional centres.

To ensure a network of charging stations are built, each region will receive a minimum of four fast charging stations. The targeted regions are expected to be the Central Coast of NSW, Wollongong, Geelong, Sunshine Coast and the Gold Coast.

Applicants are expected to provide solutions to maximise the coverage of their charging stations across each region. Opportunities should be delivered over the next 2 years, with the fast charging stations powered by renewable energy.

Round one is designed to instill confidence in the community, that charging stations will be available for the emerging EV fleet. As the charging stations are spread across the east coast there will also be the added benefit of extending the range for EV’s to travel.

Future funding will allow the barriers to entry to be reduced by:

  • supporting more infrastructure for regional Australians,
  • reducing charging blackspots and,
  • adding hydrogen and biofuel opportunities.

The Future Fuels Fund is part of the Federal Government’s Future Fuels Strategy discussion paper. The paper outlines:

  • the vision to create an environment that enables consumer choice
  • stimulates industry development and,
  • reduces emissions in the road transport sector

ARENA has previously funded charging projects, including fast charging networks on major highways being rolled out by Chargefox and Evie Networks.