Australian Energy & Environmental Market Update - April 2024

Features

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Feature 1

Queensland's landmark legislations

Queensland Government has enshrined its 80% renewable energy target by 2035 into law and will reinforce it with a suite of other supporting measures. 

The Queensland Government's Renewable Transformation and Jobs Act 2024 has enshrined their 80% renewable energy target into law in hopes of providing certainty to their communities and industry stakeholders.

The state has staged their renewable energy targets as follows:

• 50% by 2030
• 70% by 2032
• 80% by 2035

In addition, Queensland has also legislated a suite of other measures to reinforce their energy transition commitments. These include:

• Enshrining the commitment to public ownership of all transmission, distribution and deep storage assets, and 54% of generation assets – the enactment strategy to this is yet to be defined.
• Establishing the Job Security Guarantee Fund which ensures access to new jobs, training, or financial support to workers at existing publicly-owned power stations and coal mines.
• Setting 75% emissions reduction on 2005 levels by 2035.

Numerous frameworks have been proposed to achieve a co-ordinated transformation. The most notable is a blueprint for building the Queensland SuperGrid, which encompasses all potential renewable energy zones (REZs) - the planning process will be reviewed and updated every 2 years from 2025 onwards.

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Feature 2

Very fast FCAS dominates Q1 2024

Very fast FCAS continues to reward batteries and dominate total FCAS costs. 

To maintain the NEM's system frequency within the normal operating frequency band of 49.85-50.15 Hz, AEMO offers an array of frequency control ancillary service (FCAS) products for correcting minor supply/demand deviations and major contingency events.

The very fast FCAS markets commenced their lower 1 sec (L1SE) and raise 1 sec (R1SE) offerings in October 2023.

Total FCAS costs continued to drop this quarter with $29 million in payments, a $4 million drop from Q4 2023.

R1SE alone contributed 47% of total FCAS costs this quarter - lower 6 sec (L6SE) was the second highest contributor at only 14% total share.

While very fast FCAS products averaged at $18/MWh in Q4 2023 across the NEM, the average prices for these have gone in either directions this quarter:

• L1SE dropped to under $1/MWh
• R1SE rose to $27/MWh 

Since Q4 2023, the FCAS market share of batteries grew from 50% to 57% - coal suffered the most with a 3% drop.

The introduction of very fast FCAS also drove an increase in battery enablement1, which supplied 75% of total enablement for very fast FCAS in Q1 2024.

Feature 3

Metis secures first PPA for Australian solar

Singapore-based Metis Energy has signed a PPA for the 94 MW Gunsynd solar farm in Southwest Queensland – their first ever with an Australian solar project. 

With support of the CORE Markets advisory team, Metis Energy and industrial electricity retailer SmartestEnergy have signed a Power Purchase Agreement (PPA) for off-taking Gunsynd solar farm’s renewable generation, currently in construction near Goondiwindi in Southwest Queensland.

Metis Energy operates projects across Asia Pacific and will now mark their entrance into Australia.

Gunsynd Solar Farm is expected to commence operations by 2025 and will be capable of generating 250 GWh annually.

Metis will continue growing its Australian portfolio with the $1.2 billion Bendemeer Renewable Energy Hub Project, planned within NSW’s New England Renewable Energy Zone (REZ):

• 210 MW solar farm.
• 380 MW wind farm.
• 200 MW / 400 MWh battery energy storage system (BESS).

Feature 4

VEEC prices reach a historic high

Victorian Energy Efficiency Certificate (VEEC) prices reached a historic high of $98.25/certificate at the end of April 2024.

Victorian Energy Efficiency Certificates (VEECs) are credits that each represent one tonne of CO2e emissions reduction and are created through eligible energy efficiency activities undertaken at residential, commercial, or industrial sites.

Since April 2023, VEEC prices have continued to climb and eventually reached a historic high of $98.25/certificate on 30 April 2024.

Following the challenges of Refrigerated Display Cabinet activities, numerous regulatory reforms were introduced to tighten the approvals of VEEC creation methods – the most notable being a $2.33 per certificate creation fee, which came into effect on 1 November 2023.

This creation fee is applicable to each certificate, regardless of whether they are successfully registered.

As VEECs must be created no longer than 6 months after the end of year in which an activity was completed, thus the effects of 2023 reforms may only become more visible as we approach June.

In 2023, 15 activities pertaining to lighting, water heating, and space heating had been revoked without the introduction of new activities. This VEEC supply constraint causes issues for forward contract holders that are unable to meet their obligations, thereby driving up demand in the spot market.

Learn more at the Victorian Energy Upgrades (VEU) Program Seminar in Melbourne on 23 May 2024

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What this month’s developments mean for Australian business

• Energy market
  
  Renewable energy output decreased in April compared to March across the NEM, with South Australia and Victoria seeing the biggest drops. This translated to an increase in spot electricity prices across all states, with a notable increase of 63% in Victoria.
  
  April’s developments highlight the highly variable nature of renewables and therefore the need for energy buyers to take a strategic approach.  Signing a PPA is just the first step. Forward looking organisations need to proactively plan for managing the volatility that comes with it.

• Carbon market
  
  The Australian carbon market exhibited slightly lower volatility in April compared to March as captured by the Generic ACCU price movements. It’s important to remember however that the market remains highly stratified and Generic ACCU dynamics are just one piece of the puzzle organisations need to understand.
  
  Whether your goals are compliance based or voluntary in nature, it’s important to understand all current demand drivers and how they are shaping the future of the market. We cover this in detail in our new method-specific ACCU demand, supply and price forecast analysis.

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Do you need help navigating renewable energy and carbon markets?

The events outlined in this month's update highlight the evolving nature of carbon, environmental and energy markets and the complexity of the net zero transition.

To discuss your unique requirements, get in touch with our team today to see how we can help.