The latest lite edition of our monthly Australian energy & environmental market update is now available. Keep reading for energy and carbon pricing movements, policy updates and other news.
This month we cover energy and environmental market price movements, AEMO’s announcement of results for their 1st long term competitive tender for NSW, the Queensland Government’s announcement of new renewable energy targets, and the CEC’s recently released Renewable Energy Quarterly Report for Q1 2023.
Keep reading for an overview of key market developments and a discussion of the impact of these announcements.
The full version of the update, with additional commentary from our industry analysts, is available to paid subscribers.
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In August 2022, AEMO announced that it would conduct a competitive tender for long-term energy services agreements (LTESAs). This was in response to a forecasted breach of the energy security target, with NSW-specific reliability measure under the Electricity Infrastructure Investment Act 2020, wherein it was highlighted that a mix of generation and firming infrastructure is needed to address the breach and ensure that the NSW energy market remains reliable and secure. The LTESA is a financial derivative contract between a Project Operator and the Market Regulator, with majorly 3 options to enter into a fixed length agreement – Generation, LDS (Long Duration Storage) and Firming. AEMO announced that it would conduct the tender in 3 stages with stage 1 focusing on generation and LDS projects while the 2nd stage would focus on the firming projects.
AEMO invited potential project bids from interested parties by the end of October 2022, and conducted financial value assessment during mid-December 2022 till February 2023. The successful bids (with some recommendations) were announced to the market in May 2023. The first tender for generation and long-duration storage LTESAs attracted strong interest from the market, with 16 projects totalling more than 4.3GW of capacity. These were then shortlisted for the next stage of assessment, considering deliverability and social co-benefits. There were 4 successful projects that were awarded contracts based on their financial value and co-benefits. (see table besides)
LTESAs are a series of option contracts that grant storage or generation projects the right to access cash flows for specific periods over a long contract term. They aim to reduce the price uncertainty for investors and, as a result, aims to encourage investment in new sources of renewable generation and storage, resulting in more affordable energy for consumers. For generation projects, this provides protection during extended periods of low wholesale prices. LTESAs offer investors in energy generation projects ongoing certainty and lower risk. They are structured as options contracts, which means that the project has the right, but not the obligation, to sell its electricity at a minimum price over a 20-year period. This provides investors with protection against low wholesale electricity prices and encourages them to participate in the wholesale contracts markets.
Conversely there is a claw back mechanism in place for the projects to pay back, meaning project operators have to payback 75% of the revenue above a threshold to the Market Operator. This payback amount is capped at the historical net cumulative repayments or can be reduced if the Project Operator enters a PPA (Power Purchase Agreement) with an electricity off-taker.
Additional commentary is available in the full version of the update. Contact our team to find out more.
The Clean Energy Council (CEC) has released its Renewable Project Quarterly Report for 2023, the report highlighted that construction began on eight solar and battery energy storage projects worth a total of $1.3 billion this quarter in Australia. This is nearly double the amount of construction activity that took place in the preceding quarter.
However, the CEC also reported that there has been a significant fall in new financial commitments to large-scale renewable projects. In the first quarter of 2023, construction began on seven generation projects amounting to $400 million, which is the second lowest quarter since 2017. With a total capacity of 1.014 GW only 2 projects with 400 MW capacity were commissioned. Since 2017, 193 projects with 15.5 GW capacity have been commissioned, worth $27 Billion AUD.
According to the CEC report, with the current rate of investment Australia won’t be able to reach its national target of 80% renewable energy by 2030. While some states such as NSW with its $1 billion state owned body & the State Electricity Commission in VIC have taken their own initiatives to promote the renewable energy growth within the state, CEC highlights that there are still many challenges.
Several factors have been affecting the Investment in the Australian renewable energy industry like bigger investment incentives available in the US and European markets, supply chain and worker shortages, planning and approvals delays & majorly the grid connection challenges for new projects.
The industry is calling the government to take some steps towards extending the legislated Renewable Energy Target or developing the renewable energy “Guarantee of Origin” mechanism to provide certainty for renewable electricity investment and procurement, increasing the development of REZ (Renewable Energy Zone), streamlining the planning & approval process & investing in new transmission infrastructure to help connect new renewable energy projects to the grid.
Additional commentary is available in the full version of the update. Contact our team to find out more.
The Queensland government has started seeking feedback on its newest draft legislation, Energy (Renewable Transformation And Jobs) Bill 2023, setting the renewable energy targets and investments, with the goal of achieving 50% renewable energy by 2030, 70% by 2032, and 80% by 2035. The government will also invest $500 million to accelerate the development of renewable energy projects. The new targets are ambitious, but achievable with the right investments and policies. Queensland has a strong renewable energy resource base, including abundant solar and wind power. The state also has several pumped hydro projects in development, which will provide storage for renewable energy. The government's investments will help to accelerate the development of renewable energy projects. The investment will support the developmental phase of up to 2.3 GW of large-scale solar and wind projects in central Queensland. These projects will create jobs and boost the local economy.
The bill legislates that government of Queensland will maintain its majority share of generation, currently averaging 54%, while there will be a strong role for the private sector in delivering renewables, other storage assets, and innovative energy technologies. Additionally, the world's first Job Security Guarantee and Fund will secure energy workers' access to jobs, training, and financial assistance. The Bill has also set up planning and governance frameworks to ensure an orderly transition, including Renewable Energy Zones, Queensland Energy System Advisory Board, Energy Industry Council, and the Queensland Renewable Energy Jobs Advocate.
Interestingly the CEC (Clean Energy Council) in its Renewable Project Quarterly Report for 2023, has highlighted that there has been a significant fall in new financial commitments to large-scale renewable projects. In the first quarter of 2023, construction began on seven generation projects amounting to $400 million, which is the second lowest quarter since 2017. With a total capacity of 1.014 GW only 2 projects with 400 MW capacity were commissioned. Since 2017, 193 projects with 15.5 GW capacity have been commissioned, worth $27 Billion AUD. The draft bill promises to provide investors with ample opportunities to invest in QLD with creation of the QLD Super Grid Infrastructure and identifying 4 new REZ (Renewable Energy Zones)
Additional commentary is available in the full version of the update. Contact our team to find out more.
Long-term energy services agreements (LTESAs) should provide much needed floor price certainty and improved financed positions for generation projects.
Interestingly the CEC (Clean Energy Council) in its Renewable Project Quarterly Report for 2023, has highlighted that there has been a significant fall in new financial commitments to large-scale renewable projects.
With a limited number of projects reaching financial close over the last 12 months there has been a significant increase in demand for existing PPAs from large corporates who are looking to meet their sustainability targets.
To navigate these challenging times, businesses must remain proactive in their energy strategies, reassessing their energy use, and taking the opportunity to invest in energy efficiency measures to reduce their overall energy consumption and mitigate potential short-term price hikes during the transition.
The events outlined in this months update highlight the evolving nature of carbon and energy markets and the complexity of the net zero transition.
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