Additional Small Scale Solar Coming to Victoria

The Victorian Government has announced that it will offer half priced solar panels to 650,000 households over the next 10 years.

This scheme, known as The Solar Home scheme, is currently valued at $1.24 billion and is open to owner-occupied homes with:

  • A combined household income of less than $180,000 per year; and
  • A home value of up to $3 million.

Households who are unable to install solar panels can instead choose to get a $1,000 rebate by changing their current hot water system to a solar hot water system. The solar hot water rebate is open to up to 60,000 homes.

How will this impact the market?

2017 had the highest rate of installation of rooftop solar and 2018 is on track to break this record. The additional demand created by the Victorian scheme could increase the number of certificates, and therefore the obligation for retailers to purchase certificates. This cost is likely to be passed through to consumers. In the short term, it could put downwards pressure on the certificate prices, however any reduction will be short lived as the Clean Energy Regulator adjusts the surrender target, matching demand with supply.

If you would like to understand how this may impact your portfolio please contact Edge on (07) 3905 9220 or 1800 334 336.

Changes to the National Energy Guarantee

The Prime Minister Malcolm Turnbull has, once again, made last minute changes to the National Energy Guarantee (NEG).

When the states threatened to walk away from the NEG, Mr Turnbull responded by making the emissions target regulated rather than legislated. This means that a minister is able to change the target without the support of the parliament. Over the weekend, Mr Turnbull came under pressure internally with several backbenchers, led by former Prime Minister Tony Abbott, wanting to get rid of the targets all together.

A number of changes to the NEG were announced on Monday 20 August, 2018. These changes include providing additional controversial powers to the ACCC where they will have the ability to:

  • Force power stations to stay online; and
  • Force divestment of companies.

Mr Turnbull also reverted to making the emissions target a legislated target, however conceded that the current parliament was unlikely to agree on a target. Mr Turnbull has urged for the NEG to go ahead with an emissions target being set some time in the future once there is a possibility of agreement.

The centrepiece of the NEG was supposed to be certainty. If the current Government is unable to set an initial target even at the current international commitment, it is difficult to see investment flowing from the NEG. The additional powers of market intervention will also be looked on very sceptically from the outside. ACCC was opposed to AGL buying generation in New South Wales and now they may get a vehicle for forcing a divestment.

In the short term, it is unlikely that Labor will want to agree on the NEG or anything else which will put this to rest as the political fallout continues for the Coalition.

If you would like to know more about the NEG, call Edge on 1800 334 336 or 07 3905 9226.

National Energy Guarantee Update

Yesterday the COAG Energy Council released a draft of the proposed changes to the National Electricity Law that would implement the National Energy Guarantee (NEG).

The draft Bill sets out:

  • Who is liable under the emissions reduction and reliability requirements;
  • The key aspects of the emissions and reliability requirements;
  • The compliance and penalty framework;
  • The additional functions and powers of the Australian Energy Market Commission (AEMC), the Australian Energy Regulator (AER), and the Australian Energy Market Operator (AEMO) to support the implementation of the Guarantee; and
  • A new emissions objective, applicable to the emissions requirement, to guide rule-making by the AEMC and the exercise of related functions and powers by the AEMC, AEMO and AER.

Stakeholders are encouraged to make written submissions on the draft Bill by 12 September, 2018. Submissions will be published on the COAG Energy Council’s website, following a review of claims for confidentiality.

If you would like further information please get in contact with your Portfolio Manager or follow this link to the COAG Energy Council website.

Price of Utility Scale Solar Being Questioned

The engineering company, RCR Tomlinson, went into trading halt on July 30, 2018 and its CEO, Paul Dalgleish, has stepped down. The trading halt is due to an investigation into cost blowouts for unspecified projects, which will hurt the FY18 annual profit.

The deputy state secretary of the Queensland and NT Electrical Trades Union, Peter Ong, has stated that RCR has been undercutting other bids by as much as $30 million when bidding for utility scale solar project. Peter Ong’s major concern is the use of cheaper labour to try and make up the difference.

For the broader market, if RCR have been under-pricing the engineering cost of installing utility scale solar, there could be an increase in the expected price of new utility scale solar. Citigroup warned that the recent solar farm built for Sun Metals may have had a cost blowout by as much as $7 million.

RCR has not confirmed that it is the utility scale solar which has led to the cost increase.

If you would like to understand how this may impact your portfolio please contact Edge on (07) 3905 9220 or 1800 334 336.

NEG Moves To Next Stage

The Council of Australian Governments (COAG) meeting has ended and the Federal Energy Minister Josh Frydenberg will be able to move the National Energy Guarantee (NEG) to the next stage. 

The next stage will involve taking the legislation to the Coalition party room on Tuesday. If the party room agrees with the draft legislation, there will be a teleconference with COAG and the draft legislation will be released for public consultation. 

Minister Frydenberg still believes that legislation will pass in 2018 for a 2020 start. Federal Labor, the two Labor held states (Victoria and Queensland) as well as the Australian Capital Territory are still sceptical.  Particularly, Victoria has concerns that the NEG doesn’t seem to support lower power bills, emissions reduction and more renewable energy jobs for the state.  

Further details are expected to be made available on Tuesday.  

If you would like to know more about the NEG, call Edge on 07 3905 9220 or 1800 334 336 or speak with your Edge Portfolio Manager.

NEG decision to be placed on hold until next week

According to the Australian Financial Review, the Queensland, Victoria and Australian Capital Territory leaders have stated that they will not sign off on the National Energy Guarantee (NEG) at this Fridays COAG Energy Council Meeting. They have provided their support in principle however are waiting until after the NEG has been through the Coalitions party room on Tuesday next week before providing agreement. Premier Palaszczuk claimed that as of yesterday, the states had not seen the legislation that they would be asked to support on Friday. Tuesday next week has been indicated as the earliest that a decision will be made by the Labor state and territory leaders.

Another debate is also underway in regards to the emissions reduction target to be set by regulation or legislation.  If set by regulation a minister would be able to change the target without the approval of parliament. If set by legislation, any changes would have to be passed by both the lower and the upper house providing additional investment security. The Labor states are pushing for regulation so the targets can be changed as soon as possible. The Commonwealth Government wants the target to be legislated as was done by the previous Labor Government when agreeing the Renewable Energy Target.

If you would like to understand more about the NEG and the potential impact it may have on your energy portfolio moving forward, please visit edgeenergyservices.com.au or alternatively you can call one of our team directly on 07 3905 9220 or on 1800 EDGE ENERGY.

Dramatic decline in electricity prices predicted as a result of the NEG

The AFR published an article last night which refers to the final design of the National Energy Guarantee (NEG) which was provided to the state and territory leaders on Monday. Within the article is a graph containing forecast NEM wholesale prices (real 2018 $/MWh) from FY18 to FY30, as seen below. The forecast comes from Acil Allen Consulting. Unfortunately, the graph is all that is provided and is therefore impossible for the market to understand what the assumptions are behind the modelling. When releasing forecasts that show dramatic changes in energy prices it should be explained in detail so that stakeholders can understand the key drivers behind the decline. By making the assumptions available, stakeholders are then empowered to make their own assessment on the accuracy of the forecast.

Source: Australian Financial Review.

The Federal Government is claiming that under the NEG households can expect to save an additional $150/year.

The NEG has gained support across the energy market and looks like it will be agreed on by the states and territories. Federal Energy Minister Josh Freydenberg is scheduled to meet with state and territory leaders on 10 August to gain approval of the policy. If successful the NEG will begin in 2020.

If you would like to understand more about the NEG and the potential impact it may have on your energy portfolio moving forward, please visit edge2020.com.au or alternatively you can call one of our team directly on 07 3905 9220 or on 1800 EDGE ENERGY.

Electricity cost forecasting – is it really that simple?

As the Australian generation fleet transition to lower carbon emissions we are seeing the regulatory framework catching up. The regulatory framework is not the only aspect which is changing. We are experiencing an increasing amount of direct power purchase agreements being written between large users and renewable developers.

Economic models are also struggling to catch up. Almost every month a new forecast is published showing that if we just implement the latest proposed change to the market, we will see a return to the good old days of lower electricity prices. Part of this fallacy comes from outdated forecasting models which still look at cost of production as the main input to power prices. Short term price spikes and managing the grid in a sub-five minute period is increasingly important. Most current forecasting techniques fail to capture these factors as well as transient market power where a generator is able to set prices for a period by changing the volume offered in bid bands.

Behaviour is difficult to predict over the long term so most models assume rational behaviour in the long run. This is essentially sensible (it is very difficult to measure irrational behaviour) however begs the question how to model rational behaviour. In the electricity market, we will generally see future costs (over a very long term) trend towards the cost of bringing new plant online. If the long term prices are higher than the cost of new generation, someone should fund additional generation providing a natural cap.

The issue in current forecasting is determining the cost of bringing a new plant online. Traditionally, this has been the total cost of the plant divided by the number of MWh it produced. This provided a neat number expressed in $/MWh and is the basis for levelised cost of electricity (LCOE). The issue with using this number is that price profiles are changing and could be negatively impacted by the type of generation being evaluated. If we look at a solar farm in Queensland, we can estimate the production and the cost of the solar farm. This is the LCOE however it may not be the value of the solar farm, or produce the best estimate of the cap on long term electricity prices. In the event a large number of solar farms are built in the same location, there will be a large production at that time of day and not at others (evenings, mornings and overnight). Other generation sources will be required to fill the gaps. These other sources could have a higher cost and will only be built once there is a price signal to do so. The cost of electricity will be low during daylight hours when all the solar farms should be in full operation. This means that the value of the generation from solar reduces as more is built. This is not captured in the LCOE of generators. A new methodology which looks at the dispatch weighted (when generation occurs) achieved price will have to be considered when evaluating future electricity prices.

The impact of changing long term electricity forecasts are important. Many new plant rely on a component of their generation to be funded from the electricity spot market. With large changes in the assumed cost of electricity as models react to short term announcements it is very difficult to bank a project. On the other side, where consumers are being provided with different assumptions on future prices, it is difficult for them to commit to a purchasing strategy leading to more short term optimisation.

If you are considering a large investment in the electricity market, please call us on 1800 334 336 to learn more about the determination of electricity costs and gain a deeper understanding of the traded market.

Have you exceeded your baseline under the Safeguard Mechanism?

Following the close of the financial year 2018 NGER reporting period, responsible entities will need to determine if they have exceeded their baseline under the Safeguard Mechanism.

The safeguard applies to around 140 large businesses that have facilities with direct emissions of more than 100,000 tonnes of carbon dioxide equivalence (t CO2-e) per year. This covers around half of Australia’s emissions. The entity with operational control of a facility will be responsible for meeting safeguard requirements, including that the facility must keep net emissions at or below baseline emissions levels.

There are various methods for a facility to meet its safeguard requirement depending on its emissions, how it operated during the financial year and its expected operation in the future. Understanding the best way of meeting the baseline is critical to avoid having to overpay under the mechanism. Responsible entities have until 31 October 2018 to submit their financial year 2018 report and apply for any change to benchmark calculations. If a responsible entity still exceeds their baseline, they have until 28 February 2019 to secure Australian Carbon Credit Units (ACCUs) to offset their excess emissions.

Edge is able to provide entities with data that supports your NGER reporting requirements. Edge also works with various buyers and sellers of ACCUs and can assist with the sale or purchase of certificates if required.  Finally, if your business has been caught with excess emissions, Edge can proactively design strategies to help mitigate costs under the mechanism.

If you would like to explore services relating to NGER reporting requirements and have any questions regarding the Safeguard Mechanism,  call Edge on 07 3905 9220 or 1800 334 336 or speak with your Edge Portfolio Manager.

AEMO Release Inaugural System Plan

This morning AEMO released their inaugural Integrated System Plan (ISP). The plan is an evaluation of the likely changes that will be occurring over the next 20 years across the NEM. The ISP builds on the work of AEMO’s annual National Transmission Network Development Plan, and has been developed in response to the COAG Energy Council’s decision in 2017 to adopt the recommendations made in the Independent Review into the Future Security of the National Electricity Market, specifically pertaining to the need for a strategic national plan. AEMO have used probabilistic scenario based analysis and system optimisation to project the reliability and security needs of the power system while simultaneously identifying the lowest cost combination of resources to meet system and consumer needs. The ISP also incorporates projected Federal emissions policy and State renewable policies.

AEMO’s analysis has identified the following fundamental changes occurring in the energy sector:

  • Grid demand is flattening due to the growth of rooftop photovoltaic (PV) and increasing use of local storage, as well as overall increases in energy efficiency. This is true even with the anticipated electrification of the transport sector over the period.
  • Over the next 20 years, approximately thirty percent of the NEM’s existing coal power stations will be approaching the end of their technical lives, and will likely be retired, which highlights the importance of mitigating premature retirements as these resources currently provide essential low-cost energy and system support services required for the safe and secure operation of the power system.
  • The investment profile and capabilities of various supply resources have changed and are projected to continue to change radically.
  • In particular, costs of new renewable plant continue to fall, and advances and availability of storage technologies, particularly pumped hydro, flexible gas-powered generation and distributed energy resources (DER) are emerging as core components to a low cost and reliable energy future.

The ISP finds that a portfolio approach of supply resources includes both retention of existing resources and continued growth of utility-scale renewable generation, energy storage, DER, flexible thermal capacity, including gas-powered generation, and transmission development to be the most efficient approach.

AEMO has identified three “Groups” which distinguish actions that a recommended to be taken in the near, medium and longer term.

 Group 1: Near-term construction to maximise economic use of existing resources

Immediate action is required to maximise the economic use of existing low-cost generation. Investment is also required to facilitate the development of projected new renewable resources to replace retired and retiring resources, and to provide essential system security.

  • Immediate investment in transmission should be undertaken, with completion as soon as practicable, to:
    • Increase transfer capacity between New South Wales, Queensland, and Victoria by 170-460 MW.
    • Reduce congestion for existing and committed renewable energy developments in western and north-western Victoria.
    • Remedy system strength in South Australia.

 

Group 2: Developments in the medium term to enhance trade between regions, provide access to storage, and support extensive development of Renewable Energy Zones (REZs)

The ISP shows that an interconnected energy highway would provide better use of resources across the NEM, through both access to lower-cost resources and realising the benefits of diversity from different resources in different locations with different generation profiles.

  • Action should be taken now, to initiate work on projects for implementation by the mid-2020s which would:
    • Establish new transfer capacity between New South Wales and South Australia of 750 MW.
    • Increase transfer capacity between Victoria and South Australia by 100 MW.
    • Increase transfer capacity between Queensland and New South Wales by a further 378 MW.
    • Efficiently connect renewable energy sources through maximising the use of the existing network and route selection of the above developments.
    • Coordinate DER in South Australia.
  • AEMO will coordinate work with project proponents on a design for transmission networks to support strategic storage initiatives (Snowy 2.0 and Battery of the Nation).

 

Group 3: Longer-term developments to support REZs and system reliability and security

In the period from 2030 to 2040, a significant amount of the NEM’s coal-fired generation is expected to reach end of technical life and retire. As noted, given the scale of the investment and building time required, it will be important to retain existing coal-fired generators until the end of their technical life to maintain reliability.

  • In the longer term, to the mid-2030s and beyond, the capability of the grid should be enhanced to:
    • Increase transfer capacity further between New South Wales and Victoria by approximately 1,800 MW.
    • Efficiently connect renewable energy sources through additional intra-regional network development.

 

If you have any questions regarding AEMO’s ISP or how you can best position your company in response to the changing energy market please get in contact with Edge on 07 3905 9220 or 1800 334 336.