And the Best Horror Story of 2023 Goes to…

No need for Stephen King, the ESOO (Electricity Statement of Opportunities) is this year’s horror bestseller, and it comes out this week.

In WA this week we have seen the power of the AEMO reports. With the WA WEM ESOO showing the government’s ambition to phase out coal by 2030 would result in shortfalls. This week the WA government scrambled to cover the shortfall and quickly announced the Muja 6 plant was given an extension until at least April 2025 under ‘reserve outage mode’ conditions. With WA planning to remove 1,366MW from the system by 2030, the transition was showing shortfalls of just below 1GW by FY26 and a terrifying 4GW by FY33. The noises coming from the state are therefore all about how to “manage the transition” and no longer how to meet the targets.

Over in the NEM (National Electricity Market), even before the release of the ESOO this week, this was the week in which we saw announcements in Victoria and an expected announcement from NSW looming. The question is no longer will Australia meet its Net-Zero target, but by how far we will miss it and what impact will closures have before renewable uptake comes onto the grid?

The Victoria government has pre-empted its requirements and moved forward to strike the “structural transition deal” with AGL to continue the operations at Loy Yang until 2035. Despite the pressure from certain board members, even they have to concede that the uptake in renewables is not at pace to orderly transition the market away from coal.

Energy Australia followed this announcement with the news that through its “Climate Transition Action Plan” the Yallourn power station will close in 2028, with the Point Piper remaining available until 2040.

This has been flanked by the NSW government strategically leaking, no doubt to soften the announcement, that the Eraring plant will remain online. The question now is in what form and at what cost.

With Australian renewable uptake at one of its lowest levels in years, hindered by the huge subsidies in the US and massive European demand. Increasingly vocal opposition to transmission upgrades, especially from rural communities, and no certainty on policy post the RET expiry in 2030, there is no doubt this week’s ESOO will make scary reading.

With the COP28 looming at the end of November, I think the hot potato in Canberra is going to be who goes, as there is no doubt when the ESOO is published we will be back in the naughty chair.

The question, therefore, is not will we miss our energy transition and therefore climate targets, but rather by how much?”

Victoria’s Gas Ban: Gas is gone so how to stay warm in Victoria

With the UK announcing this week that they are opening up 20 new Oil and Gas fields to assist in meeting at least three weeks of supply for the country, the UK is pinning its decarbonisation and supply hopes on the Gas market. Being a country which is heavily reliant on imports of gas, and the reliance being costly and not certain in the Russian dominance era, this seems like from a business, not climate, perspective a smart move.

This therefore makes the contrast a stark one in comparison to the Victoria announcement also this week to ban all new Gas connections in homes and government buildings. With this being under the premise of cost savings I am not sure everyone is buying what the States Energy Minister, Lily D’Ambrosio, is selling.

Without diving into that political black hole, there must be a thought going through many Victorians heads though, with Gas gone how do we replace the gas boilers with something equally as effective without blowing out our electricity consumption.

Well, this is something which has been looked at in depth within the wider market at the moment, and the most effective solution is a heat pump. Sales of heat pumps, according to the IEA, have increased globally 11% in the past year alone and 49% in Europe.

So what is a Heat Pump? The traditional Heat Pump is an air source heat pump. Similar to your air con unit, the unit is fitted to the outside of the house and will pull the air into its refrigerant system. This turns the refrigerant into vapour which is compressed and creates – yes you guessed it – heat. This process can work in all temperatures, even below zero and therefore could be an effective solution for Victoria.

This all sounds great but ultimately is it costly and how effective is it? Well, a gas boiler is around 90-95% efficient, whereas the heat pump is 350% efficient. They actually produce 3.5 times more energy to use as heat than the electricity to run them. This could be the solution as even if the electricity is more expensive than the gas, sorry to the Vic government but you can’t spin that any other way, the amount required is less and therefore it could reduce those bills, you may get your wish after all!

This concept hasn’t been completely lost on the Victorian government as after the initial announcement they followed with a $10m grant to electrify new homes, with developers able to apply for rebates for solar panels, solar hot water systems and … heat pumps. However, with electricity prices rising, the new Victorian Government Owner corporation stalling, and electrification legislation being pushed through, at what point does the equation not add up in time for the grid to be able to take all this new load?

The ESOO and next years ISP will no doubt make interesting reading as all state’s electrification, degasification and net zero plans start being incorporated into the final view of our grid and its requirements.

Safeguard Mechanism – Consultation on draft guidelines update

Edge2020_Safeguard Mechanism

The Safeguard Mechanism reforms commenced in July 2023, however changes are still ongoing around the legislation. Here’s an update on what to expect around setting international best practice benchmarks and production variables.

Currently the Department of Climate Change, Energy, Environment & Water (DCCEEW) are focusing on international best practice benchmarks, and how we will incorporate these into the Australian reforms.

In late 2023 we expect the department to develop and consult on the best practice benchmarks for the production variables, expected to be enforced from financial year 2024.

Baseline decline rates are set at 4.9% each year until 2030. Post 2030, the indication is these decline rates will move into 5-year increment blocks, although this will be confirmed in the 2027 consultations. All new facilities will be allocated a baseline determined by these variables, and eventually they will affect all sites.

Controversy is expected to arise around this new baseline being based on the facilities that have the lowest emissions intensity globally. That means if Japan, for example, has a game-changing technology advancement that is suitable for their economy, it will set the benchmark for Australia, thus influencing our production variables. The proposal is to use two (or possibly more) facilities with the lowest emissions, and average two years of their emissions data.

The consultation paper does allow for a calibration for the Australian climate and geology, but not skills. As such, if a new technology does come into play not only will the technology become sought after for its benefits, but the skilled labour to run it will also be in demand.

The departments is targeting a FY24 start for the new international best practice priority production variables, with additional production variables to follow from FY25. That means we should have these reforms consulted on and made law by the end of this calendar year.

Further to this, the current draft of the new production variables update has been released by the department.

The most significant proposed changes would affect the new “Run-of-mine” coal variable which has been established to create a single production variable for all emissions around mining, including any coal mine waste gas (CMWG) emissions. The coal sector will continue to be heavily targeted by the reform changes. By FY30, even those on-site specific intensities baselines will be moved to a 50:50 split between those site-specific values and the default value.

Submissions on the consultations around the production variables will close on the 11th of August 2023.

 

Hydrogen-Electric Powertrains on the horizon as Ecotricity launch the first ever electric airline

Edge2020_Hydrogen-Electric Powertrains

This week’s launch marks the first step towards Hydrogen-Electric Powertrains.

The hydrogen transition continues to evolve with the UK’s Ecotricity CEO this week launching the first Electric airline. The 19 seater plane will operate the roughly 400mile (650km) route between Southampton and Edinburgh.

The initial phase will see the plane run on a kerosene-based fuel but the hope is, within a year, they will transition to a “hydrogen-electric powertrains.”

The Fuel Cell construction is similar to that of a battery, and the compressed hydrogen gas will feed the stack, which does not burn the fuel but converts the chemical energy into electrical energy.

What does that mean – well imagine you have a lunchbox, and inside this lunchbox, you put sandwiches made of hydrogen gas. Now, these sandwiches aren’t like your normal sandwiches, because you don’t eat them, you just put them into this lunchbox.

This lunchbox is the fuel cell or stack. Instead of you eating the sandwich, the lunchbox eats it. But the lunchbox doesn’t eat it like we would, it turns the hydrogen sandwich into electricity. This electricity is then used to power the aeroplane’s engines.

It all seems quite logical, and the new “sustainable” air travel could be the key to the issue which has plagued the airline industry for so long, how do we travel without the emissions.

Australia will be watching this with interest as transport is the second-biggest greenhouse gas-emitting sector in Australia. It is estimated airline emissions make up about 12% of that sector. However, getting past regional flights into long haul may create other challenges the industry is not yet able to overcome.

With the idea of hydrogen cells being used for a range of industries now, China launching their Hydrogen fuel cell powered boat, “the Three Gorges Hydrogen Boat No 1” in April and BOC and BP already developing hydrogen service stations, the first to be placed at Lytton in Queensland the hydrogen future is already starting to move past the theoretical and into the reality.

Australia’s commitment to climate change – we won’t make it to Paris

Show your stripes Climate change

Are the government realising what we have known all along – we won’t make it to Paris?

Almost a month after the world’s 6th #ShowYourStripesDay, the day made to spread awareness of climate change using the global Warming stripes https://showyourstripes.info/ the government have continued to apportion blame rather than invest in the industry to help them meet the targets they have set.

This was further evident in the Renew Economy podcast Chris Bowen undertook last week where he stuck to the governments line of “ambitious but possible.” However, leaks out of his office and the concerns that upcoming auctions will not produce the renewable investment results in time for the expect August 2025 closure of Eraring have led to industry starting to move away from the spin and into the reality of the 2025/2026 market, even before the release of the August ESOO.

The well-publicised article in the AFR added further faces and voices to those who are not standing behind the government’s naïve reality. Amongst them Kerry Schott, former chairwoman of the ESB, and Paul Broad the former Snowy Hydro CEO, who have been added to the growing chorus of dissenters who are adamant that Australia will miss its 2030 climate targets. This is in addition to the comments by the AEMO chief Daniel Westermann who cited a lack of investment as the reason Australia will fall short.

However, one question still looms large, if we don’t get there will we need to extend the life of existing coal plants, specifically Eraring whose closure in August 2025 will remove 25% of generation from the NSW grid?

It now looks like we have that answer. The industry at the end of last week was awash with rumours that the long-anticipated announcement around Eraring was starting to gain some certainty. According to an article in the Daily Telegraph on Friday, citing “industry sources,” at least half of the stations generation will indeed stay on post the August 2025 shutdown.

These targets moved further into the horizon when Delta run Vales Point announced they would have the ability to remain on until 2033, four years more than they originally anticipated and securing another 1.3GW on the NSW system into the 2030’s.

Whilst this is good politics, no one is getting re-elected with rolling blackouts on their record, just look at SA. What this does to Australia’s position on the Global stage is a different story. With COP28 coming up in November and December it is likely that we will have a target on our backs before we even mention extension of life.

At Edge2020 our focus is energy savings with an eye on the planet, we are energy brokers, advisory & sustainability consultants. If you would like to ensure your PPA comes from green sources please reach out for support from our Climate Active registered consultants on 1800 334 336 or info@edge2020.com.au

Climate related financial disclosure paper

Climate Related Financial Disclosure paper

Following the establishment of the International Sustainability Standards Board (ISSB) in 2021, whose task was to develop baseline standards (global) for climate disclosure, they released their IFRS Global Sustainability Standards, in June, after 18 months of intensive industry consultation. They state these will “help to improve trust and confidence in company disclosures about sustainability to inform investment decisions”.

Following this release the Federal Government have released the second draft of their Climate Related Financial Disclosure consultation paper, here.This paper will ensure there are mandates for large companies, including the financial institutions, to provide reporting on their climate related plans, risks and opportunities. This will be done through internationally aligned reporting requirements set around specific risk matrices. The alignment of these plans must depict the company’s resilience to the Climate Change Act 2022 ambitions.

The consultation paper proposes:

Mandatory reporting requirements to commence in tiered formation from 1 July 2024, for Australia’s largest companies, who by the 2027 period meet two of the three criteria encompassing revenue >$50m, gross assets of >$25m or 100+ employees at the end of the financial reporting period. These tiers are higher in the front few years.

However, if you do not meet the above, but you are a “Controlling Corporation” under NGERS you would also be mandated to report on the climate disclosure forms from FY25 onwards .

You will be disclosing your scope 1 to 3 emissions as well as governance reports around your climate related risks, how these are identified and managed and where they are in your supply chain. You would also be mandated to disclose the transition plans to the climate targets including all information on offsetting plans.

The government plan to enforce this under the civil penalty provisions in the corporation’s act and therefore the penalties for non-compliance could be significant.

Feedback is sought on this paper by the 21st July 2023 however the line in the sand has been drawn by the government and the likelihood is by the next financial year (FY25) if you meet the criteria this will be a mandated requirement for your business and non-compliance is not optional. As such development of these reporting requirements will be key to ensuing readiness when the final draft is published and enshrined into law.

At Edge2020 our mantra is energy savings with an eye on the planet, we are energy advisory & sustainability consultants. If you need help interpreting and complying with this criteria please reach out for support from our Climate Active registered consultants on 1800 334 336 or info@edge2020.com.au

 

Government Boosts Firming Power Generation: Blueprint or Cautionary Tale?

Edge2020_Power Generation

In a bold stride towards energy security and sustainability, the Australian Federal Government, led by Chris Bowen, unveiled plans on Thursday to augment its support for an additional 550 megawatts (MW) of firming power generation in New South Wales (NSW). This amplification propels the existing plan of the state to nearly a gigawatt of firming capacity, a robust move geared to maintain grid reliability and security.

The comprehensive scheme, anchored in sustainability, is anticipated to attract nearly AUD 10 billion in investment and stimulate the power generation of an impressive 6 gigawatts (GW) to support the national grid’s dependability.

To date, proposals exceeding 3.3GW have been tendered, these initiatives target the void left by the looming shutdown of fossil fuel generators across the National Electricity Market (NEM). The government’s ambitious plan aims to offset the forecasted power deficits in the CAL28/29 periods following the discontinuation of Eraring and Vales Point power stations, operated by Origin and Delta respectively.

Chris Bowen hailed the announcement as a substantial enhancement to energy security, attributing this positive shift to the deployment of large-scale batteries and other zero-emission technologies. These avant-garde technologies promise to swiftly dispatch cleaner, more affordable renewable energy on-demand, such as during intervals of calm weather and diminished sunlight.

However, the ambitious plan is not devoid of challenges. It remains uncertain whether the proposed measures will adequately address the power shortage anticipated from the phasing out of fossil fuel generators. The firming capacity earmarked for support is predominantly anchored in large-scale battery and pumped hydro storage.

Recent delays to the Snowy 2.0 project have sparked fresh apprehensions about the NEM’s ability to maintain a stable electricity supply and avert a surge in power prices. Furthermore, while storage options such as pumped hydro and batteries seemingly complement renewable sources, uncertainties linger about the reliability of renewable energy during periods of calm weather and low sunshine. These concerns will be crucial in determining whether the shutdown of existing coal generation is postponed or accelerated.

The Federal Government’s bid to enhance firming generation capacity in NSW, although ambitious, is riddled with uncertainties. Striking a fine balance between maintaining grid reliability, mitigating price surges, and ensuring project completions will be a delicate act.

As Australia stands on the precipice of a renewable energy revolution, it begs the question: will this be the blueprint for the future, or will it serve as a cautionary tale? The success or failure of this grand scheme will undeniably cast a long shadow over the future of renewable energy not only in Australia but globally.

Australian Manufacturing: Is it time to bring it home?

Australian Manufacturing - Wind Turbine

The English love their football (soccer) and no more so than Baddiel and Skinner who sang “It’s coming home” for the 1996 Euro’s. But with another wind project either being delayed or scrapped is it really time to consider if the Chief Operating Officer of AGL, Markus Brokhof is right “The manufacturing industry has to come back to Australia.”

The latest announcement from CleanCo last week which stated the company is pulling the pin in their investment in the Karara Wind Farm in the Southern Downs in Queensland, citing delays, not in connections or transmission but in turbine parts and rising costs, only acts to further strengthen Brokhof’s argument. This investment was part of the wider MacIntyre precinct and would or may still be, the largest wind precinct in Australia. However, this could be a blow to Queensland’s target of owning 50% of new renewable generation within the state.

This is just the latest in a string of windfarms to hit delays, the Clarke Creek wind farm has been hit with numerous delays between change in ownership from Goldwind to Andrew Forest’s Squadron energy, through to shutdowns for worker safety as well as project management changes causing equipment to be removed from site. With the offtake from the first stage of the project mostly going to another Government Owned Corporation, Stanwell could this be a further blow to the state’s advanced renewable targets, 80 per cent by 2035, and the existing 50% by 2030.

Another one of Andrew Forests wide array of companies is Windlab, whose own windfarm the Upper Burdekin project has not only lost its inaugural customer Apple, but has had to significantly downsize the output of the site from the proposed 193 Wind turbines to a reduced 136 and is now likely to only have 80 following significant opposition from wildlife conservationists who stated that the project was threatening already endangered species.

To further stoke the flames, AEMO has now come into the forefront of media, stating that not only do we not have enough investment in renewable electricity to compensate for the expected closure dates of coal generation, but the firming technology to support this renewable grid has not been fully funded or addressed, this year’s ESOO will certainly paint a bleak picture for the medium term in Australia. This sentiment is only exacerbated by the Australian former chief scientist and first Victoria State Electricity Commission CEO, Andrew Finkel, who last week quit his role at the SEC stating; not only was the capital investment not in place but investment has dried up and the “country is unlikely to reach its emission reduction targets.” I’m sure not a sentiment which was welcome news for the Andrew’s government whose election campaign was built on the premise the SEC would be both decarbonising the Victorian grid whilst reducing the cost for Victorians.

With the COP 28 due in November and Australia looking like it will miss it’s, late to the party but thanks for coming, 2030 targets, increasing international pressure will be placed upon Australia to ask how we will try and achieve some meaningful reductions? Rik De Buyserie, Engie Australia’s CEO implied to even get close to the 2030 climate targets Australia would need 10,000km of new transmission, 44GW of new renewables and 15GW of firming capacity. With components scarce, increasing costs and logistical issues of port slots to physically ship the parts to Australia, maybe it is time to turn our attention inwards and start upskilling and creating our own industry to de-carbonise ourselves?

Carbon Border Adjustment Mechanism gaining traction in Europe

Edge2020_Carbon Border Adjustment Mechanism

The European Parliament is introducing new climate legislation including a Carbon Border Adjustment Mechanism, in a bid to reduce greenhouse gas emissions.

The new package aims to reduce emission by at least 55% by 2030 and will include a series of measures which will have big impacts to many large industry customers who now will have millions of tonnes of carbon at risk.

The proposal will include phasing out of the free European Emission Trading Scheme (ETS) allowances after 2026, including maritime shipping within the ETS and a Carbon Border Adjustment Mechanism. The latter of these the CBAM or Carbon Border Adjustment Mechanism will impose a tariff on goods whose production is carbon intensive and shows the greatest risk of carbon leakage, in Australia the most vocal opponents of this scheme are unsurprisingly the cement, aluminium and steel industries.

As a quick digress the term carbon leakage is referring to the idea that you move the most carbon intensive parts of your production abroad, into countries with less stringent climate policies, and then import them back into Australia.

The idea of the CBAM is this will place a price on the carbon which has been emitted during this production phase. The price being derived from the price of carbon which was paid for the product to be developed and produced within Australia.

Those keen eyed amongst us will remember the Safeguard Legislation, which will come into effect on the 1st July 2023, cited a review would be undertaken to examine the feasibility of a CBAM within Australia, including a consideration for early commencement for those high-exposure sectors such as steel and cement.

Now with the EU making the leap and the likely follow on from the UK, Japan and Canada, amongst others, including the US via its own Polluter Import Fees Australia, we will surely have to comply to ensure both our own goods are being protected as well as meeting the requirements of the global expectations.

However, what is the cost of compliance. Whilst the legislation is quite straight forward the compliance cost will increase. Cradle to gate / grave accounting is complex and with auditors being stretched between, NGERs, Safeguard and now this, finding a resource to complete the calculations and data collection will be one thing, but looking to have these accounts audited will be another. With the CER having only 75 registered auditors on their books will the cost of this be wider than the government are imagining?

AEMO adds to the spooking of the Energy Market post Liddell Shutdown

Energy Market - AEMO _ Liddell Shutdown

On Thursday (25th May 2023) AEMO released their Scheduling Error notification (incident number 54) confirming they had incorrectly scheduled three of the Liddell units into one of their systems, post the Liddell shutdown, which caused price spikes across the NEM and forwards market on the morning of 1st May 2023.

As has been widely documented the last three Liddell units came offline on the 24th of April (Unit 4), 26th April (unit 2) and finally unit 1 on the 28th of April. This should have flowed through to the systems within the AEMO dispatch engines, however due to an error this was not the case, and the market was affected by the error between midnight and midday on the 1st of May 2023.

The error was cause by a mismatch of data used within the systems which feed the NEMDE (NEM Dispatch Engine) used by AEMO, whereby one part of the system removed the units from 00:01 on the 1st May. However, a separate part of the NEMDE’s data feed system, which controls the constraints still included the Liddell units at their “initial values” i.e. 500MW, not their real value of zero.

When the equations within the constraint tried to equalise, there was a “drop” of 1500MW on one side of the equation from the first interval on the 1st May 2023.

To rectify this AEMO reduced flow coming from Victoria into NSW and around 173MW of generation was dispatched down.

Prices reacted as expected with 6 periods between midnight and 6am having prices between $2,771.58/MWh and $2,964.04/MWh and increasing the daily average price by around 30% to an average of $288.86.

With a marketplace reacting to every cough of a power station, especially in the days following the Liddell closure the added constraint was enough to also strengthen the forwards market with the Q323 close price rising $5.50/MWh on the day in comparison to the day before across QLD, Vic and NSW and even SA was affected with an $8/MWh increase on the previous days close.

This strength continued into the next few weeks as outages came into the mix, a tube leak delaying the return to service of Bayswater 2 to the 3rd May, Kogan Creek, Eraring 2 and Tarong taking outages, the return of Callide being delayed and an unexpected interest rate hikes putting additional pressure on the market. Speculators were quick to act trading the spread between states thus increasing prices across the NEM.

This reactionary sentiment is one we feel will remain for a while, with the spot market quickly correcting however the futures continue to hold value down the curve.