The Safeguard Mechanism – the big stick came out

Carbon emissions safeguard mechanism

The Safeguard Mechanism is the legislation which came in in 2016, it was designed to reduce the emissions of the industrial sectors within Australia with targets, or baselines, capping the amount of emissions each facility can emit. The flaw was that the large industries could continue to re-set these baselines to ensure that as production increased, so did the baseline, and as such the emissions would also be increased without penalty. In the Financial year 2020 – 2021, these 215 large emitters made up 28% of Australia’s Carbon Footprint.

During the election campaign the Albanese government stood on a pledge to tighten the legislation around these 215 facilities to ensure that they were contributing to the now legislated target of a 43% reduction in emissions by 2030 (v’s 2005) and net zero by 2050.

Well yesterday, 10th January 2023, the government after extensive round tables, consultation papers and responses released their “draft” position paper. I use the word draft in quotes as the timeframe for change to this draft is less than likely. Responses are due by the end of February and it going in front of ministers in April to be enshrined with a 1st July 2023 start date. I think we can safely say the government have set their cap on their desired outcome.

So, what has been decreed. Well in brief, bar the reduction in baselines, 4.9% annually until 2030 and a review following that, and a cap and trade scheme to allow under baseline emitters to benefit from a new (non-financial!) ACCU called a Safeguard Mechanism Credit (SMC), the big changes and costs, will come to those emitters who will be eventually pushed onto non-site specific variables and forced to use “industry benchmarks”. They can apply for exemptions until 2030 but even these will be under tightened scrutiny and cherry picking your years of production will no longer be allowed. This will be a blow to some who rely on their baselines to reduce costs in those high production and high emitting years. These emitters will also no longer be able to sit on high reported, calculated or fixed baselines and will loose their site-specific variables by the end of this decade in an already reducing baseline decline rate.

To cap this cost, the government are proposing a ceiling for the ACCU market. They propose this to be set at $75/tCO2-e initially and increasing by CPI +2% annually after the first financial year, FY24. With spot ACCUs currently trading around $34.50 (source https://accus.com.au/) this is quite a ceiling indeed.

The proposal is also tightening the benefits which can be gained by the Emission Reduction Fund Projects, with no new projects to be sanctioned and no renewal of current projects. Even those in existence will only have a two-year grandfathered period before the abatement cannot be utilised within the accounts.

Interestingly though the parts I found most intriguing were the future papers we can expect. The Chubb review was, I can now assume, purposely vague on international credits and I believe this is due to the implication from the safeguard paper that we can expect a further review, likely to come out this year, which will look at the usage of “high quality international offsets” within the ANREU. These could then be rolled into many types of legislation for Carbon Neutral claims as per Climate Active current accreditation, including Safeguard legislation.

The other interesting area is around carbon leakage with an investigation to be undertaken if Australia should follow the EU and implement a Carbon Border Adjustment Mechanism (CBAM). It would basically create a plug to stop carbon leakage between countries. i.e. if you moved production to a country which was less ambitious in its carbon policies you would still have to pay the “leakage” of that carbon, or to import that substance, if it was not manufactured within a country with similar carbon ambitions, you pay the carbon cost to use it in Australia.

Overall, there is a lot to un-pick in this paper but following extensive consultations I think (bar the ACCU ceiling price) little will shock industry. It is a “hybrid” approach to get the government on track without losing industry along the way. There will be some winners, especially those on industry set baselines, initially able to bank SMCs, but overall the government have balanced a carbon abatement requirement without hampering industry too much. There will always be nay sayers who want more, say this isn’t enough and want to move quicker, but we cannot forget the economic climate we are in at the moment and the turmoil yet to unfold. I say hear ye hear ye to the DCCEEW, this one balances the tightrope of industry and climate ambitions well.

Kate Turner is Edge2020’s senior manager markets, analytics and sustainability. Through a passion that renewable energy solutions are key to any climate change solution, Kate supports our clients to manage their portfolios and any associated risk within traditional markets as well as complex renewable energy portfolios. Kate is hands on in procurement development and implementation for our clients and leads our market regulatory and advisory sustainability services. If your business is interested in wholesale or retail renewable PPAs we’d love to help you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

Chubb report

Chubb report carbon offset

The long-awaited Chubb report was published on Monday 9th January 2023. Its purpose to “ensure Australian Carbon Credit Units (ACCUs) and the carbon crediting framework maintain a strong and credible reputation supported by participants, purchasers and the broader community.1”

The government has agreed (in principle) to enact all the proposed recommendations.

But let’s start at the beginning. The Chubb review came about following claims that the scheme was not robust, being managed badly and not fit for standards, especially on the international stage.

Following the King report in 2020 this view was exacerbated by the Clean Energy Regulator (CER) taking on an even larger role in this opaque market, holding the keys to the design of ACCU methodologies, registration and regulation of those projects, a data source for the “independent” ERAC (the Emissions Reduction Assurance Committee – the independent committee overseeing the ACCU market) and buying ACCUs on behalf of the Australian Government. Some may say it was a keys to the castle type deal.

Therefore, transparency and independence were unsurprisingly the key focus for the Chubb review. Both from the regulatory and data access standpoints, obviously maintaining privacy where required. With upcoming changes in the Safeguard Mechanism expected to come into force in the new financial year and increasing interest in ACCUs from the Hydrogen industry (to ensure certification meets international standards such as CertifHy) the robustness of the scheme must be unimpeachable.

I think the most interesting part of the review is the u-turn from the previous Morrison government’s stance, which mandated in 2021 that their own Climate Active standard would have required members to increase their “carbon neutrality” through a minimum of 20% or 30% ACCUs dependant on size. This reversal, to no such mandate, is showing the business community at least that an international certification is enough for this government. Not the strong climate stance that is being pitched from the floors of Canberra.

As with many of these papers I am finding little accountability and more future safeguarding. Especially around human-induced regen (noting that ends this year), carbon capture and storage and landfill waste gas, with no individual projects reviewed, the current standard of certification cannot be confirmed, yet it is likely to be significantly tightened if the advised transparency is enforced.

Overall, I can’t help feeling this was not more than a necessary boondoggle, yes some interest groups have had some wins, but it was necessary to achieve its end – it is going to undo a significant number of the controversial King review and Morrison Government changes.

Reversal however will come at a price, there will likely be a significant amount of funding put in place to reduce the both “real and perceived,” burden on both the CER and especially the Emissions Reduction Assurance Committee (ERAC). The latter of whom will be dis-banded and renamed the Carbon Abatement Integrity Committee (CAIC), moved out from the CER with full data access restored and with a remit which, if enacted within 6 months, could see them as an Independent Statutory Authority, a level the ERAC currently hold but are handcuffed from enacting upon.

Personally, I think any changes which bring transparency to this market, its accreditations and oversight can only be positive. There is still the government tender for an ACCU exchange to be developed which would further assist this transparency, but I also fear it has stopped short of really making the Carbon Market in Australia un-penetrable.

With Climate Active still supporting accreditations from Certified Emissions Reductions (CERs), Verified Carbon Units (VCUs) amongst others and an increasing number of lesser regulated Carbon Neutral certificated (iRECs etc) being used for Carbon Neutral Claims, I think this review could have used its opportunity to ensure the Australian Carbon Neutrality Certification would be seen as a world leader. Instead, I fear it is trying not to shake an already leaking boat, with pressure for ACCUs likely to increase with Safeguard changes and the HIR methodology ending in 2023, as well as the new “REGO” scheme being touted as “voluntary surrender only” with no regard for the impact to the LGCs market. Another knee jerk could have put too much price pressure on a market which is not only opaque but likely to come under significant demand, and that is before the increased scrutiny once data is widely available.

No, the Chubb review has done its job, it has unwound a lot of the misgivings people had. It should increase transparency, a feat which has been loudly called for in this market since its inception 11 years ago and not ruffled too many feathers in the process. I guess I just hoped for more.

References: 1: https://www.dcceew.gov.au/climate-change/emissions-reduction/independent-review-accus

Kate Turner is Edge2020’s senior manager markets, analytics and sustainability. Through a passion that renewable energy solutions are key to any climate change solution, Kate supports our clients to manage their portfolios and any associated risk within traditional markets as well as complex renewable energy portfolios. Kate is hands on in procurement development and implementation for our clients and leads our market regulatory and advisory sustainability services. If your business is interested in wholesale or retail renewable PPAs we’d love to help you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

Does another new environmental scheme create more uncertainty?

Australia's renewable energy schemes

In December the Department of Climate Change, Energy, the Environment and Water released two papers. One on Renewable Electricity certification and one on the Guarantee of Origin Scheme.

These are mainly aimed at the hydrogen industry but the first could have a significant impact on the electricity sector if the proposals are implemented as per the position paper.

The Renewable Electricity Certification paper asks for feedback on the need for a new mechanism for electricity to be certified, currently to be used only for voluntary surrender purposes. It proposes it will act alongside LGC creation (Large-scale generation certificates) with the developer able to decide if they produce an LGC or a REGO (Renewable Energy Guarantee of Origin certificate) on any given period, in any given day.

The REGO can be used for all uses, bar RET liability i.e., voluntary surrender.

The main difference of the REGO to the LGC elements being proposed in the paper are:

  • It proposes to allow the use of below-baseline generation to create a REGO.
  • It will also allow STCs systems to create a REGO once the maximum deeming periods from date of installation has been met. If the minimum threshold isn’t met they can aggregate multiple small scale systems to create a certificate.
  • Further it suggests almost a double counting whereby a battery could purchase REGOs to “store” green electricity then re-sell as green electricity with a new REGO.
  • For exporting renewable energy i.e. Sun Cable whereby the REGO can be created even though the electricity is exported overseas, this is not allowed under the RET scheme for LGCs. How we can claim that against a domestic usage is yet to be seen!
  • There is a proposal any vintage can be surrendered at any time for this year’s claim
  • It is also worth noting a REGO would require a time stamp under the proposals – meaning hourly matching could be undertaken. However, a note for is you are in an aggregated system for the REGO the last hour to make the 1MWh REGO would be the one counted.

It is proposed this will allow claims post the sunsetting of the RET in 2030 but does not go as far as to state it will replace the RET – however this must be implied that it is the intention of the scheme.

If this is to go ahead there are a few concerns:

  • Will it crash the price of the LGCs?
    • Could the market be flooded with “equal value” REGO certificates and bar RET liability the LGC market move?
  • Alternatively – What happens to the LGC market if everyone signs up to REGOs – would it mean LGCs could potentially go up in price as people are only creating REGOs and the LGC RET liability can’t be met
  • Will it increase volatility with an arbitrage being available between the two schemes?
  • Does this really level the playing field for Hydrogen in the way they think it will? I am not sure we meet all criteria in the market leading hydrogen certification markets with this proposal
Consultations close 3rd Feb but this is one to watch. It may be being pushed through a side door but it could blow open the LGC market as we near the end of the RET scheme. Have your say here: https://consult.dcceew.gov.au/aus-guarantee-of-origin-scheme-consultation   

 

Coal and gas moves to renewables and storage

Renewable generators with battery storage

With Enel X announcing the installation of battery storage systems in shopping centres in Melbourne and on the NSW central coast, this year may see a shift in the energy market as we transition from coal and gas to renewables and storage.

Recently AEMO’s CEO Daniel Westerman said, ‘even after factoring the cost of new transmission lines, wind and solar remain by far the cheapest forms of new power generation’.

Key federal policies have underpinned the need to progress an increase in renewable energy. Growth in renewable energy is dependent on the growth of storage to be fully utilised and the need for greater transmission infrastructure is required to link the projects to the end users.

The announcement of the Net-zero emissions target of 43% of 2005 levels by 2030 have pushed other mechanisms to also ramp up across the country. The key federal mechanism is the Safeguard Mechanism, which targets the emissions reduction for Australia’s largest emitting facilities. In line with the Safeguard mechanism the 82% renewables energy target in the National Electricity Market (NEM) by 2030 is also incentivising renewable generation. As both these drivers will require more renewable energy to be rolled out to offset the thermal generation, more storage will be required to compensate for the intermittency of renewable generation and an increase in transmission lines will be required to connect the renewable energy projects with storage and end users.

AEMO has for many years been looking at a fundamental shift in generation, transmission and energy usage. AEMO is now focusing on firming, Electric vehicles and the regulatory framework to enable these changes to occur.

In recent years we have regularly seen that the NEM has the potential to operate with very high levels of renewables, but the limiting factor still remains that thermal generation provides reliability and system security when the wind is not blowing or the sun is not shining. At the end of December, South Australia produced 104% of its demand with renewable energy and exported the extra electricity to neighbouring regions.

With most states striving for high renewable energy targets, Victoria is hoping to reach 95% renewables by 2035 and Queensland has increased its target to 80% renewables by 2035.

With the recent volatility in the overseas energy markets, in which Australia is a pivotal player in due to the large quantities of coal and gas we export, there is now a greater incentive to shift away from thermal generation due to the volatility and high prices.

AEMO reports show there is currently 21GW of new projects undergoing connection assessment and they expect 5GW of new capacity to be added during FY2023, in addition to the 4GW currently operating.

To assist this influx in renewable generation ARENA granted $176m in December 2022 to fast track 8 new battery projects to bring in 2.0GW/4.2GWh of storage. The plan is to triple the battery storage across the NEM by 2025.

Over the next year we will also see more transmission lines connecting the nation as more renewable energy zones are connected to the load centres under the Rewiring the Nation policy.

The first transmission projects to receive Rewiring the Nation funding were announced following the October 2022 Federal budget. Recently funded projects include the VNI NSW-Victoria interconnect, Marinus Link and various NSW transmission projects connecting the renewable energy zones. This funding will assist in building the transmission lines over the next 10 years.

If your business is interested in wholesale or retail renewable PPAs we’d love to help you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

Coal price caps result in high compensation but lower forward prices

Last week reports emerged that one coal fired power station could receive up to $450M in federal compensation as a result of the price cap on coal. Under the new legislation, coal fired generators are compensated for the cost of coal they have locked in at prices above the $125/t cap.

The coal price cap is likely to be higher than the coal currently locked in by many coal fired power stations, however some power stations are exposed to higher priced coal. Under the coal price cap mechanism, generators must bid into the market at a price inline with coal procured below the coal price cap. Generators that are exposed to coal prices above the coal price cap will not be able to dispatch their unit unless generating uneconomically. The compensation is designed to level the playing field allowing the units with fuel costs above the coal cap to continue to supply power and assist in system security.

Based on the current price of coal, compensation for Queensland’s Gladstone power station could reach $450m. The compensation will be split between the Queensland and federal governments on a 50/50 basis while the $125/t coal price cap is in place. The total compensation amount will vary depending on the amount of coal procured at prices above $125/t.

Many may argue that generators with high costs should be forced up the bid stack and not be compensated for high fuel costs. While stations like Gladstone may not have the benefit of low coal prices the station is currently crucial to system security in Queensland. Gladstone is not the only coal fired power station to receive compensation. In NSW, Origin’s Eraring power station will also receive compensation.

The coal cap legislation forbids coal producers from selling coal to domestic generators above the price cap and electricity generators must dispatch into the NEM at costs that reflects the cost of coal procured below the coal cap. The changes in bidding have resulted in the forward market electricity prices dramatically falling with the likelihood of future contract prices to level off in line with new long run marginal costs.

Below is a summary by state of recent activity:

QLD
  • QLD prices ranged between -$78.70/MWh and $270.00/MWh for the 2 weeks ending 31st December 2022, averaging $67.59/MWh.
  • QLD Q422 prices ranged between -$122.18/MWh and $15,500.00/MWh , averaging $120.24/MWh.
  • Solar output fluctuated across the period with output peaking close to previous weeks at 2,106MW, during the negative spot period the output was economically curtailed. Cloud cover also reduced output.
  • Apart from Christmas eve, wind generation displayed a consistent negative correlation with solar. Output peaked at 685MW leading up to Christmas then reduced to a normal maximum of 450MW for the remainder of the year.
  • Gas fired generation including Swanbank E, Townsville, Roma and Condamine covered the evening peaks with the exception of Yarwun that operated 24/7.
  • Wivenhoe hydro generation reflected the gas generators by covering the evening peaks and evening while Kareeya continued to generate around the clock.
  • Coal fired availability remained high with Gladstone taking a unit off over the Christmas / New Years break, Kogan creek returned to service on 20th December and remains online. Millmerran 1 came offline on the 30th and remains offline. All other operating as expected.
NSW
  • NSW prices ranged between -$69.20MWh and $223.54/MWh for the 2 weeks ending 31st December 2022, averaging $73.60/MWh.
  • NSW Q422 prices ranged between -$120.00/MWh and $15,500.00/MWh, averaging $115.66/MWh.
  • Most price spikes are now being capped below $149/MWh lower than the previous $300/MWh cap, this is likely as a result of the cap on gas.
  • Solar output fluctuated across the period with output peaking close to previous weeks at 2,367MW, during the negative spot period the output was economically curtailed. Cloud cover also reduced output.
  • Wind output dropped as we approached Christmas then increased to peak at 1,436MW at the end of the year.
  • Tallawarra was the only gas turbine to generate over the Christmas break due to relatively low prices.
  • Coal fired availability remained high despite various movement in units, Bayswater returned to service on the 20th but Eraring and Vales Point both took units offline over Christmas. Eraring returned to service on the 2nd January but the Vales point unit remains offline.
SA
  • SA prices ranged between -$605.41/MWh and $4,027.21/MWh for the for the 2 weeks ending 31st December 2022, averaging $41.19/MWh.
  • SA Q422 prices ranged between -$1,000.00/MWh and $15,500.00/MWh , averaging $63.67/MWh.
  • Solar generation peaked at 435MW on the last day of the year but maximums averaged 350MW. Negative spot prices caused units to be constrained.
  • Wind generation was sporadic reaching a high of 1,915MW but also dropped to less than 10MW occasionally. The SA market spiked on two occasions, both times the output from wind generation dropped significantly.
  • Thermal generators continue to operate over the evening peak when spot prices are generally higher, however they are operating during other parts of the day when spot prices are high. Torrens Island is operating all hours of the day, but Quarantine, Barkers inlet, Dry creek and Pelican Point have reduce run times as they focus on higher price periods.
VIC
  • VIC prices ranged between -$141.51/MWh and $228.44/MWh for the 2 weeks ending 31st December 2022, averaging $36.17/MWh.
  • VIC Q422 prices ranged between -$996.18/MWh and $584.31/MWh , averaging $62.86/MWh.
  • Solar generation was heavily constrained due to negative prices, solar output peaked at 797MW.
  • Wind generation was sporadic reaching a high of 2,871MW but also dropped to less than 5MW occasionally.
  • Hydro generation continues with its strategy of only operating Murray over the evening peaks, with Dartmouth, Eildon and Bogong adding additional generation when required. Hydro generation continues to increase during the high price periods. Hydro generation across Victoria and NSW has been used to keep a cap on spot prices, however the market is now capping around $140/MWh rather than the traditional $300/MWh cap price.
  • Yallourn continues to have various issues over the Christmas break with unit tripping followed by a fail return to service of unit 1, by the end of the year Yallourn was operating with 3 units. The Loy Yang A & B station operated consistently across the last 2 weeks of the year, continuing with the strategy of reducing generation during low price periods.

At Edge2020 we help our customers navigate the ever-changing energy landscape and to ensure the proactive and accurate delivery of advisory, account, and portfolio management services and associated outcomes. If you could benefit from an expert eye on your energy portfolio, we’d love to meet you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

COP27

In comparison to the COP26 (Conference of the Parties 26) which occurred with great media attention and pageantry, partly due to the delay due to Covid-19 and partly due to the significance of the promises being made by countries. COP27 kicked off yesterday, 6th November, the 12-day event has received little to none of the media fanfare that was seen in the conference last year.

Our staunchly anti-target ex-Prime-Minister Scott Morrison even attended COP26 (sponsored by Santos!) but to show the stark comparison, our new Prime-Minister Anthony Albanese, who is a big supporter of Climate Targets and moving towards renewables, has opted not to attend the COP27 in Egypt, instead sending Chris Bowen and Jenny McAllister (our Minister and Assistant Minister for Energy) in his place. As we were not announcing any new targets and therefore the importance to attend wasn’t as strong.

Yet we aren’t the only ones shying away, Joe Biden is going to forego his annual nap at the COP conference and is instead sending four Cabinet Officials – sighting the mid-term election as reasoning (as if we don’t all expect a massive flop in those and the GOP to take back the house!). Rishi Sunak, the newest UK Prime-Minister, was not going to attend, yet after significant pressure did a dramatic U-Turn at the end of last week and will be there in Egypt this week. It is no surprise that Vladimir Putin won’t be in attendance, yet the biggest surprise came from China, with Xi Jinping also pulling out and sending a negotiator to participate, the equivalent of sending a toy poodle as they will block everything and agree to nothing.

Yet this conference should certainly have more clout. It is thirty (30) years since the UN Framework on Climate Change was adopted and the first meeting in Berlin took place, and seven years since the massive commitments made in the Paris Agreement.

But does the lack of attention and attendance show that the support is waning? Maybe not long term, but with many countries in dire economic circumstances, Germany and others in Europe throwing out their climate targets around Coal generation, in favour of keeping the lights on, and prices as low as possible in an ever climbing and squeezed market and massive debt and austerity to come from an overspend during COVID, required to ensure their economies didn’t collapse. Standing up and agreeing to tighter emissions targets and the cost implications of this would not play well at the polls, and although a politician may have great ambition for Climate Change they have more ambition for Political safety and longevity.

Last year, at the COP26, world leaders agreed to “revisit and strengthen” their national climate targets annually, if possible, with what seemed like a consensus to produce significant commitments to target Climate Change. They agreed to look at and strengthen their targets every 12 months (previously five years as per the original Paris Agreement) and this was done to try and hold global warming below 1.5 degrees Celsius.

Yet heading into this COP27 only 21 countries have submitted updated climate commitments for their country, with 172 making no change. Of the 21, only Australia has made significant and credible commitments, yet many (everyone!) would argue this was to catch up to the rest of the world and is nowhere near what would be defined as ground-breaking.

Let’s be clear, regardless of politics, regardless of debt and war without significant change, within a decade we will go above the 1.5 degrees Celsius target and above 2.4 degrees by the end of the century. A recession can be reversed, it is awful and hard, but it can be, a war can be stopped, but once this warming has occurred there is no way back, and it will be those on the edges who suffer first and most. An incremental change is not good enough anymore and playing ostrich to ensure your political survival for four more years will not help future generations and ensure the world is thriving.

Yet with world leaders being beyond non-committal, the UN sending out strong statements but with no action and little education on what this means, we are not changing anywhere near fast enough and at some point the cost of it will be on our front door.

I would urge you to follow the public debates and live streams https://unfccc.int/cop27#events or look at the U.Ns campaign to see what “individual Actions” you can do to help reduce everyone’s carbon footprint here https://www.un.org/en/actnow/

I assure you this is not just a big emitters problem, changes by us all could help, and to be clear I do not mean by gluing yourself to a Van Gogh or Vermeer or covering Ferrari showrooms in orange paint.  Gorilla activism is not the answer, their actions are disruptive and not effective in changing the minds of those outside of their own cause. But, all of us taking our positions to the checkout each week will force a change, in the way only free markets can be affected, and that can only benefit everyone now and in the future. I assure you our politicians will not do it for us and this COP27 is just the latest proof of this, unless it is a silver bullet they will not act, therefore we must.

Coal state leading the way to renewables

Last week in Queensland the weather was perfect. It was perfect for those at the beach during school holidays but also perfect for renewable energy.

As everyone in the NEM knows, Queensland is better known for its dominant coal generation, at times pumping out 80% of Queensland’s power supply. With the clear skies and just enough wind, Queensland became the renewable state.

Last week, Queensland’s demand was supplied by over 66% renewable energy. Solar was the largest contributor of renewable energy with wind coming in second.

Previously we have seen the state powered by 50% renewables but the 66% hurdle is a positive message for end users impacted by the reliability and behaviour of the thermal generators.

The Palaszczuk government announced their 10-year-energy plan which involved introducing two new pumped hydro mega-projects in regional Queensland and a green conversion of its coal-fired power generators. The Palaszczuk government also has recently announced upping the target of 50% renewable energy by 2030 to 70% by 2032.

Despite this increase in target, until recent years coal has remained dominant in Queensland. The government has all but ruled out the early retirement of any of the state-owned coal-fired power stations, following pressure from unions. Some could say the slow uptake in renewables is due to supply chain issues, registration, connection and construction delays while other may say it results from the government owning a significant portion of the existing thermal and non-thermal generation that is reaping high returns due to the spot and forward energy prices.

AEMO’s recent Integrated System Plan (ISP) shows the NEM will contain over 80% capacity coming from renewables by 2030. While the renewable industry in Queensland has been slow to grow recently more federal funding is being used to rewire the nation by connecting renewable energy zones (REZ) to end users. With the rewiring in place developers are less restricted in building and financing renewable projects and producing renewable energy.

Industry is also looking for renewable energy to meet their sustainability targets which leads to a market for new renewable projects. AEMO indicated there are thousands of MWs of renewable projects waiting to be built.

If Queensland followed the latest ISP, the state would require an additional 30GW of energy from renewable sources and the storage required to make it useful for end users when the sun does not shine, or the wind does not blow.

Today’s announcement by the premier outlined the $62B plan for Queensland energy and jobs. The plan includes:

  • 70% of Queensland’s energy supply from renewables by 2032
  • 80% of Queensland’s energy supply from renewables by 2035
  • Two new pumped hydros at Pioneer/Burdekin and Borumba Dam by 2035
  • A new Queensland SuperGrid connecting solar, wind, battery and hydrogen generators across the State
  • Unlocking 22GW of new renewable capacity – giving Queensland 8 times the current level of renewables
  • Publicly owned coal fired-power stations to convert to clean energy hubs to transition to, for example, hydrogen power, with jobs guarantees for workers
  • Queensland’s publicly-owned coal-fired power stations to stop reliance on burning coal by 2035
  • 100,000 new jobs by 2040, most in regional Queensland
  • 11.5GW of rooftop solar and 6GW of embedded batteries
  • 95% of investment in regional Queensland
  • Building Queensland’s first hydrogen ready gas turbine

With this announcement by the Premier, Edge look forward to more renewable generation entering the market resulting in savings for end users and the planet.

If procuring renewable energy is one of your company goals, Edge2020 can help you build a PPA to support your sustainability strategies. Contact us on 1800 334 336 or info@edge2020.com.au

 

Winter is coming

Now I am a major Game of Thrones fan, but I never thought moving to Australia that I would turn into Ned Stark and constantly worry about a Northern Hemisphere Winter. But, as we are hurtling towards those cooler months in t’north and following the tumultuous Q2 and start of Q3 in the NEM, I am preaching that the Northern ‘Winter is Coming’ and even down here in Australia we must be ready.

As background Northern Europe, UK, France, Belgium, Germany etc., rely on feeds of Gas from Norway and Russia. Gas is significant in Europe as a 1-degree shift in temperature can result in around 5% of domestic demand increase, or decrease, due to most homes being heated via Gas-Central heating. With a third La Niña about to be called in the Southern hemisphere and La Niña, correlated with colder winters in Europe, with increased snowfall, as it shifts the jet stream north to the pole and increases storms across Northern Europe, this can only mean an increase this heating demand.

This confluence of events would usually increase my concern for a tight supply in the European market, but this year is different. Ignoring for now the Russian flows, we will circle back to that later, Norway’s Energy Minister has already raised the possibility that they may restrict electricity exports with possible restrictions to Gas flows as well. With much of their electricity coming from hydro, and after an un-seasonably warm summer period, Norway has stated the priority will be to refill the reservoirs over winter, rather than secure the energy supply of their European neighbours. With this flow being restricted into Northern Europe, coupled with a diminishing fleet of coal and nuclear options, gas will be the favoured source of domestic supply for Northern Europe. Although there are other interconnectors, it is anticipated these will either be significantly under utilised or such a price differential within a domestic market will occur to ensure flows to a single market will ensue. This could be facilitated by pushing those areas (countries) price up to exorbitant amounts to ensure flow across the interconnector and shore up domestic supply. With flows of course favouring higher priced regions.

Now let’s put Russia into the mix. Russia announced this week that the Nord-Stream 1 pipeline, a crucial pipeline for gas flow into Europe, required maintenance from the 31st August. This happens to coincide with European markets trying to firm up winter supply by filling storage and Russia increasing aggression to the Ukraine, but I am sure that was a coincidence.

The 3-day maintenance will have a return to service for the 2nd September. But how likely is this to return? Well, if the last outage is anything to go by, where only 40% of the required flow reached Europe and the delivery of the required turbine was strangely delayed, the price increase was significant and totally in Russian control. Now with this latest outage and flows expected to be around 5% of the obligations agreed with the EU, the cynic in me wondered if Putin is trying to offset the sanctions place on Russia by pushing the cost of Gas to exorbitant amounts. If he can sell his 5% for the same as the revenue from the already inflated 40% and free the remaining gas for sale to more amiable neighbours, he is in a win-win situation.

The real fear is that this flow remains low for the whole of Europe’s winter, which would not only put massive strain on the cost of generation but also lead to many retailers simply not able to meet their obligations and go under. There is also a risk of lack of supply and therefore blackouts as well as increasing costs on an already strained economic environment.

To mitigate this, European generators are throwing out their climate targets with the baby and the bath water in favour of supply and are scrambling to shore up gas supply and return coal-fired power stations from cold storage. The Mehrun Coal-Fired Power plant in Saxony Germany came back online at the start of August, Uniper have just announced they are re-commissioning the Heyden plant in North Rhine-Westphalia and in the UK, the government has made moves to re-open the rough gas storage facility, 25% of it initially, ignoring the safety concerns which led to its original closure. But this will not be enough, and this is where Australia needs to brace itself for a secondary wave of impacts.

LNG and coal exports into Europe will increase, as the price differential will be significant. The ensuing impact through the JKM on the domestic gas market, and coal export price will affect the replenishment of the longer-term running costs of our own generators.

Although significant volume should be pre-hedged, these prices will start feeding through, nothing is stopping the trading opportunity cost being passed through by generators. They will argue the replenishment of the stockpile will need to factor these spot and forwards prices, interesting that doesn’t flow through in a bear’s market though.  What does that mean for our summer, well it means the high prices aren’t going anywhere fast. The shortage of supply in the NEM may be diminished, with most, if not all units now returned from overhaul, yet the price is continuing to take advantage of, and reflect the international fundamentals rather than the real long run average cost of the asset.

With the Capacity Mechanism being put on ice and strengthening Safeguard Mechanisms already announced by the Labor Government, coupled with favourable international fundamental conditions providing political cover for generators, could this be the last hurrah for coal and gas generators to eek the last value from these assets?

Either way be under no illusions, with the Northern winter hurtling towards us, European prices already building in shortfalls in supply and no end to the Ukraine conflict in sight, the Vega sensitivity is going off the chart and is not going to be subsiding anytime soon. As such Australia, and especially its energy markets need to brace, for the fallout.

To circle back to Game of Thrones, Ramsay Bolton stated, “If you think this has a happy ending, you haven’t been paying attention” for ‘winter is coming’ and we must be prepared.

She Can’t Dance

Back in the 90’s Genesis sang “I can’t dance.” I fear from the past week that there is once again a double standard being applied by the media to our leaders, as it seems this lyric only applies to women in politics. I am of course referring to the absurdity of the double standard being laid at the door of the Finnish Prime minister, Sanna Marin.

With too many examples to list, Boris Johnsons “party-gate”, David Cameron’s “Pig-gate’ and closer to home Don Harwin’s holiday home getaway, there are many examples of men breaking rules, and in some cases laws, with little more than slaps on the wrist and a 2-paragraph article on page 6, showing them up for their misdemeanours.

Yet, here is a woman who came from a broken home and was certainly not raised with the political or actual silver spoon in her mouth, yet she has not only successfully led her country through the COVID-19 pandemic but has navigated her way through a border with a country currently waging war on another. Many would play ostrich to this aggression from a neighbour, yet she has had the conviction to stand up for the same thing that landed the Ukraine in the gaze of Moscow, a NATO membership.

However, as the youngest head of state, she was elected at 34, one who is breaking the barriers of what is expected, attending music festivals and becoming a style icon and a mother, she is also balancing the tightrope of the Victorian era expectations of “how one should behave.” Regardless of how antiquated these opinions are, they have not disappeared, and the descendant, mainly male, voices are not missing an opportunity to shout down this young progressive leader.

Whatever your political leaning, you do not have to agree with her political views to surely agree, there is a significant double standard being waged here.

In a private moment, with supposed friends, she did not break the law, a point she is now taking a drugs test to prove, she did not endanger anyone with her actions, and she did not act in a way which would be seen to embarrass or lessen the position of Finland on the world stage. Yet, the nay-sayers are arguing, from their dusty robes and plaid studies, she is behaving inappropriately for a PM and wouldn’t be able to use sound judgement in the event of a sudden crisis. Yet this attitude from the crusty old relics in the corner does make me reflect on past leaders, no one questioned Churchill, who in an actual war would often be known for having wine with breakfast, whiskey for morning tea and Pol Roger champagne at lunch.

Maybe these nay-sayers should read a little Churchill as (to paraphrase) Yes, she was drunk, but you (and your opinions) are ugly. Tomorrow she will be sober, and you will still be ugly.

Fortunately for Churchill, and unfortunately for Marin, the world of social media is now too accessible. The “being in the know” or “having the skinny” no longer requires you to have been there but being on a friends Instagram account when they post a video of a private party and uploading that to a papers website. This lack of privacy is surely a wider point than a woman, enjoying a legal evening with friends in private?

To circle back to where we started Genesis also sang in their song “Gators getting close, hasn’t got me yet”. Unfortunately for women in the political sphere this is still the reality. Hopefully one day it will change, but for now I say, you can dance Sanna.

Today is the day we are officially in debt to our ecosystem

Earth overshoot day

Today is earth overshoot day.

Being green isn’t just about renewable energy, cycling to work or using re-usable bags when you do your shopping. It is about being in a state of equilibrium with the planet that we inhabit and not emitting more carbon  dioxide than we can absorb.

When we are not in equilibrium, we “overshoot” our allowance and as with all debt we are borrowing from the future rather than living within our means.

Unfortunately, yesterday we officially spent our allowance and as of today (Friday 29th July 2022) we are in debt to our ecological budget for the rest of the year.

This has been gradually getting earlier and earlier and as you can see the National Footprint and Biocapacity accounts have shown we have been over budget for half a century.

Interestingly not every country overshoots at the same rate. If the planet lived like Australians overshoot day would fall on the 23rd March, but if we lived like Jamaica we would basically be in balance and not overshoot until December 20th. So surely if many countries can live in balance so can we?

The understanding of Climate Change and acknowledgement of action is now widely recognised, but I feel the sheer scale of the effect of inaction is yet to be fully understood.

Energy is one major way we can help ourselves reach the goal of balance in our biosphere.

Reducing the carbon output of our energy by 50% will move the overshoot day by over 3 months and by utilising existing energy efficient technologies in energy, buildings and industrial processes we can push this another 21 days.

The decarbonisation of our energy economy is not only becoming more crucial from a resilience to international cost pressure perspective, but is crucial to assisting us push the overshoot  date out,  to balance the budget of our biocapacity by not  ‘overspending’.

Edge2020 provides energy management and advisory services to buyers and sellers of physical and financial energy products. We specialise in electricity, gas, renewable, environmental, and carbon products. Edge2020 can help ensure you achieve your business sustainability goals by supporting you with strategies that focus on minimising consumption and responsible purchasing of renewable energy. Reach out to our passionate team for support to improve your sustainability outcomes. email: info@edge2020.com.au