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.

ACCC’s recommendations aim to restore electricity affordability

Malcolm Turnbull was in Brisbane today promoting “lower energy prices” on the back of the public release of the ACCC’s “Restoring electricity affordability and Australia’s competitive advantage”. The 398 page report is extensive and contains 56 recommendations across the spectrum of the energy market. Edge highlights a couple of key recommendations below.

Recommendation 1

The NEL should be amended to prevent any acquisition or other arrangement (other than investment in new capacity) that would result in a market participant owning, or controlling dispatch of, more than 20 per cent of generation capacity in any NEM region or across the NEM as a whole.

The provision should be designed to prevent market participants circumventing the 20 per cent cap, including by way of ownership structure or contractual arrangements.

 

Recommendation 2

The Queensland Government should divide its generation assets into three generation portfolios to reduce market concentration in Queensland. The three portfolios should be of a similar size with a mix of generation assets to maximise competition in the wholesale market.

Once created, the Queensland Government should ensure that the three portfolios are separately owned and operated to maximise competition in the wholesale electricity market. The sale of any portfolios should be in line with recommendation 1.

 

Recommendation 4

The Australian Government should operate a program under which it will enter into low fixed-price (for example, $45–50/MWh) energy offtake agreements for the later years (say 6–15) of appropriate new generation projects which meet certain criteria. In doing so, project developers will be able to secure debt finance for projects where they do not have sufficient offtake commitments from C&I customers for later years of projects. This will encourage new entry, promote competition and enable C&I customers to access low-cost new generation.

The program should operate for at least a four-year period, with support provided for qualifying projects. To qualify, a project proposal must:

  • have at least three customers who have committed to acquire energy from the project for at least the first five years of operation
  • not involve any existing retail or wholesale market participant with a significant market share (say a share of 10 per cent or more in any NEM region)
  • be of sufficient capacity to serve the needs of a number of large customers
  • be capable of providing a firm product so that it can meet the needs of C&I customers.

 

Recommendation 5

The National Energy Guarantee seeks to provide a settled policy framework under which new investment is encouraged in a way that enables achievement of the objective of reducing carbon emissions at low-cost while promoting investment in a manner that ensures demand for energy is met.

The ACCC agrees that this is an important policy objective and, with the policy incorporating appropriate safeguards for competition in the contract market, recommends that governments commit to develop and implement the National Energy Guarantee.

 

Recommendation 6

The NEL should be amended so as to require the reporting of all OTC trades to a repository administered by the AER. Reported OTC trades should then be disclosed publicly in a de-identified format that facilitates the dissemination of important market information without unintentionally revealing the parties involved.

The requirement should be implemented to align with (or be eligible for) any OTC reporting requirements under the NEG.

The AER, AEMC and AEMO should have access to the underlying contract information, including the identity of trading partners.

 

Recommendation 7

The AEMC should introduce market making obligations in South Australia, which require large, vertically integrated retailers to make offers to buy and sell specified hedge contracts each day, in order to boost hedge market activity. The parameters of a market making obligation should have regard to:

  • the size of the South Australian market
  • the distribution of generation ownership in the region
  • the benefits to market liquidity and efficiency of regular trading activity
  • the burden of the requirements on obligated entities
  • any impact on the incentives of intermittent generators to invest in firming technology.

 

After an appropriate period of time (for example, after two years) the mechanism should be assessed for its effect on market activity, liquidity and risk to determine if it should be continued, amended or removed in South Australia and, potentially, extended to other NEM regions.

 

Recommendation 11

The governments of Queensland, NSW and Tasmania should take immediate steps to remedy the past over-investment of their network businesses in order to improve affordability of the network. With appropriate assistance from the Australian Government, this can be done:

  • in Queensland, Tasmania and for Essential Energy in NSW, through a voluntary government write-down of the regulatory asset base
  • in NSW, where the assets have since been fully or partially privatised, through the use of rebates on network charges (paid to the distribution company to be passed on to consumers) that offset the impact of over-investment in those states.

 

Such write-downs would enhance economic efficiency by reducing current distorting price signals. The amount of the write-downs and rebates should be made by reference to the estimates of over‑investment by the Grattan Institute, and should result in at least $100 a year in savings for average residential customers in those states.

 

Recommendation 21

In relation to wholesale demand response, a mechanism should be developed for third parties to offer demand response directly into the wholesale market. Design of the mechanism should commence immediately, building on work undertaken in the AEMC’s Reliability Frameworks Review. The mechanism should:

  • promote competition through allowing the widest range of businesses to directly offer demand response services
  • not allow retailers to limit the ability of their customers to engage a third party demand response provider (to the extent it is not inconsistent with the retail contract)
  • ensure load and generation response are valued appropriately based on the benefit they provide to the wholesale market
  • limit technical requirements placed on the customer that may inhibit take up or scope of these services (for example, requirements for multiple meters at the customer site).

 

Recommendation 24

The SRES should be wound down and abolished by 2021.

 

By in large the recommendations made in the report should help to put downward pressure on electricity prices. Mr Turnbull said today that if prices do not come down after implementation of selected recommendations that alternative actions will be taken.

The full report can be found on the ACCC website here.

If you have any questions on how you can achieve better pricing outcomes on your energy please get in contact with Edge on 07 3905 9220 or 1800 334 336.

Energy Security Board published issues papers on the National Energy Guarantee

The Energy Security Board has prepared ‘issues papers’ for the jurisdictions and the Technical Working Groups. There is a total of 14 papers covering topics across the implementation of the National Energy Guarantee. They include topics such as emissions registry, treatment of exceptions and forecasting.

The papers have been made publicly available here on the COAG Energy Council website.  Once the jurisdictions and the Technical Working Groups have made more detailed technical working papers, these will be available for public consultation. This is expected to be in mid-June.

If you would like to know more about the National Energy Guarantee, please contact Edge on 07 3905 9220 or 1800 334 336.

Federal Opposition commits to 50% renewable by 2030

Penny Wong, Labor’s foreign affairs spokeswoman has told an emissions summit today that if elected, Labor’s emission target would be a 45% reduction on 2005 levels. The current target under the Coalition is 26% on 2005 levels.

Labor has also committed to a target of 50% of energy to be renewable by 2030. Currently, the Coalition is committed to 23.5% by 2020 through the RET scheme. Senator Wong advised that whilst her party has reservations on the National Energy Guarantee they would build on the Guarantee if possible rather than replace it.

The comments from Senator Wong carry significant weight as the potentially large increase in the renewable energy target will require further investment. At this stage, the next federal election is expected to occur in 2019. Technically an election will not have to take place until November 2019 however norm dictate that it is held with the senate election which must be held no later than 18 May 2019.

Edge note that the current renewable generation target only captures renewables constructed after 2001 and therefore does not include Snowy Hydro. From the comments today it is unclear if the Labor party plan to use the same basis for measurement.

If you would like to speak with an energy expert regarding your electricity portfolio, please contact Edge on (07) 3905 9220 or 1800 334 336.

New Firming Product released to market

As more and more large energy consumers look to contract directly with renewable generators, and renewable generators seek price certainty, a new product referred to as the “clean energy derivative” has hit the market.

In the last few weeks, AGL and ERM have released a somewhat standardised product which is built on generation from a renewable source and then “firmed”. AGL’s  “Wind Product Firming Unit” was described as being firmed through physical gas generation whilst also allowing the renewable generator to access the spot market (available in SA and VIC). ERM announced a similar product which is based on generation from solar. These are great initiatives from the retailers who are working to create liquidity in a new market, though keep in mind that there must be profit there for them as well.

Last year Clean Energy Derivatives Corporation featured in the AFR indicating that they would be raising $250m to develop CFD products bundled with generation from wind, solar, battery and storage. Little has been heard since regarding the capital raise or any successful deals.

There are existing generators, such as Snowy Hydro who are in a good position to provide ‘clean energy derivatives’.  However, there hasn’t been any news of Snowy partnering with a renewable generator to provide a firmed product as yet. Unsurprisingly, providing a firmed product would potentially cannibalise potential future earnings for Snowy Hydro. The absence of Snowy in this market could be a result of the change to a five minute settlement market. Fast start technology such as batteries will be one of the few technologies that will be able to capture (mitigate) spikes in spot prices within a 5 minute period, assuming that they are not part of central dispatch.

This product is still in infancy stage, however with strong interest from buyers and sellers we anticipate that it will develop quickly. Tradition Financial Services are soon launching a new wholesale “Renewable Energy Hub” which is described as a platform to firm, standardise and transact between wholesale renewables and energy buyers.

If you would like to understand Clean Energy Derivatives in more detail, please contact Edge on (07) 3905 9220 or 1800 334 336.

Northern Territory Government lifts moratorium on fracking

The Chief Minister of the Northern Terriroty (NT) Michael Gunner has announced that the 135 recommendations made in the recent inquiry into fracking in the NT would be implemented, allowing on-shore fracking to take place in the territory. The 135 recommendations made in the inquiry mitigate the risks associated with onshore gas development to acceptable levels, and in some cases claim to eliminate the risks completely.

New gas developments will require environmental management plans which will be assessed by the NT Environment Protection Authority and signed off by the environment minister.

There will also be area’s where fracking will not be allowed. These include indigenous protected areas, special environmental areas, cultural and agricultural areas of significance to the Northern Territory.

There is a number of studies to be completed before fracking production can begin including strategic environmental and baseline assessments. At this stage it is estimated exploration will begin in 2019 and production in 2021.

If you would like to understand how these changes will affect your gas portfolio please contact Edge on (07) 3905 9220 or 1800 334 336.

AEMC sets maximum price for power

The Australian Energy Market Commission (AEMC) has released its schedule of reliability settings which outlines the maximum price for electricity for both an individual dispatch interval as well as the maximum cumulative price.  The current maximum price of $14,200/MWh will increase to $14,500/MWh and the cumulative price threshold will increase from $212.800 to $216,900.

The maximum price sets the highest cost a generator can be paid in any period and consequently what a consumer can be exposed to. It is escalated each year in line with CPI to encourage new peaking plant to enter the market if needed.

The cumulative price threshold aggregates the trading intervals over the last seven days. If they add up to more than the cumulative price threshold, the prices received by a generator and paid by a retailer will be $300.00/MWh, until the day after the aggregate of the last seven days drop back below the cumulative price threshold. This is put in place to ensure retailers are not exposed to unlimited price risk if there are local issues in a region.

The market floor price (minimum price a generator can receive) has not been escalated and is staying the same at -$1,000/MWh.

All changes take effect 1 July 2018 and more details can be found on the AEMC’s website here.

If you would like to understand how these changes will affect your energy prices please contact Edge on (07) 3905 9220 or 1800 334 336.

Nearly 30 million certificates to be surrendered to meet small scale renewable energy scheme obligations

The Clean Energy Regulator (CER) announced earlier today, the 2018 small-scale technology percentage (STP) as 17.08%. This means that liable entities (mainly electricity retailers) are required to surrender to the CER approximately 29.3 million STCs to meet their small scale renewable energy scheme obligations for 2018. This figure is derived by adding 7.2 million STCs to the estimated 22.1 million supply of STCs in 2018 (see below for how this is determined). The 7.2 million STC adjustment is the difference between previous years’ STC creations and the actual number of STCs surrendered in those years.

Last year the STP was 7.01%, therefore this year is an increase of 10.07%. The uplift was anticipated by the market due to information previously released by the CER regarding a surplus of certificates.

Surrendering certificates is a legal requirement for liable entities in accordance with the Renewable Energy (Electricity) Act 2000,​ and works to increase the portion of renewable energy generated and supplied to the Australian electricity market.

If you would like to know more about STCs or the impact this announcement has on your electricity portfolio, please contact Edge on (07) 3905 9220 or 1800 334 336.

Northern Territory Hydraulic Fracturing

 

After 15 months, 151 public hearings, 31 community updates and 1,257 submissions, Justice Rachel Pepper has presented the independent Scientific Inquiry into Hydraulic Fracturing of Onshore Unconventional Reservoirs to the Northern Territory Government. The inquiry makes 135 recommendations which mitigate the risks associated with onshore shale gas development to acceptable levels, and in some cases, eliminate the risks completely. The report clearly states that it is necessary for all the recommendations to be actioned in order for the risks to be reduced to acceptable levels.

The final report builds on the recommendations made in the Draft Final Report by including:

  • an implementation Chapter, which states clearly that all of the recommendations in the Final Report must be implemented;
  • greater clarity on the timing of the implementation of the recommendations; and
  • the inclusion of a requirement that there be no net increase in greenhouse gas emissions in Australia as a consequence of the development of any onshore shale gas industry in the Northern Territory.

 

The findings of the Inquiry have triggered the expected (opposing) responses from gas producers and environmentalists. The NT Government must now make their decision on whether or not the moratorium on fracking will be lifted. The Federal Government last year made their intentions clear, consistently pressuring the NT Government to lift the moratorium. The NT Government has indicated that the decision to lift the moratorium would be based on the findings of this inquiry however have said that they will not rush their decision. No indication has been given as to when a decision would be made.

It is the general consensus that a portion of the gas extracted from the Beetaloo Basin will be transported to the east coast through the under construction Northern Gas Pipeline. This is a key driver behind the Federal Government’s push to lift the moratorium as reducing gas prices has been high on the agenda. The impact that NT gas will have on the southern gas markets is likely to be minimal as transport costs remain high due to limited available capacity in key transmission pipelines.

If you would like to know more, please contact Edge on (07) 3905 9220 or 1800 334 336.

Softer forward electricity prices recorded on the Australian Stock Exchange

Quarterly forward contracts from Q118 to Q219 declined across all mainland regions in the National Electricity Market (NEM) yesterday. The largest decline was in the illiquid South Australian market where Q219 prices dropped by $9.75/MWh. Queensland contracts are currently the most affordable which is driven by the surplus of firm capacity in the region and a direction from the Queensland Government last year to Stanwell Corporation to lower wholesale prices. New South Wales contract prices have declined since the beginning of 2018 driven by lower than expected spot price outcomes in the region. Snowy Hydro corporation have been instrumental in reducing volatility in the region aggressively defending the $300.00/MWh cap price. VIC contracts have softened in the last week potentially raising interest for participants to hedge volume who have been on a hold.

The following prices are end of day closing prices from the ASX.

Table 1. QLD Forward Contracts ($/MWh)

Queensland 27/3/2018 26/3/2018 Daily Change Daily Change (%)
Q118 $70.36 $70.67 -$0.31 -0.44
Q218 $67.50 $67.50 $0.00 0.00
Q318 $66.05 $67.73 -$1.68 -2.54
Q418 $67.02 $68.73 -$1.71 -2.55
Q119 $81.00 $82.70 -$1.70 -2.10

Table 2. NSW Forward Contracts ($/MWh)

New South Wales 27/3/2018 26/3/2018 Daily Change Daily Change (%)
Q118 $71.80 $72.00 -$0.20 -0.28
Q218 $77.00 $77.50 -$0.50 -0.65
Q318 $77.00 $78.75 -$1.75 -2.27
Q418 $70.65 $71.60 -$0.95 -1.34
Q119 $81.81 $83.10 -$1.29 -1.58

Table 3. SA Forward Contracts ($/MWh)

South Australia 27/3/2018 26/3/2018 Daily Change Daily Change (%)
Q118 $116.15 $116.15 $0.00 0.00
Q218 $98.25 $108.00 -$9.75 -9.92
Q318 $89.00 $91.00 -$2.00 -2.25
Q418 $84.00 $85.75 -$1.75 -2.08
Q119 $120.00 $120.00 $0.00 0.00

Table 2. VIC Forward Contracts ($/MWh)

Victoria 27/3/2018 26/3/2018 Daily Change Daily Change (%)
Q118 $102.75 $103.00 -$0.25 -0.24
Q218 $83.50 $86.50 -$3.00 -3.59
Q318 $82.75 $84.76 -$2.01 -2.43
Q418 $76.00 $78.78 -$2.78 -3.66
Q119 $98.43 $100.85 -$2.42 -2.46

If you would like to know more about energy costs and the state of the energy market, please contact Edge on (07) 3905 9220 or 1800 334 336.