Strikes at Chevron LNG Plants

Last-minute talks broke down at Chevron’s LNG projects, and Unions have initiated three weeks of strike actions, causing the European gas price to surge. Chevron’s Wheatstone and Gorgon LNG plants contribute approximately 7% of global LNG supplies and 47% of Western Australia’s domestic gas. The strikes are planned to average 10 hours a day until Thursday, at which point the strikes will escalate to two full weeks of 24-hour strikes.

The Dutch TTF gas futures (European benchmark gas prices) jumped 8.2% in the first 15 minutes of market opening; a direct result of the strikes. However, the impact of the strikes in the short term is softened because storage levels across Europe are reportedly at record levels for this time of year. Sources from the Union said there were five days of mediation prior to Friday morning without reaching an agreement. The Union indicated Chevron apparently had demanded “special concessions” in bargaining – “a demand which we have put through the shredding machine”.

An energy analyst indicated that the initial action is of a lower level, causing costs and inefficiencies but not significantly impacting production. However, there would be a major impact should the strike escalate on Thursday.

A spokesman for Chevron said, “Throughout the process to date, we’ve made generous, good faith offers and concessions in an effort to finalise enterprise agreements.” “Unfortunately, following numerous meetings and conciliation sessions with the Fair Work Commission, no agreement has been reached as the unions are asking for terms significantly above the market.” The spokesman also stated that Chevron remains committed to attaining an agreement which will achieve a market-competitive outcome in the interests of both Chevron and its employees.

Edge believes the impact of the strikes won’t significantly affect the Australian gas and electricity market as full-scale shutdowns of the Chevron Wheatstone and Gorgon plants are unlikely. This is because it could trigger a domestic energy crisis in WA, prompting government intervention to end the strikes.

Electricity Grid Faces Challenges Amid El Niño’s Return, Warns AEMO

Australia’s electricity grid is bracing for potential disruptions this summer, particularly in Victoria and South Australia. The Australian Energy Market Operator (AEMO) has expressed concerns about the imminent El Niño, which is anticipated to bring about a season of extreme heat and wind-less days.

This latest warning from AEMO (2023 ESOO) presents a very concerning picture. The slow pace of transitioning from old coal plants to cleaner energy sources, coupled with potential coal and gas shortages, has heightened the risk of blackouts. AEMO’s annual 10-year outlook emphasizes the urgency of investments. With nearly two-thirds of Australia’s coal power fleet expected to shut down by 2033, the need for swift action to ensure uninterrupted power supply is paramount.

The challenges of transitioning to a greener economy are becoming more evident. The scenario in NSW, following the proposed 2025 closure of the massive Eraring coal generator, is particularly urgent. AEMO strongly recommends postponing such retirements to avoid blackouts. Contrasting their optimistic report from February, the upcoming summer may see Victoria and South Australia facing with power shortages. These shortages can be attributed to a mix of factors, including periods of low wind, recurring generator breakdowns, and the gas plant shutdown.

The latest AEMO report indicates that roughly 3.4GW of new generation and storage capacity is projected by this summer. Furthermore, initiatives like Snowy 2.0 in NSW and the Borumba pumped hydro project in Queensland are aimed to bolster capacity by 2032-33. However, there are concerns as projects like Snowy 2.0 confront delays and rising costs.

With the re-emergence of the El Niño pattern, the electricity grid is anticipated to be under significant stress, especially following three comparatively milder summers due to La Niña. The growing popularity of electric vehicles and electric heating, notably in states like Victoria, will add to the strain on the grid.

Sarah McNamara, the CEO of the Australian Energy Council, perceives this both as a challenge and an opportunity. She is optimistic that the market can overcome these obstacles with the appropriate price signals to stimulate investment.

In conclusion, while the journey to a low-emission economy might be lined with challenges, with the right strategies and investment, Australia can ensure a reliable and sustainable power supply for its citizens.

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?”

Australia’s Nuclear Power Debate Intensifies

Australia’s longstanding nuclear power ban, established in 1998, is under scrutiny. Coalition senators are making a strong case for its overturn, warning of impending higher power prices for households and businesses if nuclear energy isn’t adopted.

Queensland senator Matt Canavan recently faced opposition from a Labor-majority Senate committee while pushing to abolish the ban. Still, Coalition senators remain insistent. They state that the primary goal isn’t immediate construction but rather allowing regulators to evaluate nuclear proposals.

Interestingly, the opposition suggests integrating small modular nuclear reactors near retired coal power stations, ensuring a seamless grid connection. However, Prime Minister Anthony Albanese and Energy Minister Chris Bowen have dismissed this, countering the Coalition’s nuclear agenda.

The Senate Environment Committee, influenced by Labor and the Greens, sides with the Prime Minister. Their arguments are threefold:

  1. Nuclear power’s high costs compared to readily available renewable resources.
  2. The untested nature of next-gen SMR technology.
  3. The long timeline of nuclear adoption, which will likely miss the 2030 goal of 82% renewables.

Public sentiment is another hurdle. The committee suggests that Australians largely oppose nuclear plants and their associated waste in their localities.

However, Coalition senators spotlight Australia’s recent commitment to nuclear submarines through the AUKUS partnership, questioning the perceived inconsistency: If nuclear reactors are marine-safe, why not on land?

To officially challenge the ban, changes would be required in two significant acts from 1998 and 1999. As the debate rages on, Australia’s energy future hangs in the balance, highlighting the complex intersections of policy, technology, and public sentiment.

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.

 

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?

Electricity Statement of Opportunity

The expectation of the Electricity Statement of Opportunities (ESOO) expected by the end of August 2023 is one with a little better news in the short term but overall, the expectation of shortness will remain in NSW and SA.

The 2024 contracts have taken a slight breath of relief after the previously uncertain future of the Tallawarra B gas station were thrown a lifeline, and expectations are the plant will come online in mid to late 2024 following its previous contractors collapse (Clough).

This plant will assist with the shortfall left by Liddell and will also have the ability to partially run on Hydrogen which will secure its future in a net-zero grid. Kurri-Kurri, the 750MW gas plant near Newcastle, owned by Snowy Hydro, which was originally due online this year is now unlikely to be commissioned before December 2024, and could potentially still be pushed further. It is worth noting neither of these are currently within dispatch modelling (PASA).

We are expecting from 2025 the ESOO to focus on the closure of Eraring (~25% of the NSW grid, 2,880MW) which will have all 4 units closed by late August 2025, this will not be replaced on the system and therefore the expectation is these units will remain online (or at least half of them in Edge’s view). The question is at what cost? With Eraring already being out of coal contracts and having significant Ash dam storage issues. The cost associated with keeping the station running could significantly increase the merit order bids. In this case, as dispatch is likely required, this could increase spot prices which would have an impact across the NEM.

Current RRO T-3 triggers are in place for SA Jan and Feb 2024 and Jan – March 2025 and 2026 as well as in NSW Dec 2025 – Feb 2026. This is giving strength to these contracts.

The Snowy 2.0 delay announced to the market has had a slight uptick in the later curve contracts but overall, the full effect of this is not yet known, as per the above, a lot will be reliant on the continuation of the traditional thermal generation until enough storage will be available to manage a renewable grid. This is obviously heavily reliant on the transmission being available for this also via the re-wiring the nation project and possible Transmission Access Reforms as discussed last week.

To try and bring forward generation, this year’s budget discussed the introduction of a capacity mechanism, now this has been an idea the ESB has been floating around since 2021 if not before and has gained little support outside of the large coal generators.

It is worth noting the government announced scheme for South Australia and Victoria, is not the Energy Security Board’s (ESBs) design as it is to be based on non-fossil fuel generation, however if this will be decided state by state and with QLD and NSW yet to announce their schemes, they may roll out the fossil fuel capacity bids in later years but allow them in the short term. Victoria and South Australia have declared that they will be the first two states to implement these schemes with auctions expected by the end of 2023. The South Australian market is likely to be dominated in these auctions by the big batteries under construction, Torrens Island, Tailem Bend and Blyth which will bid against the existing assets at Hornsdale, Lake Bonney and Dalrymple.  The Victoria auction is likely to assist the state in meeting its ambition to close the last 3 brown coal stations by 2035 and have a grid consisting of 95% renewables, with a lot of these projects as per Queensland’s target either being owned by or providing offtake to the new government owned “state energy corporation.”

NSW is expected to do this within its Electricity Infrastructure roadmap, but this is yet to be confirmed and with Queensland announcing this week that half of the new renewable capacity within Queensland must be government owned, it is likely that any capacity scheme will heavily feature projects which are either owned by one of the GOC’s or provide the offtake to them under a PPA, as per the Budget announcement of the support for the Borumba Pumped Hydro project.

Overall investment is coming but not in time for the ESOO and the market reaction to this legislation will be seen fully in September.