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.

Concentrated Solar Thermal and the National Energy Guarantee

ARENA has released their public summary of the Request For Information (RFI) on Concentrated Solar Thermal (CST) projects. The RFI process was designed to examine the potential for a possible program supporting the deployment of CST systems in Australia. There were 31 respondents to the RFI. Respondents ranged from the most experienced in the world to relatively junior Australian companies. There were a couple of key takeaways from the exercise which included:

– That dispatchable and flexible generation coupled with synchronous generation was beneficial;

– Cost discovery was limited as pricing is commercially sensitive in nature. More junior developers offered low pricing;

– There are a number of regulatory, commercial and technical challenges to CST.

– Long development time relative to solar PV

Image 1 comes from Vast Solar and was included in the ARENA report. The image provides a summary of the generation capability of a CST. Noting that the profile is a function of the physical design.

Image 1. CST potential generation profile

Source: Synthesis of Responses to ARENA’s 2017 Request for Information on CST and Vast Solar

The information collected on pricing was limited however, ARENA did provide a Levelised Cost of Electricity (LCOE) estimate based on 12 of the respondents RFI’s. The lower estimate was $124.00/MWh and upper was $154.00/MWh. These numbers are significantly above the reported price of $78.00/MWh that the SA Government is paying for generation from the Port Augusta CST plant (noting there is a significantly discounted loan attached to that project).

Concentrated Solar Thermal and the National Energy Guarantee?

At a high-level CST appears to be the golden egg of generation assets if the NEG is implemented. The assets are renewable and dispatchable which positions itself to be able to write dispatchable and low emissions contracts (Image 2.). The question is will the incentives under the NEG be sufficient to warrant the price and risks associated with CST. Currently, the answer seems to be no. The answer is no because of the considerable uncertainty around how the NEG will function and the developers ability to forecast income.

The timeline for the NEG is tight, when asked earlier in the week the ESB Chair Kerry Schott referred to the time frame as “tight but doable”, an underwhelming response. Vague language of this nature does not signal confidence to the investment community nor the consumer. In addition to this, the Federal opposition has been quiet on where they stand in respect to the NEG. In the near term, we are unlikely to see investment in large-scale CST until further clarity is provided on the NEG.

Image 2.

Edge maintains strong relationships with developers of CST plants. If you are interested in understanding more, please get in contact with us. For further information on the National Energy Guarantee please follow the link to our recent submission.

If you would like to know more about energy costs and state-based subsidy, please get in contact with Edge on (07) 3905 9220 or 1800 334 336.

Edge makes submission regarding NEG

It is important that the National Electricity Market remains secure and Australia can be part of the international commitment to reducing climate change while remaining competitive.

The NEG seeks to achieve these objectives while trying to achieve support from both major federal parties. The importance of bipartisan support has been acknowledged, as the market struggles to self-adapt with uncertainty. Having a lasting framework which is flexible enough to allow for changes in a rapidly changing energy market whilst providing certainty to investors who need to recoup long term fixed charges is difficult. Ensuring the market remains efficient and effective is critical to achieving the objectives. It is in this context that Edge provides this initial Submission.

If you would like to learn more about the National Energy Guarantee or have any questions or concerns regarding our submission, please contact Edge on (07) 3905 9220 or 1800 334 336.

[pdf-embedder url=”https://edge2020.com.au/wp-content/uploads/2018/03/Edge-Energy-Services_ESB-NEG-Response_180308.pdf” title=”Edge Energy Services_ESB NEG Response”]

New SA liberal party leader focused on cutting energy costs

The new South Australian Premier, Steven Marshall, will be looking to reduce energy prices in the state.

Mr Marshall is not in favour of setting a state-based target for renewable energy and has noted that even without a target, the state is likely to reach 74% of all electricity being renewable in 2025 and 76% in 2030.

Mr Marshall is focusing on batteries and additional interconnection instead. He is aiming to establish a fund within his first 100 days in office to provide a $2,500 subsidy for up to 40,000 household to purchase a battery. The subsidy will be available to households that already have solar PV and will be means tested, however the exact details around qualifying for subsidy is yet to be released. ElectraNet is already exploring options for additional interconnection with the rest of the market. The State Liberal Party will assist with a $200 million inter-connection fund designed to speed up the process of making a final decision.

Finally, the new State Government is looking at options for the new fast-start gas plant which the previous government committed to. The Liberal Government is not in favour of adding it to the market however they admit that they are not sure what options they currently have.

If you would like to know more about energy costs and state based subsidy, please get in contact with Edge on (07) 3905 9220 or 1800 334 336.

ACCUs Surrendered under Safeguard Mechanism

Together with the National Greenhouse and Energy Reporting Act 2007, the safeguard mechanism provides a framework for Australia’s largest emitters to measure, report and manage their emissions. It gives businesses a legislated obligation to keep net emissions below their baseline. Baselines are intended to accommodate business growth and allow businesses to continue normal operations.

The Clean Energy Regulator recently released the first full year of data on 14 March 2018 under the safe guard mechanism.

The safeguard mechanism commenced on 1 July 2016, with the first reporting period ending 30 June 2017. Emissions were reported to the Clean Energy Regulator as part of the National Greenhouse and Energy Reporting scheme on 31 October 2017. Responsible emitters had until 28 February 2018 to surrender Australian carbon credit units (ACCUs) if their emissions were above their baseline.

The Clean Energy Regulator is required to publish information about all large facilities with emissions over 100,000 tonnes of carbon dioxide equivalent (CO₂-e) for each reporting year.

As at 31 October 2017, there were 154 responsible emitters identified with one or more large facilities, resulting in 203 facilities having legislated obligations under the safeguard mechanism for the 2016–17 reporting year.

Clean Energy Regulator Chair David Parker announced that all responsible emitters have met their requirements in the first full year of the safeguard mechanism. Of the 154 emitters there were 3 companies that withheld information which is allowable under section 25 of the National Greenhouse and Energy Reporting ACT 2007 if the organisation is protecting trade secrets or commercial information.

There were 16 companies that exceeded their baseline and were required to surrender carbon credit units.

If your company requires brokerage services for carbon units please get in contact with Edge on (07) 3905 9220 or 1800 334 336.