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.


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.

Let’s talk Energy Markets

Energy Markets

In the past 2 years, the market has dropped from highs of over $75/MWh in August 2019 then following the events outlined on the chart below the market price dropped to historic lows of around $36/MWh.

Following some volatility at the start of 2021 driven by a hot summer, the market firmed and increased further because of the catastrophic failure of Callide C4 and the tripping of many other power stations.

The chart below shows that the underlying spot price (light blue line) has continued to spike and trend up resulting in increases in the contract prices. Another interesting aspect of price curves is how market announcements such as the cost of coal and gas can impact the curve. In months, the curve softened but spiked due to conflicts in Ukraine causing coal and gas, a key input to thermal generation, to increase in price.

The spot price of these commodities is not directly linked to the fuel price used by generators in the next quarter, so the market has now softened.

Future years are also becoming cheaper year on year as renewable energy takes a larger share of the market and renewable energy is expected to continue to fall in price.

Having recently undertaken a few requests for proposals (RFP) for our clients, we are aware there is good value for companies willing to take up longer term renewable PPAs. More and more projects are becoming available post 2023/24.

Undertaking a renewable PPA will go towards meeting many companies’ sustainability targets through the procurement of renewable energy and environmental certificates.

Below are the contact details for Alex. He would be happy to discuss your company’s sustainability targets and how we can help the business reach them.

Alex Driscoll

Senior Manager Markets, Trading & Advisory

M: 0437 966 409

P: (07) 3905 9226

T: 1800 334 336


Yesterday was a BIG day in the market

You may have heard it has been hot in Queensland over the last couple of days. Yesterday this all came to a head with the market showing some cracks.  

 At a high level, the spot price averaged $1,607/MWh for the day. Prices were less than $300/MW for most of the day when solar generation was high but as we moved to the evening the spot price spiked to between $10,000/MWh to $15,100/MWh for a few hours as coal, gas fired generation and pumped hydro set price.  

Yesterday and again today the market is under pressure on both the supply and demand sides. For the last couple of days, the hot weather has been influencing consumption. The second part of the equation is the supply side. At the start of yesterday Queensland’s largest generator, Kogan Creek was offline as well as Callide B2. All other “baseload” units were online.  

High temperatures and particularly high humidity impact the output from coal and gas fired generation. Coal units generally vacuum unload over the evening peak if they have not been proactively managed by the operators, which AEMO is fully aware of and is built into the contingency. Another issue with Kogan Creek being offline is that it reduces the flow across the QLD to NSW Interconnector (QNI), the result flows from NSW and is generally capped at ~600MW.  

The final issue is the bidding behaviour of participants. The previous days’ bid stack indicated prices would stay below $300/MWh during the daylight hours then jumped to $900/MWh where CleanCos cap price with its Wivenhoe Hydro generator, but once through that price band the spot price jumped to $10,000/MWh then again to $15,100/MWh.  

Adding to the already tight supply balance, the Tarong Power Station Unit 2 tripped at 15:15, returning to service at 18:50. Tarong 2 was ramping up at the time of the trip and from the trip profile, it does not look like a tube leak. From 18:50 the unit ramped up over the next couple of hours and is now running normally. Shell also had plant issues at the 78MW Condamine Power Station, taking the unit offline. Tarong, Millmerian, Stanwell and Gladstone Power Stations also had one or more issues over the evening peak.  

An Intervention Event was triggered as a result of Reliability and Emergency Reserve Trader (RERT) being implemented in Qld. This took effect from 17:00 01/02/22 until 21:30. Intervention pricing took effect from 17:00.  

A Lack of Reserve (LOR3) is still active for today as RERT has not been extended to manage today’s evening peak. If RERT is extended or reinstated today the LOR3 will be cancelled.  

As part of RERT, Powerlink was asking for industry to reduce consumption if safe. Large mines in Queensland have historic agreements with Ergon to reduce consumption and on this occasion, they reduced load as requested.  

In the build-up to the evening peak, the Minister for Energy, Renewables and Hydrogen and Minister for Public Works and Procurement, the Honourable Mick de Brenni made the statement “It is possible that Queensland’s previous record demand of 10,044MW will be exceeded on either today or tomorrow.”  

Queensland’s demand peaked at 16:40 as a result of the demand side management.  

At 21:30 AEMO published a market notice letting the market know that the intervention event had ended and as a result, RERT and Intervention pricing was not continuing.  

So what is ahead for us today?  

  • Demand forecast is looking to peak close to 10,000MW today, this is forecast to occur at 17:00.  
  • Pre dispatch spot pricing is again forecast to be at $15,100/MWh between 14:00 and 23:00.  
  • RERT may be needed again today and AEMO will currently be exploring their options. 

Written by Alex Driscoll Senior Manager Markets, Trading & Advisory

All eyes are now on Kazakhstan


Whilst some were still tending hangovers from new year celebrations, January 2nd was the start of rallies in a Southwestern oil town of Zhanaozen in Kazakhstan and this unrest soon spread to most major towns and cities across the country.

To understand the country of 19 million and its enormous wealth you need to go back to the fall of the Soviet Union in 1991 when the country gained its “independence,” I am using the term independence lightly!!

As an oil rich nation (it is estimated it produces 1.6 million barrels of oil per day), a government, despite locationally placed between Russia and China, being one which is firmly in the Russian pocket and for nearly thirty years being run by one man, Nursultan Nazarbayev (a close ally of Vladimir Putin), you imagine significant wealth being distributed to the small population of this huge wealthy country (which is larger than Western Europe), but this is not the case.

Nazarbayev focused on economic reform over democracy. He erected statues of himself all over the country and created a new capital which although originally named Astana (literally translated as “Capital”) was re-named Nur-Sultan after himself until the end of his term when it reverted to Astana. He stood down in 2019, however, continued to hold a significant stronghold over the country as the head of Kazakhstan’s Security Council and “Father of the Nation”.

His successor was President Tokayev. He was a protégé of Nazarbayev and is also close to Putin, however, unlike his peers he doesn’t seem to have any business interest in or outside of Kazakhstan. There are no corruption scandals surrounding him, his diplomatic skills and manners are irrefutable and as a speaker of five languages and a successful diplomatic career, including serving in the USSR embassy in Beijing during the Tiananmen Square massacre in 1989, he is seen to be a quiet, interim holder of the position until it was assumed Nazarbayev’s daughter takes the reigns. However, he is now, for the first time, able to show his real intentions. This is due to Nazarbayev supposedly fleeing the country following this latest unrest.

The small oil town of Zhanaozen, which has a history of riots, with deadly clashes 10 years ago starting in the town, which led to legislation stating public protests are now illegal without government permits, once again on January 2nd took centre stage for the start of the latest situation.

What started as peaceful protests around the removal of the price cap on liquified petroleum gas (which many Kazakhs converted their vehicles to due to it being a cheaper alternative) was hijacked and has led to many asking if this really is the end of the Nazarbayev era?

The removal of the price cap doubled the price of the fuel overnight and is no doubt driven by the opportunity to re-coup greater value of the fuel abroad, especially in western Europe which is currently suffering from a lack of supply and record high prices.

But soon many others, mainly young, disillusioned Kazakhs who wanted to protest against the mass corruption within the country and the chasm of disparity in the country’s socio-economic situation, joined the protests. Although illegal these protests were peaceful and were mainly unorganised gatherings of unemployed countryside youths who wanted to express their feelings of social injustice.

This changed on January the fifth.  At this point, thousands of armed mercenaries joined the protests in the city of Almaty. They seized the airport, police stations and administrative buildings and were protesting Mr Tokayev’s government and the former president Mr Nazarbayev.

To quell the violence and restore order to what was once seen to be one of the most stable states in central Asia, Mr Tokayev called in Russian led “peacekeepers” from the Collective Security Treaty Organisation (CSTO, made up of Russia, Belarus, Armenia, Kazakhs, Kyrgyzstan and Tajikistan forces) who had the right to fire without warning and although reports are varying the clashes led to 225 protesters and law enforcement personnel being killed.

Curfews were declared and mass gatherings were banned. Even China has declared they would help increase “law enforcement and security” to avoid the influence of the “foreign militants” and “terrorists”. President Tokayev stated that over “20,000 bandits” hijacked these protests with many being Islamic Militants, groups which although not named were said to have trained outside of the country.

By the time Ash Barty took to the final of the Adelaide open to face the Russian born Kazakh, Elena Rybankina, on Sunday 9th the fires were dampening and riots calming. The Kazakh government, after a short period of dissolution, now firmly back in place, are disclosing they have arrested around 12,000 people for participation in the protests however in a state where the cards are held so close to their chests the death toll and arrest numbers could be significantly higher.

But the reason so many eyes are centred on this oil-rich nation is that for the first time in thirty years the deep reforms necessary and old elitist viewpoints can be addressed. No one expects Mr Tokayev to become a man of the people and completely disassemble the economic and political power his close associates hold, no matter how many CEOs, who happen to be sons-in-law of Nazarbayev, are asked to leave their positions. But he does have the opportunity to step out of Nazarbayev’s huge shadow and become his own figure.

This is already starting with an unprecedented attack on Nazarbayev, saying his mentor had failed to share the country’s vast wealth with ordinary Kazakhs and announcing wide ranging reforms which are aimed at winning popular support amongst ordinary Kazakhs, including setting up a new fund for the public good to which oligarchs and wealthy businessman will be forced to contribute.

The injustice in the resource distribution outside of the oligarchy and corruption that follows is not part of Mr Tokayev’s makeup and this could be critical now, especially whilst those loyal to Nazarbayev are still holding many economic reigns in Kazakhstan.

Mr Tokayev, although now in a stronger position, is at a tipping point of shifting the country towards democracy or continuing down his predecessor’s path. Either way as a country rich in oil reserves and one crying out for structural reform, this is no doubt an opportunity and one many across the world are watching very closely.

Article was written by Kate Turner Senior Manager Markets, Analytics & Sustainability

Renewables – cheapest generation in Australia

On Friday, CSIRO released a draft of its latest annual GenCost report. The report is used by AEMO for some of its inputs and assumptions in their publications such as the ISP and the ESOO. The report calculates the expected levelised cost of electricity (LCOE) from a range of generation technologies.

In this year’s report, wind and solar continue to be Australia’s cheapest generation technologies. The report also explores the impact of storage on wind and solar, with the addition of batteries, wind and solar still outperform coal and gas.

The 2021-22 GenCost report estimates solar has a levelled cost of between $44 to $65/MWh and wind costs range between $45 to $57/MWh. The large range in costs is a direct relationship between the scale of the projects.

The CSIRO estimate to build a new baseload coal-fired power station would result in a LCOE of up to $118/MWh and gas is not far behind at $111/MWh. For units with a lower utilisation rate compared to a baseload unit, the LCOE would be significantly higher.

The report also looked into the future and predicts how the cost of generation technologies will change. It is likely the cost of coal and gas technologies will remain constants, in my view they will increase as equipment costs increase, access to specialist skilled labour decreases and capacity factors drop. On the other hand, the CSIRO predicts solar, wind, batteries etc will continue to drop in price resulting in lower LCOE into the future.

With a rapidly changing energy landscape, the CSIRO have also looked at the cost of integrating intermittent generation with storage and grid support services. The CSIRO predicts the integration of technologies and services will add as little as $10/MWh to the LCOE of the generation asset alone. Even with this integration, renewable as considerably cheaper than coal or gas-fired generation.

The study also found if Australia goes down the “gas led” recovery it is highly dependent on the cost of gas. There is a slim chance that gas can compete with renewables but only if gas prices are below $6/GJ and the gas-fired generator has a capacity factor of 80% or above.

If any of the existing coal-fired generators go down the track of installing Carbon Capture and Storage (CCS) it will make them less competitive leading to lower capacity factors. CCS is predicted to increase the LCOE of between $162 and $216/MWh. If the technology is used on Gas fired assets it is likely to increase the LCOE to between $107 and $170MWh.

Stepping outside conventional technologies, the CSIRO would envisage if Australia went down the nuclear path it would result in the highest LCOE of any generation technology.

With the move to a hydrogen economy, the CSIRO have also included the cost of electrolysers, while expensive now the expectation is that they will drop in price by 75% over the next 10 years and by up to 90% by 2050.

Although the GenCost report is currently out for stakeholder consultation it is an interesting view into the future of the Australian energy market.