Tightening in the ACCU Market

Person using a laptop with carbon credit and sustainability icons floating above their hands, including CO2, recycling, solar energy, and net zero symbols.

The Department of Climate Change, Energy, the Environment and Water (DCCEEW) intends to stop the development of the Integrated Farm and Land Management (IFLM) method.

The reasoning is due to difficulties demonstrating the environmental benefits of regeneration activities in areas not previously cleared. Instead, the DCCEEW has proposed a new system to be developed, the Landscape Restoration Method (LRM), which considerably tightens grazing activities compared to the previous Human Induced Regeneration (HIR) method.

As a result, the market responded to the news with increased activity for HIR ACCUs and price firming for both generic and HIR ACCUs. The generic ACCU market has firmed since late last year, increasing from the $31-$32 range to $36.

Depending on the scope of allowed grazing activities under the future IFLM or IRM, the market could significantly move. The IFLM method was initially expected to fill the supply gap created after the retirement of two major methods by the end of 2024.

The ACCU market is currently priced to increase into the future, with a cost of carry of ~7%. This is ultimately driven by demand from safeguard participants and some voluntary demand associated with sustainability targets.

The current baselines decrease by 4.9% each financial year out to 2030, with an emission reduction contribution of 65.7% in 2030. The demand for ACCUs to offset organisations’ emissions is anticipated to surpass ACCU issuance for the first time in 2028. The high demand and low issuance are currently forecasted to continue until 2031, where demand for ACCUs is forecasted to peak at 31 million certificates. This is significantly up from 2022, where demand from scheme participants was less than 1 million. However, facilities that are covered by the Safeguard Mechanism are able to generate SMCs, which are a new type of credit issued as a reward for emitting below one’s limits, which could ease overall demand on ACCUs.

The Australian Government has made ACCUs available to liable entities at $75/cert, increasing with CPI plus 2%, ultimately setting a price cap for them. In future years, when supply and demand become tighter, could we witness an ACCU market consistently trading at or near the cap, similar to the current STC market?

Egypt’s Gas Woes: Blackouts, Regional Tensions, and Global Market Challenges

Offshore gas drilling platform at sea, visible against the horizon under a hazy sky.

Egypt’s increasing reliance on gas has led to struggles with blackouts as domestic gas consumption soared, particularly during summer when high demand for cooling drained domestic reserves. Despite a strong start earlier in the year due to surging pipelined gas imports from Israel, the recent war between Israel and Hamas has impacted regional gas supplies adversely. The tensions led to a redirection of Israeli gas supplies through Jordan, instead of the direct subsea pipeline to Egypt, causing a temporary halt in gas imports. However, as of early November, gas imports from Israel have resumed, albeit in smaller volumes.

The disruption to supplies came at a time where Egypt had already ceased exports of LNG due to high domestic demand, with abandoned plans to resume exports in early October. Egyptian PM Mostafa Madbouly’s announcement of zero gas imports from Israel was reflective of the harsh reality, as Egypt’s cabinet confirmed a drop in gas imports from 800 million cubic feet per day, contributing to a power generation deficit and prolonged blackouts.

According to Reuters, the attacks by Hamas towards central Israel have caused US owned Chevron to cease operating their Tamar field, which resides close to the Gaza strip. This field produces in the region of 40% of all Israeli gas.

Egypt’s status as an LNG exporter is likely in jeopardy, with its only other gas rich neighbour, Cyprus, without a pipeline to directly supply Egypt. These LNG exports are a crucial supply of foreign currency earnings for Egypt, as their debt to GDP ratio was expected to peak at 97% over the Q2/Q3 period.

With the EU cutting ties to Russian gas, there are few suppliers left outside of the United States to provide crucial energy fuel supplies to the EU. The EU will be forced to reassess its energy diversification strategy should it have shortfalls over winter.

This shortage is likely to drive up LNG prices globally, with the Asian market also having fewer options to choose from. The question remains as to whether Australian LNG suppliers will be able to take advantage of a market with fewer competing sources.

Powering Up: How Australia Is Revolutionising Its Electricity Grid

The launch of the Very Fast FCAS markets on 9 October 2023, 1300 (market time) will add two new FCAS markets, “very fast” Raise Contingency FCAS, and “very fast” Lower Contingency FCAS. These markets will enable frequency control by providing full active power response within 2 seconds, as opposed to the existing 6 seconds with the “fast” services. With the ability to respond to changes in power supply and demand within a second, these markets will provide a much-needed boost to the resilience of the National Electricity Market (NEM). As we move towards a future increasingly powered by renewable energy sources, the importance of maintaining a stable and secure power supply becomes even greater.

However, not everyone is convinced that the introduction of Very Fast FCAS markets is a positive development. Some critics argue that the increased competition created by these markets could drive down prices, potentially leading to lower revenues for generators and less investment in new capacity. There are also fears that the faster response times required by Very Fast FCAS markets may introduce technical challenges and increase the risk of errors or failures in the system. Furthermore, some stakeholders worry that the introduction of Very Fast FCAS markets represents a case of “scope creep,” where changes to the Market Ancillary Services System (MASS) exceed the original intent of the review and encroach on other areas of the NEM.

Despite these concerns, many see the benefits of Very Fast FCAS markets outweighing the drawbacks. By preparing for these changes now, businesses can take advantage of the opportunities presented by a more responsive and agile power grid.

In addition, the Department of Climate Change, Energy, the Environment, and Water is currently seeking feedback on its proposed Renewable Electricity Guarantee of Origin (REGO) scheme, which was originally proposed in Q4 2022, and aims to provide a stable framework for investors in the renewable energy sector.

The REGO scheme builds upon the existing Large-scale Generation Certificate (LGC) model but includes several key improvements. Firstly, it allows for greater transparency in reporting Scope 2 electricity emissions, making it easier for companies to demonstrate their commitment to sustainability. Secondly, it provides a long-term vision for the integration of offshore energy generation, improved electricity storage solutions, and distributed energy resources. Finally, it enables policymakers to adapt to changing market conditions and implement new policies as needed.

Another important development in the NEM is the Australian Energy Market Commission’s (AEMC) draft report on the Retailer Reliability Obligation (RRO). The RRO was introduced in 2019 to address concerns about the reliability of the power grid as the NEM transitions away from traditional fossil fuel-based generation towards cleaner, more intermittent sources of energy. Under the RRO, retailers must hold sufficient supplies of reliable generation and demand management resources, such as battery storage, pumped hydro storage, and demand response mechanisms, to meet customer demand during periods of peak usage.

While the RRO has been successful in encouraging retailers to invest in reliable resources, certain issues remain that need to be addressed. For instance, the current triggers for the RRO can create perverse incentives for retailers to over-invest in expensive peaking generators rather than cheaper, more efficient alternatives. Additionally, there are concerns that the RRO does not adequately account for the variability of renewable energy sources, leading to unnecessary expenditure on backup generation.

To address these problems, the AEMC’s draft report proposes several changes to the RRO. One suggestion is to replace the existing T-1 trigger, which is based solely on forecast demand, with a hybrid trigger that takes into consideration both forecast demand and actual supply. This change should help prevent situations where retailers are incentivised to overspend on backup generation due to overly conservative demand forecasts. Other recommended adjustments include allowing retailers to use non-generation sources of supply, such as demand response, to meet their obligations, and introducing an explicit mechanism for determining the reliability standard. Feedback on the draft is due by 2 November 2023, with the final report expected to be released in February 2024.

Overall, the launch of the Very Fast FCAS markets, the development of the REGO scheme, and the proposed modifications to the RRO form part of a broader effort to create a more reliable, resilient, and sustainable power grid for all Australians. While there may be disagreement around the specifics of each proposal, few dispute the urgent need for reform if we are to achieve our climate goals while keeping the lights on and the economy humming.

Queensland’s SuperGrid Infrastructure Blueprint: A Bold Vision or a Tall Order?

Engineers in safety vests and helmets discussing renewable energy solutions on a laptop at a wind turbine electricity plant during twilight

In September 2022, the Queensland government unveiled its SuperGrid Infrastructure Blueprint, a comprehensive plan aimed at transforming the state’s energy landscape. With ambitious targets of achieving 70% renewable energy by 2032 and 80% by 2035, the blueprint sets out to revolutionise the state’s historically coal-dependent energy sector. But, as the initial excitement subsides, concerns regarding feasibility and practicality have begun to surface.

At the heart of the blueprint are six Renewable Energy Zones (REZs), designed to harness the state’s abundant wind and solar resources. These zones have been hailed as the cornerstone of Queensland’s renewable energy future, yet the involvement of various stakeholders, including First Nations people and local farmers, introduces complexities that may impede progress.

One of the primary concerns surrounding the blueprint is the intermittency of renewable energy sources. To address this issue, the plan proposes a significant investment in long-duration storage, complemented by an additional 3 GW of grid-scale storage. However, questions linger regarding the sufficiency of these measures to ensure a stable power supply during periods of high demand. With further delays to Snowy 2.0, the optimism of pumped hydro projects being completed on time has plummeted.

Furthermore, while the blueprint mentions low to zero emission gas-fired generation, the vagueness surrounding the term “low to zero” raises doubts about the commitment to truly reducing emissions. This ambiguity could undermine public trust in the project and create uncertainty for investors.

Another point of contention is Queensland’s continued reliance on its connection with New South Wales. Although this relationship provides a safety net, it also suggests a possible lack of confidence in the state’s independent capability to meet its energy needs.

Powerlink, the entity responsible for facilitating community engagement, faces the daunting task of balancing diverse interests and opinions. While the blueprint’s emphasis on collaboration is laudable, experienced observers may view this approach as a potential hindrance to timely decision-making.

Despite reservations, the SuperGrid Infrastructure Blueprint offers numerous opportunities for innovation and growth, particularly for those familiar with navigating regulatory frameworks. Nevertheless, the magnitude of the challenges ahead cannot be ignored. Bureaucratic obstacles, coupled with the weight of expectation placed upon Renewable Energy Zones, leaves room for doubt regarding Queensland’s ability to deliver on its promises.

In conclusion, the SuperGrid Infrastructure Blueprint represents a bold vision for Queensland’s energy future, but its success hangs in the balance. Either the state will emerge as a leader in the global transition to renewables, or it will serve as a cautionary tale of overambition. Only time will tell if Queensland has taken a confident step forward or a tentative shuffle into the unknown.

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.