Could We Finally Have a Post-2030 Plan?

Wind turbines at sunset overlooking a coastal landscape

You would be forgiven for missing the nuances released in the multiple papers released by the Department of Climate Change, Energy, the Environment and Water in late September. Under the heading of ‘Australian Hydrogen News’ there was a glimmer of hope we may indeed have some post RET certainty on the horizon.

In what was the smallest of the 4 papers, was the Renewable Energy Guarantee of Origin (REGO) scheme paper, which is associated with tracking renewable electricity generation.

Following on from the December 2022 paper which set out a framework for the REGO scheme, this paper is seeking views on timing, implementation and design of the scheme which is looking like it will come into effect in January 2025.

But it goes further, it strongly insinuates, that the aim of this new legislation is to provide certainty that the scheme will allow for the creation of renewable energy certificates, as per the current LGC and STC legislation but with additions post 2030. Thus, the REGO scheme will enhance the Renewable Energy Targets (RET) post 2030 when it will supersede the current legislations, but co-exist for the 5 years prior, “noting there are benefits to moving towards a single, enduring certificate creation framework.” and further it confirms the CER will continue to be the body which will administer it.

This news will be welcomed by many as the concerns around a combined “carbon equivalent” scheme both brought back memories of the old carbon taxes as well as concerns for the demand of ACCUs under the safeguard reforms exacerbating that value of carbon. If you were to include the Scope 2 emissions into that demand mix the governments proposed ceiling of $75/certificate (escalating annually) would in no doubt be reached.

Now the REGO scheme will not be changing any requirements under the RET scheme before 2030. But it is likely to remain in place until at least 2050, as such the investment certainty the market has been looking for may soon be in place. The two will co-exist with the RET liability still being required to be met by the LGC / STC component of your liability, but any voluntary surrenders above that level could be met via the REGO scheme. This could be beneficial as the changes could allow many more of these REGO certificates to be produced and thus hold the price at a softer level than the under demand LGC market. With voluntary surrenders also able to be moved out of this LGC market the demand for these certificates could also be reduced, with the hope these additional certificated could bring the value back to pre-social licence demand levels.

The changes being proposed will allow all electricity generation to be eligible to produce a REGO. This would include below baseline generation. It is noted whilst the REGO may be produced under this certain accounting methodologies, such as GreenPower would not use any of these certificates and schemes such as RE100 are likely to make changes which include further exclusion provisions for older generation power stations.

Another interesting inclusion into the REGO scheme is the further information around the inclusion of STC’s. With the increase in aggregated VPPs and orchestrated DERs the likelihood is post 2030, when most STC deeming periods expire, there is an opportunity to include these smaller schemes within the larger REGO scheme which could in turn create further issues. The reason being is a REGO will have a time stamp and the likelihood of us moving to a hourly matching requirement, is becoming much stronger in some industries. As such the consideration that the REGO is produced when 1MW is reached will not ultimately “match” the offtake it is matching which may cause issues for some stakeholders. However, it has to be assumed that if that is such a strong consideration for your internal stakeholders, they will not be matching their offtake from an aggregated small site portfolio?

One throw away comment in the paper but directly linked to this is “once the REGO scheme is in place with locational and temporal attributes, this could be used as the basis for further refinements to the NGERs market-based methodology.” Could we see post 2030 a requirement for NGERs reporting to move to hourly matching and if so at what cost to businesses? This is absolutely one to watch for in future papers.

Another interesting area being discussed is around offshore generation or export of generation which may be outside of Australia’s territorial waters. Whilst the paper defers a decision on this to the future paper “Electricity and Energy Sector Plan” they cannot defer for long as Sun Cables development shows the scenario will be emerging possibly before the legislation.

The one area they did elaborate on in slightly more detail is the position around how storage will have eligibility within the scheme. We are all acutely aware that no renewable grid can exist without significant increases in storage capability but with this comes significant opportunity for the owners of these facilities to participate in schemes such as this. The Department have on a high level proposed that the certificates produced will be “proportional to the certificates surrendered relative to the charging debit”. A fair definition, but as with all things the devil is in the detail, and we will be watching for the subordinate legislation which will outline this more comprehensively.

Overall, the paper offers little additional substance to what we knew in December, it offers slight clarifications but with the anticipated enactment of the legislation in 2024, and commencement on the 1st January 2025 businesses need to be aware of the changes being discussed and that they are not only applicable to the Hydrogen Industry, regardless of where the Department have decided to place them in consultation.

AER’s State of the Energy Market in 2023

The AER released their annual ‘State of the Energy Market’ report last Thursday for 2023 for Australia’s electricity and gas markets. This included some relatively good news as the energy system in 2023 has “experienced fewer shocks and better outcomes than in 2022”. The 2023 wholesale electricity market prices have declined from the record prices in 2022, largely due to the government interventions in the coal and gas markets. Despite the decline, prices remain high by historical standards.

A media release by the AER accompanying the report stated, “Increases in wholesale energy prices were evident in retail prices, with estimated electricity bills rising between 9% and 20% in all NEM jurisdictions in 2022-23, impacting households already experiencing broader cost-of-living pressures. “

The report highlighted the pressures for investment in renewables to permit the retirement of coal generation. The report also commented on Liddell’s retirement in April 2023 going smoothly due to the new renewable generation and recent favourable market conditions.

The transition to new energy infrastructure faces several challenges:

  • The vast scale and required coordination of investments.
  • Rising costs in the infrastructure sector.
  • The need for community engagement in infrastructure planning and development.

The report highlighted the government involvement and support in investments including joint initiatives between Australia Government and state and territory governments.

The dynamic between electricity and gas markets is increasingly interconnected. As regions shift from gas demand to electricity demand (like replacing gas heating with electric air conditioning), it’s anticipated that pressure on gas markets will decrease, while electricity demand will surge. Factors like electric vehicle adoption will further influence electricity demand and the necessity for new infrastructure.

Furthermore, planning will now also factor in emissions reduction to serve the long-term interests of energy consumers, integrating it with other goals such as price, reliability, and supply security.

An interesting comment was made in the report executive summary highlighting concerns in the industry surrounding issues of competition in the market and market power outlined below.

“Our concerns are around the reduced liquidity of exchange-traded hedging products, the declining number of clearing service providers for electricity derivatives, and the levels of concentration of ownership of flexible generation capacity, particularly in NSW and Victoria. The AER’s anticipated new powers in relation to contract market monitoring will allow us to better monitor participant behaviour and gain sharper insights on issues of competition and market power.”

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.

Retailers, Retailers Everywhere, and not a Lesson Learned

In August, AEMO received five registrations for new customer status customers to come into the market as a Market Customer, the latest and most publicised of these being Tesla Energy Ventures Australia Pty Ltd. Now, this wouldn’t be their first foray into the energy markets, they already have their energy arm out of the US and are expanding rapidly within the Australian space.

But Tesla is not alone; the AER has seen 22 new electricity retail licence applications since 2020, including the newly formed Ampol Energy, Smartest, and Telstra.

Now whilst competition is great for any market, I am absolutely not a monopolist, I do view this market penetration with slight concern.

With the UK seeing over 27 Energy Suppliers going under since January 2021, unregulated and “low cost”, usually spot exposed participants, with little to no risk profiling, can cause burden and costs to our market, never mind eroding the confidence of consumers. The UK offers a valuable lesson in this space and is one I fear has not been headed by our regulators.

With the cost of Retailer of Last Resort passed through to consumers who have had no dealings with those companies, but the market operator forced to share the burden, where does the responsibility for the failure sit? I would note the AEMC have released improvements papers to try and address some of these questions, but with the increasing number of these retailers entering the energy markets is it going to be too little too late.

With this summer promising some significant volatility, between RRO in SA, the ESOO stating the risk of shortages in both Victoria and South Australia now exceeds the strictest benchmark this coming summer, an all but certain El Niño bringing heat and reduced wind generation, and AEMO searching for Reserve Energy Markets across the NEM, including TAS for the first time, the volatility could expose some of these participants to more credit calls than their cash flow can handle.

Only time will tell, and luckily most of these retailers do not have a significant market share at this time, but this summer could be the spotlight the regulators need to tighten the requirements for new retailers. Or maybe not.

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.

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?”

Victoria’s Gas Ban: Gas is gone so how to stay warm in Victoria

With the UK announcing this week that they are opening up 20 new Oil and Gas fields to assist in meeting at least three weeks of supply for the country, the UK is pinning its decarbonisation and supply hopes on the Gas market. Being a country which is heavily reliant on imports of gas, and the reliance being costly and not certain in the Russian dominance era, this seems like from a business, not climate, perspective a smart move.

This therefore makes the contrast a stark one in comparison to the Victoria announcement also this week to ban all new Gas connections in homes and government buildings. With this being under the premise of cost savings I am not sure everyone is buying what the States Energy Minister, Lily D’Ambrosio, is selling.

Without diving into that political black hole, there must be a thought going through many Victorians heads though, with Gas gone how do we replace the gas boilers with something equally as effective without blowing out our electricity consumption.

Well, this is something which has been looked at in depth within the wider market at the moment, and the most effective solution is a heat pump. Sales of heat pumps, according to the IEA, have increased globally 11% in the past year alone and 49% in Europe.

So what is a Heat Pump? The traditional Heat Pump is an air source heat pump. Similar to your air con unit, the unit is fitted to the outside of the house and will pull the air into its refrigerant system. This turns the refrigerant into vapour which is compressed and creates – yes you guessed it – heat. This process can work in all temperatures, even below zero and therefore could be an effective solution for Victoria.

This all sounds great but ultimately is it costly and how effective is it? Well, a gas boiler is around 90-95% efficient, whereas the heat pump is 350% efficient. They actually produce 3.5 times more energy to use as heat than the electricity to run them. This could be the solution as even if the electricity is more expensive than the gas, sorry to the Vic government but you can’t spin that any other way, the amount required is less and therefore it could reduce those bills, you may get your wish after all!

This concept hasn’t been completely lost on the Victorian government as after the initial announcement they followed with a $10m grant to electrify new homes, with developers able to apply for rebates for solar panels, solar hot water systems and … heat pumps. However, with electricity prices rising, the new Victorian Government Owner corporation stalling, and electrification legislation being pushed through, at what point does the equation not add up in time for the grid to be able to take all this new load?

The ESOO and next years ISP will no doubt make interesting reading as all state’s electrification, degasification and net zero plans start being incorporated into the final view of our grid and its requirements.

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.

 

Hydrogen-Electric Powertrains on the horizon as Ecotricity launch the first ever electric airline

Edge2020_Hydrogen-Electric Powertrains

This week’s launch marks the first step towards Hydrogen-Electric Powertrains.

The hydrogen transition continues to evolve with the UK’s Ecotricity CEO this week launching the first Electric airline. The 19 seater plane will operate the roughly 400mile (650km) route between Southampton and Edinburgh.

The initial phase will see the plane run on a kerosene-based fuel but the hope is, within a year, they will transition to a “hydrogen-electric powertrains.”

The Fuel Cell construction is similar to that of a battery, and the compressed hydrogen gas will feed the stack, which does not burn the fuel but converts the chemical energy into electrical energy.

What does that mean – well imagine you have a lunchbox, and inside this lunchbox, you put sandwiches made of hydrogen gas. Now, these sandwiches aren’t like your normal sandwiches, because you don’t eat them, you just put them into this lunchbox.

This lunchbox is the fuel cell or stack. Instead of you eating the sandwich, the lunchbox eats it. But the lunchbox doesn’t eat it like we would, it turns the hydrogen sandwich into electricity. This electricity is then used to power the aeroplane’s engines.

It all seems quite logical, and the new “sustainable” air travel could be the key to the issue which has plagued the airline industry for so long, how do we travel without the emissions.

Australia will be watching this with interest as transport is the second-biggest greenhouse gas-emitting sector in Australia. It is estimated airline emissions make up about 12% of that sector. However, getting past regional flights into long haul may create other challenges the industry is not yet able to overcome.

With the idea of hydrogen cells being used for a range of industries now, China launching their Hydrogen fuel cell powered boat, “the Three Gorges Hydrogen Boat No 1” in April and BOC and BP already developing hydrogen service stations, the first to be placed at Lytton in Queensland the hydrogen future is already starting to move past the theoretical and into the reality.