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?

Carbon Border Adjustment Mechanism gaining traction in Europe

Edge2020_Carbon Border Adjustment Mechanism

The European Parliament is introducing new climate legislation including a Carbon Border Adjustment Mechanism, in a bid to reduce greenhouse gas emissions.

The new package aims to reduce emission by at least 55% by 2030 and will include a series of measures which will have big impacts to many large industry customers who now will have millions of tonnes of carbon at risk.

The proposal will include phasing out of the free European Emission Trading Scheme (ETS) allowances after 2026, including maritime shipping within the ETS and a Carbon Border Adjustment Mechanism. The latter of these the CBAM or Carbon Border Adjustment Mechanism will impose a tariff on goods whose production is carbon intensive and shows the greatest risk of carbon leakage, in Australia the most vocal opponents of this scheme are unsurprisingly the cement, aluminium and steel industries.

As a quick digress the term carbon leakage is referring to the idea that you move the most carbon intensive parts of your production abroad, into countries with less stringent climate policies, and then import them back into Australia.

The idea of the CBAM is this will place a price on the carbon which has been emitted during this production phase. The price being derived from the price of carbon which was paid for the product to be developed and produced within Australia.

Those keen eyed amongst us will remember the Safeguard Legislation, which will come into effect on the 1st July 2023, cited a review would be undertaken to examine the feasibility of a CBAM within Australia, including a consideration for early commencement for those high-exposure sectors such as steel and cement.

Now with the EU making the leap and the likely follow on from the UK, Japan and Canada, amongst others, including the US via its own Polluter Import Fees Australia, we will surely have to comply to ensure both our own goods are being protected as well as meeting the requirements of the global expectations.

However, what is the cost of compliance. Whilst the legislation is quite straight forward the compliance cost will increase. Cradle to gate / grave accounting is complex and with auditors being stretched between, NGERs, Safeguard and now this, finding a resource to complete the calculations and data collection will be one thing, but looking to have these accounts audited will be another. With the CER having only 75 registered auditors on their books will the cost of this be wider than the government are imagining?

AEMO adds to the spooking of the Energy Market post Liddell Shutdown

Energy Market - AEMO _ Liddell Shutdown

On Thursday (25th May 2023) AEMO released their Scheduling Error notification (incident number 54) confirming they had incorrectly scheduled three of the Liddell units into one of their systems, post the Liddell shutdown, which caused price spikes across the NEM and forwards market on the morning of 1st May 2023.

As has been widely documented the last three Liddell units came offline on the 24th of April (Unit 4), 26th April (unit 2) and finally unit 1 on the 28th of April. This should have flowed through to the systems within the AEMO dispatch engines, however due to an error this was not the case, and the market was affected by the error between midnight and midday on the 1st of May 2023.

The error was cause by a mismatch of data used within the systems which feed the NEMDE (NEM Dispatch Engine) used by AEMO, whereby one part of the system removed the units from 00:01 on the 1st May. However, a separate part of the NEMDE’s data feed system, which controls the constraints still included the Liddell units at their “initial values” i.e. 500MW, not their real value of zero.

When the equations within the constraint tried to equalise, there was a “drop” of 1500MW on one side of the equation from the first interval on the 1st May 2023.

To rectify this AEMO reduced flow coming from Victoria into NSW and around 173MW of generation was dispatched down.

Prices reacted as expected with 6 periods between midnight and 6am having prices between $2,771.58/MWh and $2,964.04/MWh and increasing the daily average price by around 30% to an average of $288.86.

With a marketplace reacting to every cough of a power station, especially in the days following the Liddell closure the added constraint was enough to also strengthen the forwards market with the Q323 close price rising $5.50/MWh on the day in comparison to the day before across QLD, Vic and NSW and even SA was affected with an $8/MWh increase on the previous days close.

This strength continued into the next few weeks as outages came into the mix, a tube leak delaying the return to service of Bayswater 2 to the 3rd May, Kogan Creek, Eraring 2 and Tarong taking outages, the return of Callide being delayed and an unexpected interest rate hikes putting additional pressure on the market. Speculators were quick to act trading the spread between states thus increasing prices across the NEM.

This reactionary sentiment is one we feel will remain for a while, with the spot market quickly correcting however the futures continue to hold value down the curve.

News from Rewiring The Nation

Australian Power Lines

Over the last week Chris Bowen has been selling from everyone to industry to landowners on the government’s $20 billion “Rewiring the Nation” project. He has stated that “securing social license to build the transmission lines is the single most pressing issue for the Australian energy transition.

The proposal involves the development and construction of 10,000km of lines before 2030 and the key to achieving this will be community and stakeholder relationships, which are now being built into the regulatory investment test (RIT-T) process. To facilitate this the NSW and VIC government are offering $200,000 per km for the land crossed by these new infrastructure projects.

Ian Learmonth, the head of the Clean Energy Finance Corporation, said that Australia will need an estimated 29GW of large-scale renewables to meet our ambitious goals, which breaks down to around 3.6GW a year.

This compares to last year’s large-scale wind and solar where Australia only installed 2.3GW. The 29GW required to be installed is challenged by the slow progress in developing essential new transmission lines and therefore Australia’s targets are at risk.

Daniel Westerman, the Chief Executive of AEMO, has stated that “From our control room we can see that increasing amounts of solar and wind generation are being curtailed because there’s not enough transmission capacity to transport it.”

Despite this, the share of renewables in the grid is hitting new highs, averaging 37% in Q1, and peaking at 66% for a half-hour dispatch period. As a result, greenhouse gas emissions from the grid were at their lowest recorded ever in Q123.

Additionally, there is concern from AEMO that there is 14GW of coal powered generation capacity retiring by 2030, which exceeds the 8GW of renewables announced so far. The effect of this could be starkest in the short term. With Eraring (2,880MW) due to come off in late 2025, there are concerns of a significant short term firming capacity gap for first few summers in NSW.

However, with a new Capacity scheme expected to be announced in the next few months, and the next ESOO due in October expected to show the shortfall for NSW, the possibility of extension is one being seriously discussed.

With the VIC – NSW West Interconnector final drafts expected soon and Humelink approval expected early next year, the move to new transmission is starting. However, questions remain as to whether it is too late for the government to meet its targets.

2023 Federal budget: slight update SA and VIC named for cap scheme

Melbourne, Victoria

Further to Edge’s update on the 2023 federal budget shared last week, more information has become evident from Hon Chris Bowen’s MP office around the actual schemes to be introduced and their allocation of the budget.

There is no doubt Australia, as in much of the world, they are pinning their hopes on a Hydrogen Economy. The governments ‘modernised’ energy economy is being underpinned by a technology which yet is not to scale and is unproven, can anyone say carbon capture and storage (CCS)! Now I do not believe Hydrogen is another CCS boondoggle, but the amount being invested, and the legislation changes to allow it to occur are akin to those of its previous silver bullet government neighbour.

The budget has allocated half of the $4bn green energy package, $2bn, to the Hydrogen Fund. The idea is the investment will assist in the commerciality of these projects and allow for 1GW of capacity to be on the system by 2030. The allocation of this will come in the form of “production credits” and as was later confirmed these will be allocated via a ‘competitive process’ however details of this are scarce. The funding is likely to have come in part to keep up with our European and US counterparts who have signaled similar investment in the industry through their own budgets (the US giving a $3/KG (USD) tax rebate if it relates to H2 production.

This will be supported by the new REGO or Renewable Energy Guarantee of Origin scheme which was first floated in the papers released at the end of last year.  $38million has been allocated to the project which will be used to certify the energy and emissions from these projects.

The details around the controversial capacity scheme continues to be scarce. With ‘commercial sensitivities’ being touted as a reason for non-disclosure. However, we do expect these to be run state by state and through auctions, so we hope for more detail to be shared on this in the future, especially given SA and VIC have already been named to lead the charge on this later this year. The choice of these states is unsurprising given the high renewable penetration on those grids.

We have also seen a little more information come out around the function of the “Net Zero Authority” who received $83m on Tuesday. It is anticipated that they will be working with local state and territory governments as well as lobbyists and stakeholders to create a roadmap to net zero in those regions, focus will naturally sit in heavy mining regions such as Queensland, the Hunter Valley and Latrobe Valley. From the 1st July the executive agency will be established and they will be tasked with supporting those in heavy industry to transition into a low carbon economy, assist with policies around this and assist with investment in the regions. No small feat to say the transition is already well underway.

Federal Budget 2023 – A shock to the Gas Industry

Australian Parliament House

Under a tightly embargoed budget speculators and hedgers alike could be forgiven for worrying the 2023 Federal budget hid an unknown shock, on top of a Liddell closure, Bayswater trip and extended outages. Last week’s market uncertainty was definitely not dampened by the little information coming out of Hon Dr Jim Chalmers MP’ office.

However, there was good news to be had, in contrast to the October 2022 budget which forecast a deficit of $36.9bn for this financial year the Hon Dr Jim Chalmers MP was almost giddy to announce a surplus of $4bn, it is the first in 15 years, yet is everything that glimmers actually gold?

Little was made of the fact 20 per cent of the surplus came from increased commodity prices, a nod was made to the Ukraine crisis but little to the other drivers and opportunist behaviour which has been within our market for the past 12 months. There was certainly no mention of the huge windfalls the treasury gained from the commodity industry.

The Gas and Coal caps were mentioned but there has been no discussion of the Coal Cap either being extended or removed in December 2024 when it expires. In contrast, the Gas cap has been confirmed to remain until 2025 and as such the potential for a market move in the summer months is still possible.

Overall, the budget was light on Energy for large business, the most focus was on infrastructure for Electric Cars and cost of living relief for residential and small businesses. The creation of a National Net Zero Authority was predicted under the Chubb review and therefore no shocks were seen.

There was a slight nod to a new Hydrogen head start program, giving $2bn to the scheme and more investment in green industry, which was unsurprising. A curious section was on a Capacity Investment Scheme “unlocking over $10 billion of investment in firmed-up renewable energy projects up and down the east coast” as a throw away comment and I am sure a few more details will emerge over the next few days – this one did pique my curiosity.

Undoubtably in the commodity space the biggest losers this evening were the Gas companies, between the extension of the Gas cap at $12/GJ into 2025, increased taxes due to the extraordinary market conditions would follow, but a second stab at the inflated pie has come in the form of the Petroleum Rent Resource Tax. I think its mention was all of 3 seconds of the budget, yet this piece of legislation will increase the government coffers to the tune of $2.4bn over the forward estimates. On top of the Safeguard mechanism changes and power the greens had in ensuring many new gas projects do not get off the ground easily if at all, this is yet another cost to the industry. Yet in comparison to those enforced overseas, and especially in the UK, this was light touch, and it will be interesting to see if it is strengthened at all by the Greens, whom Labor will need to pass this through the house.

Overall, not a great deal of shock waves this evening, a budget which I am sure will be picked apart and a barrage of “inflationary pressures” will be dissected, yet overall, no real change to the status quo. Looking down the barrel of economic growth slowing to one and a half per cent in the next financial year, coupled with increasing wages it’s not the time to be throwing about cash, however hitting industry for half baked wins for those at the other end of the scale may not be enough to make any new friends and certainly could lose this government more.

NSW South West Renewable Energy Zone

Street lights at night

Last Friday, the NSW government released their draft declaration for the South West Renewable Energy Zone (SW REZ) access scheme to the public. This is one of five REZs which have been identified within NSW as part of the NSW governments Electricity Infrastructure Roadmap. The schemes are overseeing the volume of projects which will be granted to the transmission within these zones and co-ordinate the network and generation investments into the areas.

The SW zone is based towards the Victorian border and the proposed connection point would be in the Dinawan Substation. The access standards are very similar to those already proposed in April for the states Central-West Orana (CWO) region.

With the CWO attracting more than $35billion worth of proposed projects the SW REZ is hoping to attract significant investment for its 2.5GW transfer capacity, noting the location will not allow for offshore wind and as much Hydrogen investment as that seen in the CWO.

The NSW government has stated that the aim of the declaration is that “An access scheme provides an opportunity to control the connection of projects to the REZ. In the case of the South West, the proposed access scheme triggers the application of modifications to the National Electricity Rules (NER) open access arrangements as they apply to the access right network.”

The access granted projects will benefit from significant network upgrades including potential upgrades to the Project Energy Connect (PEC) interconnector which is being developed at the moment and is to run between SA (Robertstown) and NSW (Wagga Wagga), upgrades to the HumeLink which would connect that Wagga Wagga substation with Snowy Hydro and its increasing capacity and further strengthen the investment case for the proposed Victoria-NSW interconnector (VNI West). The latter is currently within the RIT-T (Regulatory Investment Test for Transmission) process.

These proposals will surely give investors’ confidence in providing the required project certification to be granted the access to that zone. They must not only show feasibility and prepare to sign onto the standards set out in this proposition, but must ensure they can manage voltage, frequency especially which there are potential disruptions within the system. However, the rewards of participating in a well-funded, transmission rich environment which has certainty of curtailment risk for the access rights holders, are surely going to outweigh the paper-work process of being accepted and given the over subscription of the CWO, you can imagine a similar uptake in this round.

The consultation for the South West Renewable Energy Zone (SW REZ) access scheme is closing on the 15th May 2023.