High temperatures forecast for southern states

At the end of the last week, AEMO flagged the possibility of extreme temperatures for the following week in South Australia, Victoria and New South Wales.

Weather forecasts were showing a large uncertainty in the predicted temperatures. Predictions ranged from mid to high 30s for Victoria, low to mid 40s for South Australia and high 30s for New South Wales. The key risk in these forecasts was the possibility of temperatures exceeding 40 degrees in two or more regions simultaneously.

On 11 January, AEMO published a market notice highlighting the forecast extreme temperatures in South Australia and elevated temperatures in Victoria and New South Wales. In this notice, AEMO provided forecast temperatures and generation capacity reference temperatures for generators to consider when updating their generation levels. Temperature and humidity have significant impacts on the performance of coal and gas powered generation.

On the back of this, AEMO updated its demand forecast and the resulting higher demand caused a lack of reserve to be triggered. The lack of reserve was forecast between 15:00 and 18:00 on 15 January. AEMO requested a market response from generators to make generation available to fulfil the shortfall.

Between 11 January and 15 January AEMO published further market notices updating the expected lack of reserve for 15 January and requested further generation response.

Pre-dispatch prices and demand for 15 January were published by AEMO the day prior. Spot prices were forecast to reach $14,500/MWh based on a demand of 8,800MW, which is significantly higher than normal levels.

As the afternoon approached, temperatures were high but a cool change was also approaching.

At 11:57 on 15 January, AEMO issued a market notice cancelling the lack of reserve.

As a result of the increased availability of generators and the cool change, AEMO revised their demand forecast down 800MWs. The resultant shift in supply and demand drove forecast prices down from $14,500 /MWh to $300/MWh.

Contract market prices are influenced by the outcomes of the spot market. As a result of the forecast high prices in South Australia,Victoria and New South Wales, the contract market prices increased in the build-up to 15 January; however, as the forecast spot prices and actual spot prices reduced, the contract market also reduced.

Retailers and large industrials are provided cover from the volatility of the spot market by purchasing contracts at a fixed price. However, the impact of the spot market can influence when volume is purchased to achieve the desired outcome for a business.

If you have any questions regarding this article or the electricity market in general, call Edge on 07 3905 9220 or 1800 334 336.

A lesson from RCR Tomlinson: corporate PPA’s and the sharing of risk

RCR Tomlinson entering voluntary administration this week has been a major eye-opener in the renewable energy world. The engineering firm had shown signs of stress earlier in the year, particularly when it was forced to record a $57 million write-down on the value of it’s Daydream and Hayman solar farms in Queensland. Following this, the company successfully went to market and raised an additional $100 million in capital. Now after incurring liquidated damages as a result of running late on solar projects, directors had no choice but to put the company into administration.

In the renewable energy space, these events particularly emphasise the potential risk of entering into a PPA with a project that requires development prior to receiving any MWh. For those considering entering into a renewable PPA, it is imperative to be mindful of the gravity of the project risk taken with these developments. With increasingly stringent connection criteria being enforced by AEMO and transmission companies, corporate PPA off-takers need to consider the structuring of risk in the PPA to avoid being exposed in situations like this.

There are several ways to manage project risk through legal and commercial arrangements. Without being privy to the details of RCR Tomlinson’s contracts, it would appear that the company was wearing “connection to the grid” risk. On face value, this would have felt like a win to the off-taker. However, the off-takers are now in a position where the risk has fallen onto them due the collapse of the company. Whilst RCR Tomlinson shouldn’t have taken that risk, the PPA counterparties arguably also should not have turned a blind eye to the potential project risk.

This is an important lesson for any corporate entity looking to enter into a PPA, by understanding whether your developer and construction partners have the appropriate means to manage the risk that is placed on them. Having liquidated damages in a contract is essential. However, be mindful that at the end of the day, if a company is placed into administration and subsequently liquidated, liquidated damages are worthless.

CleanCo moving ahead

In a media statement released 30 August, the Queensland Government confirmed their intention to establish CleanCo, Queensland’s third publicly owned electricity generator. CleanCo will have a strategic portfolio of low and no emission power generations assets, and will build, own and operate new renewable generation. It is understood that CleanCo will take control of assets including Wivenhoe, Barron Gorge and Kareeya hydro power stations and the Swanbank E gas power station, courtesy of a restructure of the two current publicly-owned electricity generators – CS Energy and Stanwell Corporation. CleanCo is expected to be trading by mid-2019.

Additional Small Scale Solar Coming to Victoria

The Victorian Government has announced that it will offer half priced solar panels to 650,000 households over the next 10 years.

This scheme, known as The Solar Home scheme, is currently valued at $1.24 billion and is open to owner-occupied homes with:

A combined household income of less than $180,000 per year; and
A home value of up to $3 million.

Households who are unable to install solar panels can instead choose to get a $1,000 rebate by changing their current hot water system to a solar hot water system. The solar hot water rebate is open to up to 60,000 homes.

How will this impact the market?

2017 had the highest rate of installation of rooftop solar and 2018 is on track to break this record. The additional demand created by the Victorian scheme could increase the number of certificates, and therefore the obligation for retailers to purchase certificates. This cost is likely to be passed through to consumers. In the short term, it could put downwards pressure on the certificate prices, however any reduction will be short lived as the Clean Energy Regulator adjusts the surrender target, matching demand with supply.

If you would like to understand how this may impact your portfolio please contact Edge on (07) 3905 9220 or 1800 334 336.

Price of Utility Scale Solar Being Questioned

The engineering company, RCR Tomlinson, went into trading halt on July 30, 2018 and its CEO, Paul Dalgleish, has stepped down. The trading halt is due to an investigation into cost blowouts for unspecified projects, which will hurt the FY18 annual profit.

The deputy state secretary of the Queensland and NT Electrical Trades Union, Peter Ong, has stated that RCR has been undercutting other bids by as much as $30 million when bidding for utility scale solar project. Peter Ong’s major concern is the use of cheaper labour to try and make up the difference.

For the broader market, if RCR have been under-pricing the engineering cost of installing utility scale solar, there could be an increase in the expected price of new utility scale solar. Citigroup warned that the recent solar farm built for Sun Metals may have had a cost blowout by as much as $7 million.

RCR has not confirmed that it is the utility scale solar which has led to the cost increase.

If you would like to understand how this may impact your portfolio please contact Edge on (07) 3905 9220 or 1800 334 336.

Solar Reserve receives approval for SA concentrated solar thermal plant

The Port Augusta located, concentrated solar thermal plant has reached a significant, yet not surprising, milestone in achieving development approval for the plant. The Aurora plant will have 150 MW of capacity and 8 hours of storage.

The development approval suggests that the $110 million concessional loan from the Federal Government is all but secured. It is understood that the funding was allocated in the May 2017 Federal budget and to be administered through ARENA.

The plant is scheduled to deliver 100% of its output to the SA Government under a long term agreement beginning in 2020.

Further information can be found on our previous article https://edge2020.com.au/edge-news/150-mw-solar-thermal-plant-constructed-south-australia/

If you would like to know more about renewable energy projects and how they could assist with reducing your energy costs, please contact Edge on (07) 3232 1115 or 1800 334 336.

150 MW Solar Thermal Plant to be constructed in South Australia

On Monday 14 August South Australian Premier Jay Weatherill announced that Solar Reserve had won a 20 year electricity supply agreement with the South Australian government. The agreement is reported to account for 75% of the SA Governments electricity requirement.

The 150 MW solar thermal plant has been named Aurora and will be constructed just north of Port Augusta. The plant is a critical piece of infrastructure which will help mitigate volatile electricity prices in SA. The plant provides synchronous renewable energy that can be dispatched when there is no sunlight or wind available. According to Aurora the plant will have 8 hours of full load storage.

It is reported that the South Australian Government will be paying $78/MWh for electricity generated from the plant which is a competitive price for energy in South Australia. The project is being partially funded by a $110 million concessional equity loan from the Australian Federal Government. Construction of the plant is expected to begin in 2018 and be completed in 2020.