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?

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.

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.

Renewable energy storage road map released

Edge 2020 Brisbane City

The CSIRO released its Renewable Energy Storage Roadmap at the end of March 2023.

Their modelling suggested that while Australia leads the world in solar generation, and we have reduced emissions significantly, there is still a big task ahead of the country if we are to meet net zero emission targets and maintain affordable and reliable energy to end users. The CSIRO Renewable Energy Storage Roadmap report showed Australia will need significant amounts of storage to meet the transition to renewables.

Storage is the key to integrating renewable energy into the grid and reducing the dependency on coal and gas fired generation. Currently the electricity produced from renewable sources such as wind and solar is intermittent and is not easily dispatched into the grid when it is most needed. Storage allows the renewable energy to be generated when the natural resources are high and dispatching it into the grid when the electricity is needed.

Dispatchable storage is currently available in the grid in the form of pump storage hydro, such as Wivenhoe power station in Queensland and Tumut 3 in NSW. There are also various battery installations located across the NEM.

The dispatch of renewable energy may require different storage technologies to best suit an evolving NEM. Storage comes in various forms from electrochemical storage such as batteries, mechanical storage such as hydro, chemical storage and thermal storage. Each technology has its pros and cons, but a combination of technologies is likely to be required to meet the real time storage volumes and timings of the NEM.

For many years pumped hydro has been seen by governments as the solution to Australia’s energy storage needs, but timing is the limiting factor in this solution.

To enable the transition from coal and gas fired generation to renewables, storage is required now. On a typical day we have excess solar generation resulting in negative spot prices, however over the evening peak as demand increases the supply of renewable drops of coal and gas provide the generation to meet demand. Thermal generation is normally dispatched at prices higher than the cost of renewables resulting in higher spot prices. If storage could be used efficiently the solar energy produced during daylight hours could be used over the evening peak and into the evening resulting in lower electricity prices.

As coal fired generation retires between 2023 and 2035, new dispatchable generation needs to be brought online, the CSIRO report states, development timelines need to be accelerated to bring more projects online by 2030.

Pump storage hydro typically has a lead time of 10 years so either development timelines need to be accelerated or different storage technologies need to be employed in the meantime.

CSIRO chief executive said “there was a need for a “massive increase” in storage capacity to achieve the transition to net zero, with estimates of 11 to 14 gigawatts of additional storage capacity by 2030 alone.

2030 is not far away, to meet the transition targets should industry be focusing on storage rather than generation? Is storage an opportunity to utilise existing infrastructure like old mine pits for pump storage hydro or repurpose retiring thermal power station sites as storage hubs?

AEMO Suspends the Market

Below is the media release from AEMO after it suspended the National Electricity market at 14:05 today.

AEMO today announced that it has suspended the spot market in all regions of the National Electricity Market (NEM) from 14:05 AEST, under the National Electricity Rules (NER).

AEMO has taken this step because it has become impossible to continue operating the spot market while ensuring a secure and reliable supply of electricity for consumers in accordance with the NER.

The market operator will apply a pre-determined suspension pricing schedule for each NEM region. A compensation regime applies for eligible generators who bid into the market during suspension price periods.

In making the announcement AEMO CEO, Daniel Westerman, said the market operator was forced to direct five gigawatts of generation through direct interventions yesterday, and it was no longer possible to reliably operate the spot market or the power system this way.

“In the current situation suspending the market is the best way to ensure a reliable supply of electricity for Australian homes and businesses,” he said.

“The situation in recent days has posed challenges to the entire energy industry, and suspending the market would simplify operations during the significant outages across the energy supply chain.”

Edge wish to reiterate, this is not a physical supply issue. AEMO directed 5GWhs of physical generation into the market. If generators can operate when under direction, they do not have a physical reason to not generate (such as maintenance, overhaul etc), so the reduced availability we are seeing has to be a commercial trading decision to either price volume into higher price bands or to remove availability in the maximum availability bands of their bids. The availability is there, the generators are just not offering it via the spot market.

The market suspension is temporary, and will be reviewed daily for each NEM region. When conditions change, and AEMO is able to resume operating the market under normal rules, it will do so as soon as practical.

Mr Westerman said price caps coupled with significant unplanned outages and supply chain challenges for coal and gas, were leading to generators removing capacity from the market.

He said this was understandable, but with the high number of units that were out of service and the early onset of winter, the reliance on directions has made it impossible to continue normal operation.

The current energy challenge in eastern Australia is the result of several factors – across the interconnected gas and electricity markets. In recent weeks in the electricity market, we have seen:

  • A large number of generation units out of action for planned maintenance – a typical situation in the shoulder seasons.
  • Planned transmission outages.
  • Periods of low wind and solar output.
  • Around 3000 MW of coal fired generation out of action through unplanned events.
  • An early onset of winter – increasing demand for both electricity and gas.

“We are confident today’s actions will deliver the best outcomes for Australian consumers, and as we return to normal conditions, the market based system will once again deliver value to homes and businesses,” he said.

What does it mean for generators and end users.

  • Bidding and dispatch will continue as usual under the market rules.
  • Dispatch instructions will be issued electronically via the automatic generation control system as usual
  • If required AEMO may issue dispatch instructions in any other form that is practical in the circumstances.
  • Spot prices and FCAS prices in a suspended region continue to be set in accordance with NEM rules or under the Market Suspension Pricing Schedule.

The Market Suspension Pricing Schedule is published weekly by AEMO and contains prices 14 days ahead.

The market will continue to operate under the Market Suspension Pricing Schedule until the Market operator determines the market is able to return to normal conditions and the suspension is revoked.

Article by Alex Driscoll, Senior Manager – Markets, Trading, and Advisory

Future of Contract Markets and the Baseload Swap

It is no surprise, when I say the National Electricity Market (NEM) is going through a vast transition and transformation, with an ever-increasing penetration of renewable generation, in the form of both utility scale renewable generation and household installations.

The world as we know is also battling the global pandemic that is Coronavirus. This has had a significant impact on people and their livelihoods and health.  along with a significant impact on energy markets around the globe. To top it all off, energy markets have had to endure a supply price war recently, between OPEC’s unelected leader, Saudi Arabia and non-OPEC oil producer, Russia.

With a rapidly evolving and ever-changing energy landscape, what should our contract markets look like? Are the current products fit for purpose or offer value in an energy landscape like the NEM? As a generator, the days of capturing value and running flat out all hours of the day, are indeed starting to dwindle, with quick, nimble, and easily dispatchable fast-start generation likely to excel in the near to longer-term landscape. Take South Australia (SA) as a good example, as to the success of fast-start plant. On the 04/04/2020 at 12:00pm, the 5 minute spot price was down at -$1,000/MWh, which is where it stayed the majority of the morning, due to low demand and strong generation, trying to send megawatts into Victoria (VIC), maxing out the interconnector. Shortly after that, at 12:20pm, prices spiked to above $300/MWh for the next 30 to 40 minutes or so, with fast-start gas generation swooping in and capturing this short-term high price period.

If this type of generation is the key to success in this new look NEM that we operate in, where fast-start, short burst generation is taking its place to complement the intermittent renewable generation in wind and solar, utility or household, that continues to penetrate the market, why are our contract markets continuing to predominantly offer baseload swaps?

A baseload swap is a contract for energy, say 5 MW for $70/MWh, for a defined period, for a month, a quarter, a calendar, or financial year. The way a swap works is the $60/MWh becomes the strike price in which the seller of the swap pays the floating price (the price of the underlying wholesale product which is electricity in this instance) and the buyer pays the fixed $70/MWh.

Say you have contracted a baseload swap for 5 MW for the entire calendar year of 2020, this would mean that for every half hour (with electricity settling every half hour as per the underlying wholesale market settlement regime in the NEM), of the entire 2020 calendar year, the buyer will pay the seller $70/MWh, and the seller will pay the buyer the underlying wholesale or spot price. For example, say this morning the wholesale or spot price for electricity for the half hour ending period of 9:30am was $40/MWh; this would result in the buyer paying the seller $70/MWh for 5 MW, whilst the seller would pay the buyer $40/MWh for 5 MW, resulting in a $30/MWh contract for difference (CFD) payment going from the buyer to the seller.

However, think about this, the baseload swap is exactly that, baseload. So, a contract for calendar year 2020 means you are locked into that same position (unless you sell out of the position) 24 hrs, 365 days.

So, do baseload contracts offer appropriate value anymore, in a market which are short-lived upward volatility and recently longer periods of downward volatility?

Mid last month, Snowy Hydro struck a contract defined as a ‘super-peak’ swap, which will cover what has been defined as the “super peak” periods of the day, generally morning and evening peak usage when solar is ramping up or down. The trade was brokered through an over-the-counter (OTC) trading hub operated by Renewable Energy Hub, and it is believed, similar deals will be a gateway to funding and bringing into the market technology such as batteries and demand-response into the energy markets.

Snowy Hydro has been procuring renewable PPA’s for a while, through wind and solar generation, including the 90 MW it procured from the Sebastopol Solar Farm in NSW. They are looking to use the renewable generation and back it with their significant hydro fleet, to sell a new range of products to its customers.

With wholesale energy prices reducing significantly since September 2019, and the overabundance of generation in states such as QLD and SA, and with the rapid introduction of new technology, it is likely a significant number of customers will choose to take more wholesale/spot price exposure, rather than contracting ahead of time.,

This fuels the argument for the need to have more flexible and robust products, ones that are for particular trading intervals, perhaps in the day, day-ahead products, week-ahead products, or perhaps more products like Snowy’s ‘super peak’ product?

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