Power purchase agreements: revolutionising energy retail

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As prices across the National Electricity Market become increasingly volatile, and as business and community expectations move users towards renewable sources of energy, industrial users around Australia are increasingly turning to Power Purchase Agreements (PPAs) to meet their energy needs.

We take a closer look at some of the PPAs recently signed in the Australian energy market, and consider the role traditional energy industry suppliers can continue to play in this new paradigm.

PPAs provide consumers with an alternative to purchasing from traditional retailers and instead enable consumers to negotiate a longer term contract with a stable price for the supply of renewable energy.

Purchasing power at a consistent rate is obviously an advantage in the current fluctuating market, and provides a much needed sense of security for buyers.

Against a background of sharply rising electricity prices, particularly since the closure of the Hazelwood coal-fired power plant in Victoria in 2017, corporate Australia’s desire for more certainty and lower energy prices has contributed to a sudden spurt in the corporate PPA market.

Since taking off in 2016, almost 30 PPAs have been signed, supporting solar and wind projects with a combined capacity of nearly 3600MW1. These have contributed to the recent boost in renewables investment, a positive outcome as Australia pushes towards a more sustainable future.

At the time of print, 48 per cent of current Australian corporate PPAs are solar, eight per cent are a mix of wind and solar, and the remainder of the PPAs are wind2.

Let’s take a closer look at some of the most recently signed PPAs in the Australian energy market.

Viva Energy and Acciona Australia

Victorian projects currently dominate the share of PPA projects, accounting for 47 per cent of the renewable project capacity3.

This statistic includes Viva Energy, who entered into a PPA with Acciona Australia to secure stable pricing on approximately 100GWh per annum of electricity from Acciona’s Mt Gellibrand Wind Farm in February 2019.

The Mt Gellibrand Wind Farm in Victoria produces 30 per cent of all wind farm generation in Australia, and was completed late in 2018. Viva Energy supplies around a quarter of Australia’s liquid fuel requirements, and their Geelong refinery is one of the state’s largest electricity users.

The PPA will enable the refinery to begin the transition to renewable energy, with the wind farm currently powering one third of its electricity load.

Viva Energy CEO, Scott Wyatt, said that the PPA was a “win-win outcome” for everyone involved.

“Access to reliable and affordable electricity is critical for our refining operations which need to operate continuously and be able to compete with large scale refineries overseas,” Mr Wyatt said.

Acciona Energy Australia Managing Director, Brett Wickham, said they were pleased to be working with Viva Energy on the corporate PPA and that they shared their commitment towards greater energy productivity and the environmental benefits.

“Companies like Viva Energy understand the value alternative energy supply solutions, such as this wind-backed corporate PPA, offer in reducing electricity price volatility and costs,” Mr Wickham said.

Jacana Energy and NT Solar Investments

The Northern Territory is benefiting from a PPA which will enable it to be powered by ten per cent renewable energy by the end of 2019.

Jacana Energy and NT Solar Investments’ PPA will generate energy from two 10MW solar farms which will be developed by Australian renewables developer, Tetris Energy, in collaboration with Infigen Energy.

The farms at Batchelor and Manton Dam are expected to generate enough energy to power 5000 homes after they are completed in the second half of 2019.

The Director of Tetris Energy, Frank Boland, said, “The Northern Territory has enormous opportunity for renewable energy and Tetris Energy is excited to be a part of the Territory Government’s initiatives to enable this private sector investment in new renewable energy projects.

“Jacana Energy customers located all over the Darwin-Katherine network will receive the benefits of clean renewable electricity. By using the latest in single axis tracking Solar PV technology, it will allow the plants to generate more power in the mornings and evenings.”

“In sourcing competitive, renewable energy, these projects represent real value for both Jacana Energy customers and the Northern Territory,” said Jacana Energy CEO David Brown.

Flow Power and BayWa r.e.

PPAs also allow smaller scale energy consumers to purchase lower-rate, renewable power, which is the case with Flow Power’s recent agreement with BayWa r.e..

Their agreement will see Flow Power purchasing 40MW from two of Northern Victoria’s   largest wind farms, Yatpool and Karadoc, and will enable a greater number of local businesses to access the wholesale power over an extended period.

The agreement also marked a milestone in Baywa r.e.’s development of the Yatpool solar farm, which will be the company’s second largest farm in Australia and is due to be completed later this year.  

Director of BayWa r.e. Solar Projects, Daniel Pearsons, said that PPAs are fundamental to the success of solar energy projects of larger scale.

“We’re very pleased to find a partner in Flow Power, who, in a restricted PPA market, will help us to bring renewable energy to businesses of all sizes across Australia.”

Edify Energy and Delta Electricity

Octopus Investments and Edify Energy are investing more than $450 million to build Australia’s largest solar power station in Darlington Point, New South Wales.  

The project is underwritten by a ten year PPA with Delta Electricity, which will take 55 per cent of the output. Once the Darlington Point power station is operational, it is estimated it will generate 685,000MWh of renewable energy each year, which is enough to power approximately 115,000 homes.

Octopus Investments Managing Director, Sam Reynolds, said Darlington Point ticked the right boxes for them.

“Projects need to stack up economically, not just environmentally, for our investors.”

Edify Energy developed and structured the Darlington Point Solar Farm and are retaining an equity stake in the project. Edify will work with Octopus through construction and will undertake the long-term asset management service for the solar farm through operations.

“Bringing projects like this to life shows how the solar industry has come of age in Australia as a mainstream choice for investors, retailers and consumers of energy,” Mr Reyonlds said.

Westpac and Spark Infrastructure

Westpac is the latest major player to sign a PPA, recently committing to source 63GWh of renewable electricity annually to power its operations globally.

The PPA follows Westpac’s pledge to source 100 per cent of its energy from renewable sources by 2025, joining a growing band of big businesses moving away from traditional power sources amid the global push to a lower carbon economy.

Head of Westpac’s Energy and Utilities property team, Ceri Binding, said, “One of the most exciting things about the PPA is that we’re effectively underwriting the development of a new solar energy facility.

“It will create incremental renewable energy capacity, generating enough electricity to power the equivalent of 36,000 homes, and employment opportunities in the local area.”

In simple terms, the PPA will see Westpac pay Bomen Solar Farm for an amount of renewable energy it will put into the grid, and the equivalent amount consumed by the bank will be recognised as having zero emissions.

“The PPA would deliver 45 per cent of the bank’s 100 per cent clean energy target by 2021 and a range of options including rooftop solar installations on its larger buildings and further supply agreements would be assessed to hit the 2025 target,” Ms Binding said.

“It is economically the right thing for Westpac to do.”

The Bomen Solar Farm project, to be operated by listed utilities player Spark Infrastructure, will feature high-efficiency photovoltaic modules expected to produce more than 240GWh of renewable energy each year – or enough to power the equivalent of all the homes in the local Wagga Wagga region.

Ms Binding said the bank chose the Bomen Solar Farm project and partnership with Spark Infrastructure as it ticked boxes not only in regards to electricity supply, but also social outcomes for the local Wagga Wagga community, including a community fund to develop student scholarships, youth facilities and vegetation and habitat regeneration.

PPAs are here to stay

With an increased number of PPAs flooding the energy retail market, the industry should expect that this model for the sale of energy is here to stay. The industry should also realise that with PPAs offering customers a choice for their energy supply, which offers both a renewable alternative at a stable cost, energy consumers will expect to see more retailers offering these same conditions in their contracts.

So how can traditional energy retailers get involved, and ensure they don’t get left behind? There are many opportunities for traditional retailers to provide a service element of a PPA contract, particularly in the complex areas of billing and regulatory compliance.

Just like the current energy network environment, the retail market is rapidly evolving, and it’s likely that the years ahead will see a combination of traditional energy retail contracts alongside PPAs in the marketplace – it’s not a question of one or the other, it’s about how both of these models of energy retail can best
co-exist together.

Like with many things in the energy market today, it’s the companies that are best able to adapt and pivot to the changing needs of customers that will be best prepared to embrace, and tackle this new mode of energy retailing head on.

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