BRISBANE BASED BUSINESS CHARGING AHEAD

Currently Lithium-ion batteries provide various benefits over conventional batteries including charge time and weight. Li-S Energy is hoping to use lithium sulphur batteries which have a longer life, higher energy density and are even lighter than Lithium-ion batteries.

Lithium sulphur batteries can be cycled 600 cycles which is more than the current batteries. Advancement in this technology comes as a result of a joint venture between Deakin University and BNNT Technologies. Deakin University researched boron nitride nanotubes (BNNTs) which are pivotal to the advancement. Through the joint venture, BNNT Technologies will manufacturing the batteries.

BNNTs were only discovered in 1995, they are a very tough material comprising of nanotubes of Carbon, Nitrogen and Boron atoms. Until recently the challenge for these products was to develop them outside the lab and reduce the cost for them to be made.

The cost to produce the BNNT has been around $1M per kilogram, now the BNNT manufacturing facility at Deakin University’s Geelong campus has been setup to produce 50kg of BNNT per year per manufacturing module per shift.

The lithium-ion battery market is worth about $47.5 billion and is expected to double by 2025. A representative of the company would not state how many batteries could be made each year but believes the batteries would be competitive with other lithium-ion batteries.

Reducing the weight of batteries is crucial to the long-term success of EV’s and other devices. Li-S Energy believe removing the heavy elements that are in a lithium-ion batteries and are not required in lithium sulphur batteries will make the lithium sulphur battery very cost competitive considering the higher energy density.

Li-S Energy is expected to be listed on the ASX in August with an expected market cap of $544 million.

CHINA LAUNCHED NATIONAL CARBON EMISSIONS TRADING SCHEME (ETS)

Six years after the establishment of the scheme was pledged at the end of 2015, China has begun operating the national carbon Emissions Trading Scheme (ETS). This started on 16th July 2021, with the opening price of the Carbon Emission Allowances (CEAs) reported at CNY 48 (AUD 10.01) per ton. The first trading day concluded with the closing price of CNY 51.23 (AUD 10.68) per ton, up 6.7%. The total trading volume reached 4.1 million tons at CNY 210 million (AUD 43.79 million).

Shanghai Environment and Energy Exchange (SEEE) will handle account openings for traders and the operations of the new trading platform until a formal national carbon emissions quota trading operator is set up at a later stage. Trading in carbon emissions takes place from 9.30am to 11.30am, and from 1.00pm to 3.00pm Monday to Friday, much like the markets in Shanghai and Shenzhen. The national ETS initially set daily trading limits at 10% of prices and limits for block deals will be set at 30% of price moves.

According to ICAP, the ETS regulates more than 2,200 companies from the power sector, which emit more than 26,000 tCO2 per year. Its scope is expected to be expanded in the future. Currently, the ETS is intensity-based, with the cap being adjusted ex post, based on actual production levels. The compliance obligations are also limited.

While the new ETS is a part of China’s plans to make use of “market mechanisms” to help bring its carbon emissions – now the world’s highest – to a peak before 2030 and to achieve carbon neutrality by 2060. Critics have questioned its effectiveness due to its benchmark-based design, limited coverage, and the lack for a firm cap on emissions.

MINING EXEC JOINS RENEWABLE AGENCY

Scott Morrison and his Minister for Energy and Emissions Reduction continue to appoint mining executives to the Australian Renewable Energy Agency (ARENA). The next to be appointed is Stephen McIntosh from Rio Tinto. Fellow board member John Hirjee is also a former Rio Tinto executive.

As Rio Tinto is one of Australia’s largest coal producers, opponents to the appointments find it hard to understand how these executives can add value to the ARENA board.

However, Minister Angus Taylor said “that the addition of McIntosh would bring to the ARENA board experience in the production of the materials used in clean energy technologies like electric vehicles and battery storage”.

Taylor went on to say “Mr McIntosh is a former Rio Tinto Group Executive with experience in green metals, wind, solar and batteries. He has also worked across hydrogen and carbon capture technologies during his time with the company.”

Darren Miller, the CEO of ARENA, has had his contract extended for another three-year term and will work with other senior staff and board members to provide funding into the development of new clean energy technologies.

Questions have been raised about if ARENA is distributing its funding fairly with Rio Tinto awarded funding for a feasibility study into the use of Hydrogen at its Yarwun alumina refinery and the funding of the Kidston pumped Hydro project where renewable projects in the region were rejected.

BILLION DOLLAR GREEN ENERGY HUB

Spark Infrastructure, the partial owner of SA Power Networks, Transgrid, Powercor, CitiPower and the Bomen Solar farms is looking at developing a 2.5GW renewable energy hub in the middle of the South West Renewable Energy Zone (REZ) in NSW.

The Dinawan Energy Hub is strategically situated along the route of the planned interconnector between South Australia and NSW. The EnergyConnect project will be a 330KV interconnector running between Wagga Wagga and Robertstown in South Australia and will open up more than $20B of new renewables projects.

The Dinawan Energy Hub will be located halfway between Coleambally and Jerilderie and due to its location will support the existing network and the Humelink and Karanglink interconnectors.

The hub is expected to be completed by 2025 and is expected to include 1GW of wind, solar and battery storage. The $1.5B project will be undertaken in stages with the first stage expected to

commence construction in 2024.

Spark Infrastructure have completed the project identification stage of the development and now will undertake engineering studies and community consultation. The final investment decision is expected in 2024.

In some ways the Dinawan Energy Hub will compete with the NSW government’s plans to develop the REZ however Spark infrastructure believe the REZ and the energy hub can be developed together.

Spark Infrastructure is also in the news with a potential takeover bid for the multi-billion-dollar business.

Leading global investors including Kohlberg Kravis Roberts (KKR) and Ontario Teachers’ Pension fund have showed interest in investing in renewable energy and infrastructure projects in Australia.

It is understood these investors are looking at investing $5B to take over Spark Infrastructure.

If the takeover goes to plan, KKR and Ontario Teachers’ Pension Plan may add the Australian market to their target markets having recently bought a stake in Finland’s largest electricity distributor. KKR is also in the process of buying John Laing, a developer with interest in renewables assets in Australia.

BIGGER BATTERIES AND LARGER STORAGE

Back in 2017 following the black out of South Australia, the Tesla big battery was announced as the largest lithium-ion battery in the world. Weighing in at 100MW/150MWh the unit was big and provided enough storage to get regions through short duration period of high price of low availability. At the time, most people in Australia thought of batteries as a small segment of the industry and did not predict batteries to make any meaningful impact on the market for the next 10 to 20 years.

The Tesla big battery has now grown to 150MW/194MWh with the addition of extra batteries but has lost its title as the world’s largest and is likely to lose the title as Australia’s largest battery with Neon installing a 300MW/450MWh big battery near Geelong.

Now even Australia’s newest largest battery is about to be pushed off the top step as large scale wind and solar projects are installing larger, high-capacity batteries.

Most large-scale batteries in Australia have not been operating as storage devices, instead offering a service to “time shift” generation out of intermittent generation such as solar or wind to the time where the energy is required and returns better prices. The big batteries have predominantly been operating in the frequency market where they deliver network services such as frequency control ancillary services and synthetic inertia. To provide the network service the batteries operate for short sharp periods and as a result do not require large amounts of storage duration. As the competition in the network services segment of the industry increases the price for these services has reduced. Battery developers are now focusing on “time shifting” to provide better return for their projects rather than being exposed to low solar hour prices.

As coal fired generators retire the “duck curve” will deepen opening more opportunities for batteries to time shift the wind and solar generation into the evening peaks.  Developers are now looking for large duration storage to optimise their returns over the evening peaks. It now appears a 4-hour storage duration is the norm.

In recent weeks we have seen the large market players with significant thermal generation installed entering the battery developer market. Energy Australia is planning a 350MW big battery with four-hour storage at Yallourn.  AGL is constructing a 250MW big battery with four-hour storage at its Torrens Island site in South Australia which has announced the mothballing of its gas units. AGL also plans to replicate the 250MW battery at its Loy Yang coal site in Victoria. At Eraring, Origin is planning to install a big battery to offset generation when the coal fired power station closes.

The question is, if “time shifting” occurs, the times when the battery charges will likely raise spot prices as demand increases and the evening peak prices should drop. To make money battery operators will need to arbitrage the charging cost with the price they receive when they discharge. With the increased penetration of wind and solar generation into the generation mix the spot prices during the solar hours are likely to fall further however with many large-scale battery developers still heavily reliant on coal fired generation the optimisation of their exist portfolio will be interesting to see.

WHAT IS CAUSING THE INCREASE IN THE SPOT AND FUTURES MARKET PRICES?

A constraint designed to maintain power flow in the Gladstone region, primarily to maintain the continuous current rating on the 132kV feeder bushing at Boyne Smelter, is constraining off hundreds of MWs in Queensland.

Constraints on the interconnectors out of Queensland are also limiting QLD generation. A constraint to avoid voltage instability on the Sapphire to Armidale 330kV transmission line is reducing NSW generation.

Constrained gas supply is also impacting spot prices. BHP’s Gippsland Basin joint venture with Exxon in Victoria, is not operating at full capacity due to a processing train at the Longford plant out of service since 28th June. This was due to an unplanned maintenance issue.

The unplanned issue at Longford has also reduced the output from the Bass strait gas fields that feeds the plant. The Iona gas storage facility operated by Lochard Energy is also running low.

The reduced level of generation from coal fired generation, resulting from the loss of Callide power station, the delayed return of Callide C3, and the reduced output of Yallourn in Victoria due to flooding have all added to the extra requirement for gas powered generation in QLD and VIC.

The requirement for extra gas-powered generation has led to higher prices in the gas market, which in turn leads to higher dispatch prices of the gas-powered generation. Higher dispatch prices lead to higher spot prices.

Domestic pressures on gas prices on the Australian wholesale market have been impacted by the overseas gas market demand and prices. As the Australian gas market is export dominated, any changes to overseas prices are reflected domestically. The benchmark Japan Korea Marker (JKM) is linked to the LNG netback price.

The JKM is also used as a floor for gas contracts in Australia and with the JKM lifting to $19/GJ this reflects in Australia. Today the Declared Wholesale Gas Market (DWGM) prices in Victoria is $58.44/GJ with a demand of 1,100TJ.

The futures market has responded to this week’s higher spot prices, along with the announcement that Callide C4’s return to service would be delayed until the end of 2022. The unit was planned to be in service by the end of 2021 and capable of supplying power over the 2021 summer however, the delay has pushed up the Q122 quarter prices as well as most of the quarters until 2023.

AGL DEMERGER

Last week AGL shared its plans to split the existing business into two. The announcement on Wednesday was not taken well by investors as shares dropped 10% when chairman Peter Botten made the announcement. The share price continued to fall through the week closing on Friday at $8.13 well below the $17.72 price a year ago. Investors are concerned that the two entities will lack the financial capacity to grow the businesses.

Accel, the coal fired part of the business will be led by current AGL CEO Graeme Hunt while Christine Corbett will run the retail business. Accel will earn its returns from carbon intense assets so institutional investors are steering clear of the business, Accel will also retain a 15-20% ownership of AGL Australia. Apart from a lower share price pushing investors away, it is also expected dividends will continue to fall for the 2022 financial year. AGLs retail business will retain the clean energy assets and the retail business.

The previous CEO of AGL Brett Redman proposed the demerger to evolve the business in a rapidly changing marketplace. Prior to the demerger AGL had consolidated to form a vertically integrated business, this worked well over recent years however the business structure is no longer optimal.

Customers are after a cleaner alternative to coal fired generation so the retail business that will retain the customers will be merged with the carbon neutral portfolio of assets resulting in customers sourcing their power from cleaner green generation sources.

While AGLs demerger does not seem to be seen by investors as a positive direction, Edge has previously highlighted that the splitting up of generation businesses is gaining momentum overseas with many fossils fuelled businesses creating businesses to develop a green focus and meet the customers’ demands. Time will tell if the demerge strategy will benefit to AGL.

Despite the negative outlook for Accel with its fleet of coal fired assets there is a positive light at the end of the tunnel. As the existing coal fired assets are retired Accel will retain their key location on the grid. Their favourable locations on the grid will allow Accel to transform the connection points from a high carbon emitting locations to low carbon hubs as new cleaner generation and storage is installed.

POWER BILL ON THE WAY UP

With Australia moving back to more lock downs it is interesting to see how COVID is impacting individual households.

Household electricity use has increased by 10% as people have been working from home and as a result household power bills increased by 7%. The bill increases are related to the increased consumption even though the underlying wholesale electricity prices have dropped by 4.8%.

The Australian Competition and Consumer Commission (ACCC) reported that even though household consumption increased it was at the demise of small business electricity use which decreased by 17%.

With wholesale prices dropping they are putting pressure on the profits of the retailers but despite the pressures the ACCC expects household bills to drop further as the wholesale prices flow through to the end user.

Low spot prices following COVID and the penetration of renewable energy triggered profit warnings from Origin Energy, AGL Energy, Stanwell, and Energy Australia.

As safeguards end on 1 July, the ACCC has warned retailers they are obliged to pass on the lower wholesale prices. This is despite the increases experienced in May and June when spot prices increased following the failure at Callide power station.

The “big stick” legislation that started in June 2020, obligates retailers to adjust their prices in line with their costs of securing electricity.

The ACCC is currently investigating several electricity retailers’ prices to see if recent wholesale price reductions were being passed on to consumers.

PIPELINE RUNS DRY FOR WIND

On Friday BloombergNEF released its latest Global Wind Market Outlook. It showed wind farm development has slowed in Australia with no wind farm project reaching financial close to date in 2021.

Delays in the projects are resulting as investors are more cautious to put money into projects that could be exposed to lower spot prices and potentially constrained off due to the continuing network challenges. In the previous your Covid-19 impacted our lives and slowed developments. Last year only 449MW of wind projects reached financial close, significantly lower than the boom year of 2018 when 2,500MW reached financial close.

Based on AEMO data, there is substantial pipeline of wind projects under construction across the NEM with 3,600MW being built. Many of these projects are experiencing delays due to the approval of connection agreements in some cases requiring additional infrastructure to be added.

BloombergNEF analysis predicts up to 700MW of generation could be delayed and not see first generation until 2023. It is understood we may see some progress in wind farm development before the year is out, with the MacIntyre wind farm and the Kaban Wind farm both approved by AEMO, the next barrier is financial close.

As system strength increases across the NEM due to greater interconnection and more stringent connection requirements the flow in the pipeline will increase. With the announcement of Project EnergyConnect which will link between South Australia and NSW it is expected to lead to more than $5B in new projects.

NSW is adding new Renewable Energy Zones (REZ), and these REZs are expected to allow up to $30B of new projects, however development has stagnated as developers wait for the REZ roll out.

While lower electricity prices are good for end users, the low-price environment is making investors nervous resulting in banking a project hard to achieve. With the power purchase agreement (PPA) market seeing more interest from large companies looking to reduce their carbon footprint we will continue to see deals being done and projects starting to be built through the remainder of 2021, 2022 and beyond.

Edge News – June 2021 Newsletter

As we head into a new financial year consider the usual activities at this time of year. Consumers on financial year contracts would (should!) be recontracted by now, leading to a temporary decrease in demand for forward contracts from a consumer perspective. Wholesale contract traders will be squaring away positions for financial year end, so we should expect some profit taking from those in long positions and vice versa!

One thing we all know with contracting energy… timing is everything!  Edge2020 clients provide tips on how to contract better.

We’ve been working with some amazing clients these past couple of months, and we highlight one in particular who was an absolute pleasure to work with (and who we helped save nearly half a million dollars).

We also review Callide – what happened and what now?