The three phases of the renewable energy cycle and how they impact councils
The investment phase of the Renewable Energy Boom cycle is underway – so how can we be ready to take advantage of the opportunities and mitigate some of the risks big private investment represents to our Councils and our communities?
The first thing to appreciate is that local government is an appropriate actor in the energy generation and distribution space. Until the 1970’s and even into the 1980’s, in some areas, councils comfortably owned and operated electricity generators and local distribution networks.
With the scale of changes underway in the energy market, it is becoming increasingly clear that local governments will return to some version of that role in the very near future.
The driver of this (re)evolution is new technologies and concomitant massive changes in pricing. Renewable energy sources have recently become cheaper than fossil fuels pretty much across the board and the price just keeps going down. They are generally more flexible, better (and locally) distributed and are enjoying spectacular investment increases and technology advances. Meanwhile, the energy systems that currently exist are groaning under the weight of change.
Are we ready for this?
If local governments want to serve our own and our communities best interests, we need to be a little proactive.
The analogy with the Australian Mining Boom is apt. We are now well into the first of three phases of a Boom Cycle: pricing. The next phase is the investment phase. It is here that the shape of the final, longest and probably the most important phase will be decided, and the time to start making those decisions is right now!
As some of our northern CVGA Councils who have recently been signing deals for large-scale energy and wind farms can attest, the investment phase is well under way… and it will only accelerate from here.
How these investments are structured, and the role local governments play in determining pricing, localised distribution, leveraging those investments to attract long-term jobs and industry, and even managing debt and equity in the energy farms themselves is critical for the long-term well-being of our communities.
The thing to realise is that there are a great many models for councils to choose from apart from simply providing a permit or leasing/selling land but, at the risk of flogging a dead-horse, we need to start thinking and planning for these opportunities now.
Large-scale plants are being built in Gannawarra (up to 4500 acres of farms,) and Moira, and awaiting approval in Swan Hill. Wind farms have recently been installed in Pyrenees and other shires across the CVGA region. Importantly for the next round of investment, investor agents have been active in identifying the most profitable areas along Powercor’s distribution lines to build solar and wind plants to sell energy into the grid at peak times and have started negotiations to acquire rights to land in these areas.
The Victorian Greenhouse Alliances will be providing some direction on this topic in the next few months. Individual councils also need to consider which of their policy objectives they want to pursue in the energy contracting and start prioritising them.
Until now, we’re pretty much required only lowest price. In the current energy market, this does not represent a well-considered position for a number of reasons:
- We assume collective bargaining is the best way to achieve better prices. The evidence in the energy sector is that this is not necessarily the case: the City of Geelong went-it-alone and negotiated substantially better prices than both Procurement Australia (60 Councils) and the MAV (17 councils) in the last round
- Under current contracts, network charges represent 60% of the cost of your energy, so targeting price means you are discussing variations in only 40% of the cost. There are between 29-61 different network tariffs, negotiating which applies to your Council/Building can substantially impact this component of the cost however, if you want to be able to discuss this, PA or the MAV needs to include it in their evaluation criteria now
- Other policy considerations, such as the ability to:
(a) implement Virtual Net Metering (which could potentially allow your council to cover all council-owned roofs in solar panels to offset grid energy costs);
(b) manage Greenhouse Gas Emissions (e.g. ERM, the current energy retailer under the MAV negotiated procurement agreement sells ‘Green Power’ but last year they paid the fine rather than actually purchase renewable energy, deleting any environmental benefit from Councils paying the ‘Green Power’ premium)
(c) Request Bill rectification. Bill errors can be substantial but regional councils rarely have the opportunity to request rectification. As a key component of the evaluation of tenders now, this barrier to managing local government costs could be largely ameliorated
(d) data access and reporting. Something our energy retailer should provide councils with but often does not. As the energy market gets more important to councils, and more complicated, it is essential councils have access to good and timely information.
The message I want to leave you with is simple: let’s get responsible for our energy!
- This round of negotiations represents a critical opportunity for Councils to achieve positive outcomes if we’re willing and able to make informed requests of out procurement agents.
- This opportunity won’t come around again for a while, and the Renewable Energy Boom in our region is well under way.
- Lowest price in the energy market means very little if it is not nuanced by an understanding of what that actually means, and the other key policy objectives that these negotiations could help us accomplish.
- Using the Alliances as a source of information and support in this process is a good idea as we’ve been collectively working on this topic for a very long time now.