Fran MacDonald, Executive Officer of the Western Alliance for Greenhouse Action (WAGA) discusses findings from the Victorian Renewable Energy Auction Scheme Workshop
I attended a Victorian Renewable Energy Auction Scheme Workshop run by DELWP yesterday. It was great to see community energy advocates (Community Power Agency, Geelong Sustainability, Mount Alexander Sustainability Group, Bendigo Sustainability Group and others) to counter the industry bods arguing for exemptions and least-cost solutions at the expense of community criteria.
The scheme will target projects that are at least 10MW, but this may include aggregated projects. There’s also clearly potential for local government to support community energy – opening up land, co-investing, assisting with the planning aspects, etc.
Local government could also assist in aggregating projects, if the scheme will facilitate aggregation better than the Emissions Reduction Fund does. We could also advocate for the non-financial criteria in the evaluation process (economic development goals, community benefits, other environmental benefits, etc).
For your info, below is a summary of the auction scheme as presented in the workshop yesterday.
Auction scheme design objectives:
- Achieve Victoria’s renewable energy generation targets (about 5,400MW renewables generation across Victoria in the next 10 years is required).
- Drive industry development and jobs
- Minimise scheme costs
- Ensure ease of administration.
The State government’s main goal is to provide certainty to develop a pipeline of projects that can help achieve the zero-net emissions by 2050 target. The scheme will be underpinned by legislation (Governments and legislation may change, but contracts are much harder to undo).
The model is based on ACT’s approach: contracts for difference, i.e. the government tops-up funds of proponents (from the sale of power and Local Government Certificates – LGC’s) in order to make projects that would otherwise be marginal, viable.
Between now and 2020, the scheme will be complement the federal scheme so developers will be able to retain LGCs and sell them into the market or (if a retailer) use them to acquit their obligations. Post-2020, the Victorian scheme will collect and surrender (not trade) LGCs. This is exactly the ACT scheme, and allows teh Victorian government to progressively phase LGC’s out of the market, thus progressively lowering the amount of emissions over time.
‘Behind the meter’ projects are not addressed by this scheme in general, although it’s recognised that some of those projects may assist grid capacity so they may be considered but not in ‘contracts for difference’. However, EUA projects such as those being trialled in Macedon and Bendigo that include demand management, solar and storage is clearly a solution and those projects should be supported under the scheme.
Cost: current estimate is about $30 per household per annum.
A key challenge to the scheme is energy-intensive trade-exposed industries (e.g. Alcoa). The government has side-stepped this issue for now but it is possible they will chose to exempt them from the scheme, meaning that everyone else will have to pay their share, raising the costfor everyone else (especially households).
Following legislation in Autumn 2017, government will probably announce tranches in the form of auctions: 1,500MW in 2017 with a different requirement to be announced later in 2019.
Other important issues that the government needs to address and integrate with the scheme include demand management, network planning, wholesale market impacts, effects on manufacturing and communities. The government’s main aim is to deliver jobs and investment, but it is considering these other impacts as well.
The discussion paper provided by the government outlines 4,000 new jobs from the scheme, but there are many other jobs that also depend on a secure energy sector.
Current preferences for design:
- Technology split (and potential to include storage)
- Scheme is not targeting embedded projects less than 10MW.
- Large-scale wind in particular, but also large-scale solar, will probably meet most of the need. But there will also be a role for distributed energy.
- 20% will be carved out for large-scale solar to bring through newer technology, have diversified sources of energy for grid stability and ‘spread’ (i.e. Wind at night, solar in day). But solar may end up being cheaper than wind. So, can that 20% be flexible over time? Once 20% solar is achieved, best value-for-money will then win out.
- Challenges with 80% wind farms: How do you deal with NIMBYs? There must be best-practice community engagement. Also wind farms are generally built where grid connection is weak.
- Role of battery storage is still being considered, but technology that enhances grid stability and addresses grid augmentation costs will be recognised/promoted.
- Federal RET and Large Scale Generation Certificates (LGC) treatment
- The Victorian scheme aims to help achieve federal RET.
- Projects built to 2020 are to be ‘complementary’ to federal RET. (LGCs allowed to be traded for life of RET, i,e. To 2030)
- Will adjust in response to LGC situation, e.g. LGC surplus or deficit. (Don’t want to flood LGC market.)
- Two options for scheme before 2020: Preferred option is for LCGs to remain with proponent (contracts pay the difference between strike price and wholesale price and LGC price) or LGCs held by Govt (will be held by Govt after 2020 anyway).
- Elements affecting project bankability
- Govt would not expect PPA to be signed before project is signed off. Scheme will be designed to alleviate lack of activity in that market.
- Govt will do due diligence and would want to be confident about financial close within a period of time.
- Contract length being considered: 10-20 years but open to feedback about what’s needed to land projects. Generally, the longer the contract, the cheaper the cost. But longer contracts may not always be needed.
- Minimum size, in particular of solar projects, has not been set but will be about 10MW. Will this include aggregated distributed solar on roofs, virtual power plants, embedded networks? Govt is open to that, but it needs to be at least 10MW to produce the scale needed.
- Scheme administration and cost recovery
- Design cost will be passed on to customers. Three possible ways being considered:
- cost passed through retailers; (b) passed through DNSPs; (c) through transmission network.
The preference for now is to pass cost through DNSPs – they’re regulated businesses, and the government has also done it before this way. A new ‘entity’/statutory authority may administer the scheme, collect the revenue and pay the contracts, acquit the LGCs, etc.
- Auction evaluation criteria
Criteria will be explicit in advance of auctions and will include:
- Value for money
- Economic development
- Wholesale market participation (Project to be metered rather than behind the meter or off-grid.)
- Timely construction and operation.
- Contribution to Victoria’s targets.
- Best-practice community engagement.
- Consideration will be given to quantitative and qualitative criteria. Certainly not a pure ‘cheapest cost wins’ scheme.
- Criteria outlined in table at back of paper: to deliver multiple and joint benefits e.g. jobs, manufacturing, supply chain benefits, benefits to communities, particularly local communities, e.g. benefits shared with communities, grid supporting projects, which need to be as explicit as possible. Weighting not decided but ‘will be very strong’. About 50%? Evaluation may be through multi-criteria assessment – rather than weighting?
- Site considerations.
- Community carve out or community FIT? Govt does want to encourage community power, and so this will be considered.
- Consultation and submissions summarised.
- Design of scheme, then legis to parlt in Autumn, 2017.
- First auction soon afterwards.