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Industrial bulk-buy could open path for more wind and solar projects

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A ground-breaking initiative from some of South Australia’s biggest industrial users of electricity could pave the way for more wind and solar farms in the state, and finally open the Australian market for more corporate deals with wind and solar farm developers.

The South Australian Chamber of Mines and Energy (SACOME) this week won approval from the Australian Competition and Consumer Commission for 19 big industrial users to band together to negotiate long-term electricity contracts, having grown tired of the soaring prices and short-term contracts being offered by the state’s retail oligopoly.

Hornsdale square

The companies – which include Nyrstar, Arrium, Oz Minerals, and a collection of high profile auto groups, food companies, retailers, wineries and universities (see full list below) – account for 15 per cent of the state’s electricity demand.

Most have been hit with electricity price rises of between 30 and 80 per cent in the last year, and are now paying between 8c/kWh and 15c/kWh for their electricity, and are unable to get any long-term contracts.

SACOME’s Rebecca Knol says the tender is not designed to favour one technology or another, and they would welcome either renewables or gas. “We are not predicting the outcome,” she told RenewEconomy. “We don’t have a preference.”

The move, she says, is more about challenging the pricing power of the retail oligopoly. “By aggregating their load, they will improve their individual bargaining position and be able to establish more cost-competitive supply contracts,” Knol said.

But a quick glance at prices for new wind and solar farms, and for gas generation, puts renewables in the driving seat.

Wind and solar farms are being delivered for around 7c/kWh, but even the short-run marginal cost of gas generators (i.e.. the fuel and maintenance cost) ranges from 7c/kWh to more than 12c/kWh.

short run marginal cost australia power plants

That price does not include the capital cost of the plant, and reflects a gas price of $9/gigajoule – where it has been trading in recent weeks, but well below the peak of more than $20/Gj.

Deutsche Bank, which put together the graph above, says even Pelican Point, the state’s most modern and efficient gas plant, has short-run marginal cost of around $80/MWh under a $9/GJ gas price assumption, and that is far below the electricity forward curve for peak load.

This, it would seem, would present a major opportunity for wind and solar, including existing plants that don’t currently have a power purchase agreement.

The total load of 19 industrial users (19 companies, 24 installations) is 246MW at peak, and represents annual demand of 1,957GWh. Most interestingly for the wind and solar plants, the businesses are offering an 11 year contract – a length of contract that has been all but impossible to secure from large retailers.

“We are looking for opportunities to improve the electricity price so our businesses can stay competitive,” Knol says. “What we are hoping is that they do see this as opportunity to change the wholesale market. It could bring on a new generator, or it could be with an existing generator.”

Australian corporates have been slow to engage with renewable energy developers – possibly given the fact that the fall in wind and solar costs below the prevailing wholesale price of electricity is only very recent.

Queensland zinc refiner Sun Metals, that state’s largest single energy user, is one exception, having decided to build its own 116MW solar farm, rather than commission a third party. The Sunshine Coast Council is also building its own 15MW solar farm in south-east Queensland.

Despite persistent “talk” of growing corporate interest, most other major tenders have focused on government contracts, either to meet specific loads such as government businesses, or tram and train networks, or simply to underpin new renewable energy developments in their state.

Almost all state government have tendered, or are tendering for renewable energy supply in some form or another. In South Australia, the state is looking for dispatchable small-scale renewables to provide 25 per cent of its needs, and a “new generator” – either renewables or gas – to provide dispatchable generation for the rest of its needs.

The SACOME tender means that 20 per cent of the state’s electricity demand is now up for auction as both the government and the major energy users try to break the stranglehold over pricing held by the dominant retailers.

There are more than 1500MW of large-scale solar and wind farms saying they are ready for construction, but it appears that only two – the 220MW Bungala solar farm, and the 212MW Lincoln Gap wind farm, both near Port Augusta – have power purchase agreements.

The original application included: Nyrstar, Arrium, OZ Minerals, Hillgrove Resources, Rex Minerals, Seeley International, SMR Automotive, Thomas Foods and Intercast & Forge.

Since the application was made in January 2017, Peregrine Corporation, Foodland, Independent Grocers of Australia (IGA), Pernod Ricard Winemakers, Orora Glass, Brickworks, Flinders University and the University of South Australia have also come on board.  

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  • Miles Harding

    Why stop at negotiating supply contracts?

    Most of these organisations are in the position to become suppliers themselves. For a remote user, it makes little sense to be totally dependent on a long, lossy and unreliable transmission line.
    Almost without exception, local renewable generation could and should be part of the solution, providing a low cost and local supply. It would not be unreasonable to see these organisations trade with each other and be among the first to make use of the transmission notwork in a 21st century energy system.

    I was disappointed to see no mention of social and environmental goals in the evaluation.
    It is long overdue that we get away from the capatalists version of the triple bottom line, being profit, profit and more profit

    • MaxG

      “I was disappointed to see no mention of social and environmental goals in the evaluation.” Really?!
      This is how the world works — money talks; nobody gives a toss about the social and environmental issues; otherwise the political landscape would not look like the one in place, and people would be engaged in their future.

      • solarguy

        It’s sad that your right Max. We need people to more educated about the environment including pollies. Money may talk, but you can’t eat it.

      • neroden

        Yep. Listen to the intro to this.

  • humanitarian solar

    Yes how is it so difficult for big consumers to get empowered? After sacking my builder and deciding to withhold symbolic 1% of claimed hours for bodgy work, said person revved engine driving 4WD towards me, so I used bullbar as ladder to jump on his bonnet. So the posturing didn’t result in me handing over additional cash. So the person stopped. So I jumped down. What I learned is up close looking at the driver through their windscreen they no longer appeared as intimdating. So it’s just getting pissed off enough to confront and disarm the other person. Throughout the day I wondered if this is a good outcome though finally feel it is as I don’t have to put up with the person tomorrow.

    • Colin

      Interesting story.

      Hope you’re OK.

      • humanitarian solar

        The vehicle revved 50% and only moved a few cm. Seemed more an expression of driver discontent. I just have to adjust to fixing stuff and proceeding with the work more slowly. Felt discouraged at first though now looking forward to a tidy job.

  • Goldie444

    “after a price rise of between 30 and 80 per cent”
    they are “now paying between 8c/kWh and 15c/kWh for their electricity”
    I would have to go back a lot of years to see that sort of kWh price on my electricity bill. What were they paying 5 years?

    • Jonathan Prendergast

      Large customers are easier to service both for energy and networks, so pay less per kWh.

  • neroden

    Yesssss.

  • Ron Horgan

    So when the obstruction and negativity of the fossil fuel industry and the organizations that they can influence becomes too great, consumer and producer get together and bypass the stranded assets. Great!