AGL on-sells certificates from giant wind farm to Microsoft in new 15 year deal

AGL Energy has signed a 15-year deal with Microsoft to supply the global software and tech giant with renewable energy certificates from what will be the biggest wind farm in New South Wales.

The deal follows AGL’s June power purchase agreement with Tilt Renewables to take nearly half of the output of 400MW Rye Park facility.

The PPA with Tilt contracts AGL to buy 45 per cent of the of power generated by the wind farm located north of Yass, or around 513GWh a year, for 15 years, along with the associated large-scale generation certificates (LGCs). The rest of Rye Park’s output is contracted to Newcrest Mining to help power its Cadia gold mine.

This week’s deal with Microsoft means AGL has opted to on-sell the Rye Park LGCs – estimated at 513,000 certificates a year – rather than surrender them to the Clean Energy Regulator to meet its renewable energy target obligations, or to offset its own emissions.

The spot price of LGCs – the key currency for the federal renewable energy target – has been trading north of $50/MWh lately, despite the fact that the RET has been well and truly met. It currently sits at around the $55 mark (for a parcel of 5,000 cetificates).

AGL is likely to have sold the 15-years worth of Rye Park LGCs to Microsoft in one bulk transaction, as the certificates will no longer be valid after 2030, less than seven years away, unless the RET is extended.

Big retailers have in recent years elected to pay penalties for not meeting their RET obligations, on the expectation that they would be able to buy LGCs at a much cheaper rate within the three year window allowed to get a penalty refund. But LGC prices have stayed relatively high.

“Supply agreements for renewable energy certificates can help to increase the viability of new renewable
energy projects by providing the projects with an additional revenue stream,” AGL COO Markus Brokhof said on Tuesday.

AGL and the other big-three gentailers have come under criticism lately, including from ITK analyst and regular RenewEconomy contributor David Leitch, for their distinct lack of investment in new renewable energy project development in Australia’s currently stagnant market.

“As far as I’m aware, none of the major private retailers have written the wind or solar PPA for five years. …That’s five years in which Zen has written 26,” said Zen Energy CEO Anthony Garnaut in an interview with RenewEconomy in July.

In June, AGL CEO Damien Nicks told the company’s Investor Day meeting that wind and solar PPA prices had jumped to “more than $70/MWh,” although no details were revealed of the price struck in the deal with Tilt Renewables for Rye Park.

Nicks said higher PPA prices were a result of supply chain issues and increased labour costs, and the lack of capital that was being sucked away to the US due to the impact of the Inflation Reduction Act.

As RenewEconomy reported at the time, PPA prices from wind and solar had fallen to as low as $40/MWh in recent years, including Neoen’s contract with the ACT for its Goyder South wind project in South Australia, with many contracts in the $50/MWh region.

“We’ve seen PPA prices step up across the whole market, whether that be just renewables or firming,” Nicks said in response to a question.

“You’re seeing some of the new PPAs are in the market in the $70s (per megawatt hour) for sure.”

As part of its Climate Transition Action Plan, AGL aims to add around 12GW of generation and firming by the
end of 2035, made up of around 6.3GW of renewables and 5.9GW of firming.

But as David Leitch points out, even if AGL succeeds in hitting its 2035 wind and solar target, that will only replace around 60% of its current coal output.