Listed renewable energy developer Infigen Energy has announced the purchase of a 109MW “peaking” gas plant in NSW, which it says will enable it to invest in up to 400MW more of “cheap renewables”, and it has its eyes on several different wind and solar projects.
In an announcement on Thursday, Infigen said the purchase of the Smithfield peaking gas plant was driven by a significant market opportunity for cheap renewables, and it echoes the low-cost assessment of “firm renewables”by the government owned generator Snowy Hydro.
Infigen noted that the cost of renewables generation has decreased with “run-of-plant renewable power purchase agreement prices for electricity-only currently at $45-55/MWh. It put the cost of firming at around $9-12/MWh, meaning the cost of “firm renewables” was between $54/MWh and $67/MWh.
This compares to contracts for the commercial and industrial market that are being written at around $70/90/MWh. “Prices for firm contracts are significantly higher,” the company says in its presentation. “This creates a significant margin opportunity … in selling low-cost intermittent renewables into higher priced firm contracts.”
It also reinforces, as the government-owned utility Snowy Hydro outlined when it sourced nearly 900MW of wind and solar projects, that “firm renewables” can easily beat the Coalition government’s targeted wholesale price of $70/MWh, in a way that the traditional mix of coal and gas plants find impossible.
The Australian Energy Market Operator recently noted that wholesale prices have ridden to record highs, driven by big peaks in the middle of the heatwave, but also a big rise in the average cost of “baseload” fossil fuels.
“The NEM (National Electricity Market) is transitioning from baseload coal to variable renewables,” the company said in its presentation.
Infigen will pay $60 million for the 109MW capacity of the Smithfield open cycle gas turbine, and will pay an extra $1 million for every extra megawatt of capacity it can get out of the plan, subject to discussions with AEMO (up to a maximum 1234MW and $74 million total price).
It reasons it is a better deal to buy a gas plant and have a physical asset rather than taking out financial instruments. And it may also have an eye on the impact of the reliability obligation that will come into effect later this year.
Infigen CEO Ross Rolfe says that the company is talking to various wind and solar project sponsors and was keen to “get more solar in our business”, and to vary the production profile to increase its ability to service the commercial and industrial business.
Infigen’s strategy for expanding its presence in the C&I market – and eat into the market traditionally served by big utilities – is driven in South Australia by the 25MW/52MWh Tesla battery that is currently being installed next to the 275MW Lake Bonney wind farm, although its commissioning is running several months behind schedule.
The Smithfield gas generator is likely to be used only sparingly – around two to eight per cent, which will ensure that the company retails a small carbon footprint. Currently, its emissions intensity is just 0.02 tonnes of Co2 per megawatt hour of generation. It aims to be “carbon neutral” bu 2025.
Infigen says Smithfield allows it to increase its long-term contracted position to approximately 75 per cent of generation. Its portfolio currently stands at around 700MW of almost exclusively wind farm assets, but it expects this to jump to more than 1,000MW with the opportunities presented by the new purchase.
Asked about response to 5-minute pricing, the company said it would take around 12 minutes to ramp up from a cold start, but it says that the machine could be run on a no-load basis in anticipation of big price movements, at which point it could respond within three to four minutes.
It will only likely be switched on with wholesale prices rise above its short run marginal cost of $100-$150/MWh, but even it was used only as a hedge against prices going above $300/MWh, it would still deliver returns of 12 per cent per annum.