Infigen, Nexif lease S.A. back-up generators to pair with wind farms and batteries

Renewable energy developers Infigen Energy and Nexif have signed deals to lease the diesel generators bought by the South Australia government as emergency back-up generators, and will use them to work with their respective wind farms and battery storage installations.

The two companies also say that the 25-year lease of the generators will enable them to significantly increase their renewable energy portfolio in the state, which is heading towards a target of “net 100 per cent renewables” by 2030.

The leasing deal was announced on Wednesday by the state Liberal government, which said taxpayers would recoup $219 million through the leasing arrangements from the $227 million spent on the equipment, and save another $267 million in future re-location costs from their current positions at Elizabeth and Lonsdale.

The purchase of the diesel generators – which will now be converted to gas – was perhaps the most controversial aspect of the former state Labor government’s response to the February, 2017 load shedding that was the result of a string of failures, but most notably the failure of a 240MW unit at the Pelican Point gas generator to switch on when supply was short.

The Australian Enegy regulator this week announced it would sue the owners of the Pelican Point gas generator, saying that it had failed to make clear to the Australian Energy Market Operator that the unit was, in fact, able to be switched on at 2-hours notice.

Labor responded to those rolling outages, just five months after the state-wide blackout, with a series of measures under its energy security plan that included the Tesla big battery at Hornsdale, the diesel generators, and the proposed investment in the Aurora solar tower and molten salt storage facility, which ultimately failed to get finance.

The diesel generators were purchased only for emergency back-up, and were used only once in that role. The government promised they were not to “play” in the wholesale market, but it seems that that rule has now been relaxed, which may not please the likes of AGL which has invested in fast-start generators at Barkers Inlet.

“This is also great news for South Australian electricity consumers who will receive the benefits of lower prices through extra competition in addition to retaining the existing backup generation capacity they currently provide,” Minister for Energy and Mining Dan van Holst Pellekaan said in a statement.

“South Australian taxpayers’ will now avoid the lion’s share of the $609 million bill they faced under Labor’s policy to exclude the generators from year round operation for the next 25 years.

“Labor’s original plan to restrict the use of the generators to emergency backup only was a shocking waste of taxpayers’ money. The Marshall Government has recovered the majority of the money Labor committed and enabled the generators to operate 365 days of the year, instead of the once in two years under Labor’s plan.

“It’s time they were put to work for the benefit of South Australian families and businesses offering cheaper electricity all year long.”

In theory, this should mean more competition and lower prices. But you never can tell with wholesale markets these days, and because these are “peaking” gas generators, they are never likely to be bid at low prices, but may help avoid maximum prices above $14,000/MWh.

SA Labor responded via Twitter, damming the decision and noting that premier Steven Marshall had promised in the lead up to the last election to not privatise any electricity assets.

The government says the four generating units located at Lonsdale will be leased to Infigen Energy from May 2020 and operated commercially for one to two years at the existing site before being relocated to SA Water owned land at the Bolivar Waste Water Treatment Plant.

It said Infigen intends to use the 123MW capacity generators in conjunction with the 278.5MV Lake Bonney Wind Farm and the soon-to-be completed 25MW/52MWh Tesla battery.

The five generating units located at Elizabeth will be leased to Nexif Energy from May 2020 before being moved to Outer Harbour, where the 154MW of capacity will be paired with the 212MW Lincoln Gap wind farm currently under construction near Port Augusta and the 10MW/10MWh battery that is also being installed.

Both Infigen Energy and Nexif Energy will connect the generators to natural gas at the relocation sites via the Moomba to Adelaide pipeline or SEA Gas pipeline. Reduced fuel costs from running the generators on natural gas instead of diesel will help Infigen Energy and Nexif Energy bid the generators into the market at a lower price.

Nexif Energy Founder and Co-CEO Matthew Bartley said the deal would enable the company to vastly increase the capacity of the Lincoln Gap wind farm, which is planned for 212MW in the first stage, and up to about 457MW.

Infigen said in a seperate statement that the additional firming capacity would enable the company to install another 300MW of wind and solar in South Australia, as the purchase of 123MW of peaking gas plants near Sydney allowed it to do the same thing in NSW.

The leasing costs – at around $900/MW – were significantly lower than building them new.

Chairman Len Gill, said in a statement that South Australian was leading Australia’s transition to a clean energy future.  “Our strategy is focused on providing commercial and industrial customers with reliable and competitively priced clean energy.”

Van Holst Pellekaan also noted that the generators would be available this coming summer, and would save the South Australian Government approximately $1 million per month it would have spent maintaining the unused generators in readiness.”

The contract sum for the Infigen Energy lease over the 25-year term is $125.5 million (ex GST) and the contract sum for the Nexif Energy lease over the 25-year term is $93.7 million (ex GST) for a total of $219.2 million (ex GST). The difference in the parties’ contract sums reflects different contractual risk allocations, commercial strategies and project implementation approaches.