Is this Australia’s first utility to acknowledge death by solar?

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NT Government owned utility says it faces an ‘existential risk’ from increased solar uptake. Can a big battery save it?

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The electricity generation company owned by the Northern Territory government says it faces an “existential risk” from the rise of solar power, possibly becoming the first energy utility to openly recognise that the growth of cheaper renewables could spell the end of its traditional fossil fuel business.

Territory Generation has issued a frank assessment of its future prospects in its 2019/2020 Statement of Corporate Intent, saying its portfolio of predominantly gas-fired generation assets were losing out to lower cost solar alternatives that are becoming increasingly attractive to NT homes and businesses looking to reduce their energy costs.

“The introduction of solar power on residential and business rooftops as well as large scale solar farms provides a threat to the viability of [Territory Generation].” Territory Generation says in the report.

“This is because the cost of producing solar power is below the marginal cost of producing power from gas in the Northern Territory. This is the existential risk to the Corporation.”

The utility is now considering installing a big battery in either Darwin or Katherine to reduce the amount of spinning reserve it needs, and so save on the fuel costs that cripple its budget. Alinta Energy has done something similar, with great success, at its Newman gas plant in another isolated grid in the Pilbara.

The utility estimates that the amount of solar generation in the grid will rise four-fold in coming years – growing from around 30MW now to more than 140MW by 2022/23 (not including the massive 10GW solar project proposed for exports to Indonesia).

This is bringing in new competition, and competitors. And the threat to its traditional business model of burning gas for electricity is revealed in figures that suggest its generation will fall from 1.4 terawatt hours last financial year to just over 1 terawatt hour in three years time.

Fuel costs account for half of its overall costs, which is why it is looking to batteries to reduce operating and maintenance spending.

“TGen is developing a proposal for a large battery in the Darwin/Katherine system to support system stability at lower economic and environmental costs than the use of spinning reserve,” it says. “Battery technology can provide elements of these services more cost effectively than traditional methods.”

Territory Generation has been beleaguered by financial woes in recent years, including write downs of the value of its assets and issuing a call for the Northern Territory government to make additional capital available to the utility to ensure it could continue its operations.

Territory Generation is owned by the Northern Territory government, which itself has suffered its own financial troubles, and operates eight power stations across the territory, most of which are fuelled with natural gas.

The company recorded a net loss of $121.3 million in the 2018 financial year, driven primarily by a $143 million write-down in the value of the company’s generation portfolio due to the rise of cheaper electricity generated by solar installations.

While Territory Generation has previously issued its own tenders for new large-scale solar projects, the utility believes that, at least in the short term, it will be required to keep its gas-fired power stations operational to provide grid stability services, but will lose out to increased solar power installations that can out-compete gas generation on cost.

These leave the company exposed to high gas prices, a disastrous position for a cash-strapped public utility.

Fortunately for NT households, in recognising that its gas-fired generation portfolio simply would not be able to generate the revenues it has previously, Territory Generation has opted to carry the financial burden by again agreeing to further write-down the value of its portfolio.

In doing so, the utility avoids pushing the cost burden onto NT consumers, which would likely accelerate the shift to rooftop solar.

“As a result of our predictions of decreased sales without a commensurate reduction in costs, the Board has accepted the requirement of a $16.5 million net impairment of assets, recognising that our assets cannot provide the return that they used to,” Territory Generation said in its corporate statement.

“The loss of revenue means that the fixed overheads of the business must be recovered over smaller sales therefore pushing up the average price. This will lead to further losses in a competitive market or higher tariffs in a less free market.”

“Meeting the market will mean a significant cut to overheads and/or impairment of assets and reduction in return to Government as the owner.”

As highlighted by Green Energy Markets analyst Tristan Edis, Territory Generation’s frank assessment of its future prospects, recognises that the utility may become the first to fall victim to the emergence of more affordable renewable energy technologies able to outcompete gas generators burdened with ever increasing full prices.

Making matters worse for Territory Generation, government owned electricity retailer Jacana Power has also been signing power purchase agreements with large-scale solar projects being built within the NT, further diminishing Territory Generation’s potential electricity sales and revenues.

The uptake in solar power in the NT is also being driven by the NT Government’s goal for 50 per cent renewable energy by 2030. Territory Generation’s owner is effectively betting against it.

Territory Generation warned the NT Government that it would no longer be in a position to deliver a financial dividend to the territory government, and instead would focus its business operations on projects that were essential to the ongoing operation of the NT electricity system.

“[Territory Generation] still cannot predict a dividend for government over the next four years and will need support with major capital works and therefore will only focus on essential projects and/or those that provide a significant return,” Territory Generation said.

While the situation for Territory Generation looks dire, the prospects for a renewable energy boom in the Northern Territory remain overwhelmingly positive.

In June, Beyond Zero Emissions (BZE) issued a vision for the Northern Territory that spelled out the 10 Gigawatt potential for renewable energy in the region, which could provide much needed stimulus built upon a multi-billion dollar renewable energy export opportunity.

“An ambitious renewable energy goal, combined with the Territory’s strategic location, can also unlock new opportunities such as meeting the world’s growing hunger for renewable hydrogen, exporting renewable electricity to growing Asian economies and adding significant value to exports through mineral processing,” BZE said in its report.

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