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Newcrest snubs solar for coal power, but was it a good deal?

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Leading gold miner Newcrest has disappointed the solar and wind industry after deciding against building, or writing a contract for, a wind or solar plant to help power its Cadia gold mine in NSW, choosing instead to lock in a contract with “discounted” coal.

Newcrest revealed a few months ago that it was considering a 140MW solar plant on site to help reduce the staggering increase in electricity prices, which it said had nearly doubled (up 90 per cent) for the 2018 financial year.

It conducted a tender which included an option for a 140MW solar farm, which could have contributed a significant amount of its electricity needs, locking in prices for the next 20-25 years.

This week, however, it announced it had chosen instead to sign a new contract with big gentler EnergyAustralia after obtaining a 20 per cent discount (on the prices which had jumped 90 per cent), raising questions about how good a deal it got.

Other big energy users are turning to solar, or wind, to lock in lower costs. Zinc refiner Sun Metals says its new 116MW solar farm will help it hedge prices and boost the case for a refinery expansion, and Nectar Farms is using wind and storage to power a new greenhouse that will be the biggest in Australia.

Whyalla Steel is using a combination of solar, pumped hydro and battery storage to deliver all its needs in South Australia, and plans to repeat the dose at its operations near Melbourne and Sydney.

Newcrest’s problem may be linked to an inability to secure a good price for what’s known in the industry as the “unders and overs” i.e. the electricity it contracts to buy when the solar or wind plant is not producing.

Big gen-tailers like EnergyAustralia don’t have much incentive to provide a good deal for this “sleeving” -as it is also known – if it means it supports the case for a rival wind or solar farm.

They obviously prefer to unload power from their own coal generator than facilitate a new clean energy generation owned by someone else. And without any carbon or environmental penalty, they have a greater ability to do so.

This is important, because on bases costs, solar developers are scratching their heads on how a contract with EnergyAustralia, which looks to be around $70/MWh (taking into account the 90 per cent jump and the 20 per cent discount), could compete with solar or wind             .

Developers suggested that a solar farm could also be delivered to Newcrest for about $70MWh, as part of a bundled package that includes the large scale renewable energy certificates, which Newcrest could then sell or use to meet its own obligations.

Assuming EnergyAustralia offered Newcrest half price LGCs, which would be a huge discount, the bundled price to Newcrest for power and LGCs could be more than $100/MWh.

Newcrest boasts that Cadia has one of the lowest costs of any mine in the world. It said in its brief statement that it would look again at solar options once the new energy contract expired in 5 years time.

If the federal government modeling is to be believed, wholesale prices would have fallen by then to one half of what they are now – thanks to the build out of new renewables – but most analysts think a fall of this scope is likely while little competition exists in the market.

“The five-year extension provides an improved financial outcome to Newcrest, allows time for Government policy and regulation to be better defined and time for Newcrest to identify, evaluate and potentially construct or contract a renewable energy supply that could contribute to Cadia’s long term electricity requirements,” Newcrest’s CEO Sandeep Biswas said in a statement.

Industry executives say while it is promising that Newcrest considered solar as an option, the result highlights how the odds are stacked in favour of incumbent generators who are not charged, in any way, for their greenhouse and other pollution.

They dominate the market, and the contracting, and only big companies that choose to buy power directly from the wholesale market (like Sun Metals), or set up their own energy firm (like Whyalla), or build their own wind and storage and electricity their operations (Like Nectar Farms) can compete.

The fear is that this power could be reinforced under the proposed national Energy Guarantee, which would require contracting for emission and reliability obligations to go through the big retailers, who would then price and create contracts with their own portfolio in mind.  

Pocket
  • trackdaze

    Shares down 1%.

    Probably need solar/wind in any event to cover for intermittant coal.

  • MaxG

    “reduce the staggering increase in electricity, which it said had nearly doubled (up 90 per cent) for the 2018 financial year.” means they might get electricity for free (or other subsidies); otherwise this makes no sense commercially.

  • Joe

    ‘Discounted Coal’…someone is taking the pisses. Someone’s going to pay….the environment and the punters at large. A 90% increase in electricty usage in one year, how does that work? This ‘Discounted Coal’ thing needs to be slapped with a carbon price to stop these f#@kers from willy nilly burning more and more and more FF!

    • rob

      AMEN Joe

    • Greg Hudson

      I think you have misunderstood. As I read it, the 90% was the increase in PRICE, not usage…

      • Joe

        Hi Greg, just re read the article. On reflection the article doesn’t actually specify what the increase actually is in….’electricity usage’ or ‘electricity price’. I think we need clarification from Giles, the writer of the article.

        • it’s most definitely prices. have clarified now.

          • Joe

            Thank you

  • Mike Westerman

    Note the new contract is 5y – quite a typical time horizon for mining companies (even perhaps on the long side), and one that shuts off options such as pumped hydro to firm up solar. The other strong driver with mining companies is capital deployment: they like others to put up the capital for non-mining assets, and don’t like to provide long term guarantees to underwrite it.

  • RobertO

    Hi All, This is a really good deal for Energy Australia. As a gentailer it cements their power in the market place of Newcrest for the next 5 years. The NEG will help Energy Australia more so it’s good all round for them (stuff the rest of the world)!

  • Chris Fraser

    It could be a race to the bottom for EnergyAustralia if, when 5 years comes around, they have to decide if their now ageing coal plant can supply for $70/MWh and wind and solar are much less.

  • stucrmnx120fshwf

    Lock in that pollution, for half a decade, too bad, they can’t use the grid, say to use Tasmanian hydro electric storage power. It doesn’t actually take much, think of a hydro power plant, it stores power enough for years, with renewable energy, you only have to store enough for a couple of weeks at most. If we assume, 4 years storage, then 2 weeks is 1/100th as much, of amount of storage, per kWh, if the infrastructure was in place, then coal fired power, wouldn’t be able to compete.

    The price of renewable energy, is already lower than the price of coal, even when you have already built, the coal fired power plant. But owing to the lack of backup storage power, the energy companies have the companies, over a barrel, most of the power in Tasmania, is hydro electric. Put in some pumps, turbines, a second basslink cable, some kind of anti competition regulator, to make sure the energy companies don’t collude, against the customer, industrial or residential. You’d have competitive renewables now, let alone when they’re half, of the price per kWh, in 3 and a half years.

    Australia, 25% of it’s deserts, can supply a trillion tonnes of liquid hydrogen, per year, also a storable form of power. To ever cheaper electric vehicles, that don’t need overhaul maintenance, for a million kilometres and high rise farming. Cut the pollution, CO2 emissions, waste oxygen from LH2 production and high rise farming, cities breathe easier, quieter, with lower rates of cancer.

    • Joe

      Stucie, sounds like an Energy and Climate Plan, please send it across to The COALition. All we hear from Two Tongues Turnbull and his NEG and Liddell Coaler 2.0. Oh, but wait, Liddell 2.0 is now dead. AGL just announced it is definitely closing it down in 2022. No coming back for the ‘old girl’. Onward with combined solar, wind and gas to replace the clappped out Coaler Clunker.

      • stucrmnx120fshwf

        I’m sorry but I don’t think of you that way, I’m glad you have marriage equality, but I like women, I’m flattered that you find me attractive, but Stucie, sorry, but like I said, I prefer the ladies.

        • Joe

          …does… Stucer…sound more to your liking?

          • stucrmnx120fshwf

            Just Stu, is fine, stucrmnx120fsh actually stands for Stuart Brown, Chrome, Nexus, 120 GB of flash drive, Chrome would have been, an interesting surname though. As for Trumpbull, he’s got solar panels on his roof and batteries, but he can’t support a carbon dioxide emissions trading scheme anymore, because of the crackers in his party room. Thank goodness, Whyala Steel, has the guts, to buy solar, wind and storage, to show the rube , shmuck, shills, of the COALition, how real business, is done.

          • Joe

            Hi Stu, those solar panels and battery at Two Tongue Turnbull’s place is all down to his son. We have to place the credit where it is actually due, yes. As well, we’ve got a lame duck Environment Minister, the Josh, who doesn’t believe in home rooftop solar either. Thank god that AGL told Two Tonguer and his hand puppet Joshie where to stick their wet dream of Liddell 2.0.

          • stucrmnx120fshwf

            Well of course they told Trump I’ll, where to stick it, energy companies, buy governments power stations and run them into the ground, with lack of maintenance. Thank goodness solar requires, next to no maintenance, the Enron’s of the world, buy governments natural monopolies and charge twice as much, to the customers, whilst doing no maintenance. To them maintenance is an expense and executive pay, is an absolute necessity.

            The noalition, NDIS, Gonski, on the cheap, NBN on cheap, that doesn’t even work, on coaxial cable. Look forward, to a write down, of that and a privatisation, fire sale, to donor mates, at mates rates, if the doctor do nothing’s, stay in power.

          • Joe

            Hi again Stu. Just when I was enjoying your little talk you just had to mention…..NBN! I have followed this issue very keenly from the get go. I live on the Northern Beaches of Sydney and the NBN in our area was slated as one of the last to get the NBN…in 2020 some time….way p[ast Tony & Mal’s 2016 promise!!!! Our area was to be one of those dreaded HFC ( coaxial cable as you put it ) NBN connections. It is the cheapest, nastiest and worst of of the so called multi delivery pathways of the NBN. I’m hugely glad that NBN has put a stop ( at least temporarily ) to the HFC rollout. It (HFC) is total crap. and I don’t want a bar of it. My fingers are crossed that the HFC business is dumped all together. I really wonder if No NBN better then HFC NBN?

          • stucrmnx120fshwf

            Oh you think you’ve had a hard time, with Australia’s pathetic internet, I live in NW Tasmania, before the NBN node, my landline, was so bad, it blew the fuse, of the household electricity, 12 times. Then it took 3 months to get the NBN, after it was available, because they hadn’t put my address on the database and I had ADSL 2+, it took 7 attempts, just to find out what the problem was, finally I found out, after another 4 hours on the phone. I live next door to a Secondary college, TAFE, University, nursing home, it cost me $500, to get the phone on and I got stuck, with the Telstra Monopoly, where they make you wait 25 minutes, at the shop, before they serve you. Charge you $100 a month, for lock in at 24 months, now that I finally got the NBN, I can get TPG, $70 a month, no lock in, in April, when my contact is up, Telstra and the COALition, bodgie dodgy, living in a dodgy world.

            Do it once, do it right, not slap it together with duct tape, copper wires that haven’t been maintained, since they announced the NBN, they’ve spent so much money, Labor can only afford, fibre to the curb now. F$_&√πng NOalition.

          • Joe

            Ooooooh, a lot of pain there for you. Good luck.

          • Geoff Roberts

            Bit of off-topic never hurt anyone.

            I had intended to stay on cable broadband, which is getting faster by the month as people move off it. I have NBN’s FTTN lead in curled up under my eave, but wont be using it in any scenario I can envisage.

            Seeing the way things are going, when the cable service failed and wont be repaired, by the Telco, I elected to replace my Broadband service with 4G wireless. I get 4 x the data as I was getting before, for the same price and the low latency makes it a pleasure to use, despite the speed being 1/10th of the Cable connection, at about 5MB/s.

            It seems to be quite adequate for streaming Video.

            I just wish we could stop this NBN madness now, collectively draw breath, and as a nation move to the future (5G and Satellite) instead of adding band-aid on band-aid.

            It has been a political communication failure to allow people to blame FTTN and “old fashioned copper” for slower than expected speeds. I hope present Comms Minister Mitch Fifield has more ability than Mal Turnbull in that regard. NBN Co chief cannot be expected to tell people the bad news they have been sold a dud,

            NBN was over sold from day one, never a business case done and was seized upon to attract votes from people with not much better to do than watch TV on demand. Former Sen Stephen Conroy said cost would be $4-5Bn and speeds would be higher than ADSL. Not sure if he is really that dim, or just an opportunist liar.

            This experiment in socialism will soon be over and medium term lost value restored to the ASX listed Telco’s.

  • Hettie

    There’s silly, and there’s stupid, and then there’s barking mad.

  • neroden

    I think they realized that they needed a solar + battery install to really get out from under the thumb of the gentailers, so theyr’e going to rebid.

  • Ian

    To me it seems Newcrest contracted to buy electricity from EnergyAustralia for 5 years instead of contracting a solar farm to supply some of its electricity needs and EnergyAustralia supplying the rest ie ‘sleeving’. The article suggests the cost of electricity from the utility was at a discount if it supplied all Newcrest’s needs and no discount if it chose to use solar and fill in the gaps with EnergyAustralia’s product. The coal part of the deal is just EnergyAustralia’s generation mix- Newcrest just wants electricity and how EnergyAustralia gets it is not much concern to Newcrest. – is this the correct take on the situation?

    You’d ask how many big companies even consider where their electricity is sourced and perhaps demand that their suppliers use renewable sources.

    So, what would have been the cheaper solution. 1 all supply of electricity from EnergyAustralia or 2. Partial supply from EA and partial from the solar farm. Also, how large was the anticipated difference in the contracts?