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

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 gen-tailer 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.

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.