Mark Searle - Key Energy & Resources Pty

Key Energy & Resources © AFSL 281356

Managing Energy Risk

March 2017

Mark SearleB.Eng, M.Eng, Dip Fin Serv., MIE Aust. CPEng

Principal Consultant

Key Energy & Resources

[email protected]

WA Power & Gas Conference


Disclaimer

Key Energy & Resources holds an

Australian Financial Services License

(AFSL 281356)

Any advice contained herein is ‘general’

in nature and specific advice should be

sought before acting on anything

contained herein.

2



Specialist Energy Management Consultancy

Energy Market Advice

Gas and Electricity

Negotiate Supply contracts

Large users $5B +

Energy Planning and Cost Control

Large client base across Australia

Government, semi-government, private sector

3


Overview

Australian Energy Market

NEM & SWIS

Contracting Strategies

Threats and Opportunities

Time Permitting….

Renewable Energy Certificates

4


Australian Electricity Market

5

3 Markets

NEM WA NT

35,000 MW MD /

45,000 MW

Capacity

All Eastern

Seaboard States

Energy Only

5,700 MW

Capacity

WA Greater Metro

(SWIS)

Capacity

1,000 MW

Capacity

Darwin

Katherine

Alice Springs

Bi-lateral


Delivered Electricity Price – Cal 2016

$-

$50

$100

$150

$200

$250

NSW VIC QLD SA SWIS NT

$/MWh

Retail NUoS Capacity Market Fees Env Levy

6


Delivered Electricity Price – Cal 2017

$-

$50

$100

$150

$200

$250

NSW VIC QLD SA SWIS NT

$/MWh

Retail NUoS Capacity Market Fees Env Levy

7


Differences

SWIS – Capacity Market

Capacity Cost

Energy Cost

Gives price signal for stability

NEM – Energy Only

Ceiling $14,000/MWh

Opportunity to sell at ceiling drives plant investment

Is it working?

8


Price Data

NEM

Pool Data

ASX Data

SWIS

Balancing Market

STEM

9


WEPI

10

$20

$40

$60

$80

$100

$120

$140

WEPI Trend - 30 Day Moving Average

NSW VIC QLD SA(03) 9885 2633

KE&R Key Energy & Resources


Electricity Futures

11

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120Ja

n-1

4

Fe

b-1

4

Apr-

14

Ma

y-1

4

Ju

n-1

4

Aug

-14

Sep

-14

Oct-

14

Dec-1

4

Ja

n-1

5

Ma

r-15

Apr-

15

Ma

y-1

5

Ju

l-1

5

Aug

-15

Sep

-15

Nov-1

5

Dec-1

5

Fe

b-1

6

Ma

r-16

Apr-

16

Ju

n-1

6

Ju

l-1

6

Aug

-16

Oct-

16

Nov-1

6

Ja

n-1

7

Fe

b-1

7

ASX Base FuturesNSW $/MWh

Cal2014 Cal2015 Cal2016 Cal2017 Cal2018 Cal2019 Cal2020


Capacity Price - WA

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

2005–06

2006–07

2007–08

2008–09

2009–10

20

10–11

20

11–12

2012–13

2013–14

2014–15

2015–16

2016–17

2017–18

2018–19

2019–20

$/MW pa

Benchmark ReserveCapacity Price

Reserve Capacity Price

12


STEM vs Balancing Market Prices

-$100

-$50

$0

$50

$100

$150

$200

$250

$300

Jan-1

6

Feb-1

6

Mar-

16

Apr-

16

May-1

6

Jun-1

6

Jul-16

Aug

-16

Sep

-16

Oct-

16

Nov-1

6

Dec-1

6

Jan-1

7

Feb-1

7

$/MWh

Balancing Market STEM

13


Contracting Strategies

Timing

TimingTiming

Involve all retailers

Listen

Commercial terms

14

Best Value ≠ Cheapest Price


Energy Contract Negotiation

Three Golden Rules

All energy retailers are not the same

All energy contracts are not the same

Effort will bring reward

Timing

15

This is a paradigm shift


Counter Intuitive?

No obvious relationship between price and services

Impossible to pick ‘best retailer’…..without ‘going to market’

Cheapest retailer last year may not be cheapest this year

Very little advantage for franchise retailer and incumbent retailer

…..if you create a level playing field

16


Remember

Retailers are risk managers

Insurance brokers

Contract outlines risk allocation

May also provide ‘Value Adding

Services’

17


Threats

Price

Contract security

Environmental

18


Opportunities

Competitive advantage

Zero sum gain

19


A Good Contract

Optimise

Price

Lowest possible retail price

Commercial terms

Suitable ‘risk’ allocation

Value Adding Services

20

è To get the best outcome


Commercial Terms

Primarily allocate risk

Also

Payment terms

Dispute resolution

Legal requirements / definition

Can be ‘plain English’ or ‘legalese’

Retail Service Code for smaller customers

21


Risk

Liability and Indemnity

Force Majeure

Billing Errors

Volume Flex

Transfer

Contract expiry

22

Supply Reliability?

Primarily responsibility of LNSP



Minimise ‘whole of life’ contract cost

What else would you like?

Account aggregation

Data provision

Load profiles

Monthly billing data

Curtailability

BOOT schemes

Additional Green Energy

Tariff reviews

Energy Market Info

New Fees and Charges

23


Type of Contract

STEM / Balancing exposure

Caps / collars

Requires serious risk analysis

May require deep pockets

Firm retail

Simpler, less risk

Budget certainty

24


The Negotiation Process

1. Understand the market

2. Understand your requirements

3. Identify relevant Value Adding Services

4. Tariff Review

5. RFQ

6. Evaluation

7. Contract Management

25


The Market

Understand the environment

Hence the information already provided

Know who the retailers are

Up-to-date list from regulators

You never know who will want your business

Appreciate price trends

Electricity is very volatile and seasonal

26


Requirements

Electricity, gas or both?

TimingHow long should the contract be?

When do you want to enter the market?

What is your likely energy use going to be?Volume Flex

Site roll in and roll out

Risk appetite

Commercial terms


27


Curtailability

Best of both worlds

Price assurance

Opportunity for gain

28


Requirements – Load Scenario

29

1 High St, Beachside

LNSP Local Power Voltage 22 kV NMI VDDD1234567

NUoS Trf ABI Con.MD 1,660 kW DLF 1.008 TLF 1.003 NLF 101.10%

MWh/kW Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec Tot/Max

Peak 285 330 322 361 406 349 420 392 364 395 337 317 4,277

Off Peak 138 160 184 173 196 218 203 209 177 183 185 168 2,195

Total 424 490 506 533 603 566 623 601 541 577 522 485 6,472

MD 1,330 1,472 1,360 1,426 1,427 1,516 1,475 1,417 1,390 1,382 1,369 1,452 1,516

Load Factor 49%

1,200

1,250

1,300

1,350

1,400

1,450

1,500

1,550

050

100150200250300350400450

Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec

kW

MW

h

Sample Plant

Peak Off Peak MD


RFQ Process

Develop a brief RFQ

Describe yourself

Outline essential, important and desirable conditions

Specify the pricing template

Define peak and off peak periods

REC’s

Define the process

Allow sufficient flexibility (and time) for the retailer to be

creative

Attach Load Scenario

And load profile

30

Distribute to all licensed retailers


Evaluation

Understand the offersWhat is included and what is excluded?

What are the risks inherent in each offer?

What additional benefits are the retailers offering?

What are the prices?Compare apples against apples

Meet retailers of interest Listen to what they have to say

31

Is it only the price?


Some tips

Timing

Electricity has seasonal lows ̴April and ̴September?

Timing

Electricity prices have short validity

Timing

Give the retailers time to respond

Give yourself time to negotiate

32

Negotiate with time on your side


Some more tips

Provide retailers with good

information

Become informed

Listen to all offerings

Stepped Pricing

33

Take control


IRCR

Individual Reserve Capacity Requirement

Is there scope to manage IRCR?

Is it worth the effort?

TDL or NTDL?

Are you eligible for NTDL?

Can your retailer provide support?

34


Contract Management

Are you getting what you expected?

Accurate and timely accounts


What is your Account Manager doing?

What processes are in place to protect your interests?

Who is managing the account at your end?

Are accounts and tariffs being checked?

35

The link that completes the chain


Electricity Contracting Summary

A paradigm shift

All retailers are not the same

Price differences of 10% are not uncommon

Different Commercial Terms

Different Value Adding Services

Effort is required

36


Questions

37

Mark Searle


[email protected]

Ph: (03) 9885 2633


How do Energy Certificates work?

38

ACCREDITED

CERTIFICATE

PROVIDER (ACP)Creates certificates

and sells to Liable

Parties

Liable

Party -

Registered

Certificate

holdings

UTILITIES

Buys certificates at

most competitive

prices

Pays $$

for

registered

certificates

Customer

assigns

certificate

rights

ACP –

Certificates

Pending

Registration

ACP –

Certificates

that are fully

registered

ACP sells

registered

certificates

Aggregates

and submits

certificates

for creation

ELECTRICITY

CUSTOMERS

Every

customer

pays a little

bit extra on

each bill $$

Pays $$

for

completed

paperwork

after

project is

done

ELECTRICITY

CUSTOMERS

doing

energy

efficiency

projects

AD

MIN

IST

RA

TO

R/R

EG

UL

AT

OR

Source: northmoregordon – Grants and Funding for energy projects, Craig Morgan


Types of Renewable Energy Certificates

LRET

• For renewable electricity projects such as biogas power generation or solar PV.

• Strong LGC price outlook for current projects.

SRES

• Solar PV <100kW

• Solar thermal unlimited size

• Allows forward creation of STCs up to 15 yrs.

ESS• Electricity or gas saving projects in NSW.

VEET

• Currently good for lighting upgrades and specific initiatives in Victoria (non-EREP sites)

• Likely to be expanded to include broader range of gas and electricity saving projects for industrial projects.

ERF

• Broader scope captures GHG emissions reductions not eligible for above programs.

• Potential for ACCU market to grow as Safeguard Mechanism of ERF comes into force.

• E.g. biogas flaring, biomass boilers

39



Funding Sources for Energy Projects

• Direct funding for innovative renewable energy projects aligned to ARENA current priority areas.

• Consider for bioenergy or solar-thermal projects integrated into F&B operations.

ARENA

(Aust. Renewable Energy Agency)

• CEFC - debt

• Private Finance

• Project-finance assistance for large-scale clean energy projects.

• Energy Performance Contracting

• Managed Service Agreements

• Combination

CEFC (Clean Energy Finance Corp)

& Private Finance

• These can provide beneficial support for identifying and implementing opportunities and can be a means of engaging with utilities and regulatory authorities.

• Examples include Future Proofing Geelong, Regional Dev VIC, SV WTE Funding, SV Boosting Productivity, Wood Processing Initiative (TAS, closed), and the TWI/EPG in SA, Energex DR

State and local programs

40



Funding Sources for Energy Projects

41

Scheme Name applicable to each technology or project type ((not exhaustive list)

Technology or project VIC NSW QLD SA WA TAS NT ACT

Lighting – Indoor & building-connected outdoor ERF,

VEET

ERF, ESS ERF ERF,

REES

ERF ERF ERF ERF, EEIS

Lighting – Street & other outdoor ERF,

VEET

ERF, ESS ERF ERF,

REES

ERF ERF ERF ERF, EEIS

HVAC ERF,

VEET

ERF, ESS ERF ERF ERF ERF ERF ERF

Compressed Air ERF ERF, ESS ERF ERF ERF ERF ERF ERF

Industrial and commercial refrigeration ERF,

VEET

ERF, ESS ERF ERF,

REES

ERF ERF ERF ERF

Industrial energy efficiency ERF ERF, ESS ERF ERF ERF ERF ERF ERF

Gas and heat efficiency ERF ERF, ESS ERF ERF ERF ERF ERF ERF

Industrial boiler fuel switch ERF ERF, ESS ERF ERF ERF ERF ERF ERF

Cogeneration ERF ERF, ESS ERF ERF ERF ERF ERF ERF

Methane destruction ERF ERF ERF ERF ERF ERF ERF ERF

Pumps and fans ERF ERF, ESS ERF ERF ERF ERF ERF ERF

Custom energy efficiency ERF ERF, ESS ERF ERF ERF ERF ERF ERF

Solar PV & HW ERF,

LRET,

SRES

ERF,

LRET,

SRES

ERF,

LRET,

SRES

ERF,

LRET,

SRES

ERF,

LRET,

SRES

ERF,

LRET,

SRES

ERF,

LRET,

SRES

ERF,

LRET,

SRES

Biogas/Biomass thermal-only or power

generation

ERF,

LRET,

RDV

ERF,

LRET

ERF,

LRET

ERF,

LRET

ERF,

LRET

ERF,

LRET

ERF,

LRET

ERF,

LRET

Finance and debt CEFC, Targeted bank finance, Private, ARENA


Mark Searle - Key Energy & Resources Pty

Presentations & Public Speaking

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