Renewable energy will soon be in short supply compared with growing demand. Here’s what property owners are doing to shore up risk and meet their carbon reduction commitments at the same time. Kate Burgess spoke to Engie, Energetics and Charter Hall
The war in Ukraine and the upcoming closures of Australia’s coal-fired power plants will conspire to produce higher electricity prices for the next few years. The anxiety is so acute that last December, the federal government moved to cap gas prices at $12 a gigajoule in the hope it would place downward pressure on electricity prices.
The higher price environment is translating into added zeal for corporates wishing to minimise costs while they meet their net zero targets. For property companies, the largest contributor to their CO2 emissions is typically Scope 2, or their electricity use. Entering a long-term contract for the supply of renewable energy is a way to kill two birds with one stone – reduce the risk of higher electricity charges while curbing carbon emissions.
“Most of the coal fired power plants are now scheduled to close by the mid 2030s – there will be a large demand for renewable energy and flexible assets across the grid,” head of commercial at GEMS ENGIE, Tim Cronin, says.
“There is a mismatch in supply and demand coming up – it’s one of the key risks in the pricing going forward.”
While companies are concerned about higher future electricity prices, their decision “is still driven by the ESG requirements of the company and their corporate sustainability goals,” Cronin adds.
- Power purchase agreements
Corporate power purchase agreements or PPAs are long-term electricity contracts of around seven to 10 years in length that lock in an electricity price and are linked to a renewable energy asset in the National Electricity Market.
Signing a PPA gives a corporate direct linkage to the electricity grid because they are tied to a specific asset. These deals involve guaranteeing that the corporate will purchase a certain percentage of the renewable energy asset’s output and are often signed while the project is still under development.
“Pricing can work in the buyer’s benefit – the more risk you take on the cheaper your price is going to be. If you sign up early to the PPA before the project is built you get a discount because there is the risk the project won’t be completed,” Cronin says.
In this way, the contract price is based on the fundamentals of the renewable energy asset, such as its location on the grid, load factor and marginal cost, rather than on the prevailing wholesale market price, which can be a lot higher.
Energetics head of renewable energy investments Anita Stadler says that if executed cleverly as part of a strategy, corporate PPAs can save companies thousands of dollars on their electricity bills.
A large corporate that consumes 20 GWh a year of electricity could spent between $3 million-4.5 million, Alison Stadler says.
Network costs, market charges and renewable energy certificates such as large-scale generation certificates (LGCs) or Victorian energy efficiency certificates (VEEC) from the Victorian renewable energy scheme account for up to 55 per cent of the price. Corporates only have the power to control the wholesale market portion of their bill.
Signing a PPA is not something that happens overnight. Rather, it is the conclusion of “a journey with the client on the path of their decarbonisation and their net zero goals. Carbon offsets are also available for residual emissions relating to sources that cannot be electrified,” Cronin says.
“The PPA is often the foundation of a longer-term partnership [between the corporate and the energy retailer.]”
As keen as corporates are to secure lower power prices, there is not an infinite supply of suitable projects coming to market, Stadler says.
“The cost of procurement for renewables has gone through the roof due to higher steel prices triggered by Ukraine War. And there is strong demand for renewables off the back of the US Inflation Reduction Act.
“This will flow through into higher prices in the domestic market. There are not many developers pushing ahead with projects because they don’t want to sign EPC contracts and lock in higher prices. In the near term there are not as many new projects coming online.”
However, energy retailers are still signing PPAs with corporates because they have uncontracted capacity.
Entering into a PPA is only one way to hedge against higher prices and deliver on sustainability outcomes.
2. Large-scale generation certificates
Corporates can also access the renewable energy market by purchasing large-scale generation certificates from retailers, which are the tradeable currency that is created when projects are certified under the Renewable Energy Target produce electricity.
But because this scheme expires in 2030, LGC prices are relatively high, according to Stadler.
3. Green Power
A third option is to purchase Green Power from a retailer, where the retailer guarantees it will source 100 per cent of the value of your electricity purchase from renewable energy. LGCs and Green Power are not directly linked to particular projects, so they are a less authentic means of obtaining grid-supplied renewable energy.
However, corporates must put their electricity usage into perspective. Built environment firms tend to consume less energy than mining or food companies, therefore it may make more financial sense to contract through a retailer rather than directly with a renewable energy project.
What Charter Hall did
Authenticity was a key driver for property trust owner Charter Hall when it overhauled its electricity contracts in 2022, according to its group head of ESG Andrew Cole.
“We wanted to leverage our platform where we have operational control and engage with the energy market to achieve scale,” Cole says.
“We combined our total energy load, and wanted to partner with a provider that was directly investing in Australia’s energy transition. We asked retailers to pitch with a portfolio of projects that we could get exposure to.
“Decarbonisation was our main goal. It was important to be able to secure renewables and where we could we wanted to be linked to the market through a project. The second piece is that the PPA supports price benefits to our funds and assets than would perhaps be otherwise available on a standalone basis.”
After the tender process, the company selected Engie, which offered output from the Willogoleche Wind Farm in South Australia, plus solar in Victoria. The Corporate PPA was signed at the conclusion of a thorough investigation of the property company’s assets across Queensland, New South Wales, Victoria and South Australia.
The PPA procures 151GWh of renewable energy per annum from state-based wind and solar renewable energy projects. This is the equivalent of powering about 26,000 average homes with renewable electricity, each year.
The PPA supplies power to 152 Charter Hall sites, from ENGIE’s Willogoleche Wind Farm, Lightsource bp’s Woolooga Solar Farm (QLD), Wellington North Solar Farm (NSW) and a Victorian project yet to be announced.
Charter Hall also installed solar panels on its shopping centres that create LGCs when they generate electricity, further boosting its exposure to the electricity grid. The shopping centres are covered by the PPA at times when they are not powered by the rooftop solar.
The Corporate PPA was designed with Charter Hall’s strategy to fully electrify its new developments, and involved forecasting its future electricity needs, Cole adds.
“We looked at our historic and forecast energy load. We wanted to leverage our platform to find a portfolio of renewables. We factored in known developments and their completion.
Our office assets – 60 King William, 480 Swan St are close to completion and going to be fully electrified when completed. We factored those loads into the PPA so they would operate that way from Day One.”
From 2025, the shopping centres will operate on 100 per cent renewables after the LGCs they create when they generate electricity are returned to the sites. For this initiative, Charter Hall partnered with Clean Peak Energy, which operates a series of embedded networks at the shopping centres.
On the office and industrial properties, the company uses automation platforms to optimise the performance of their operational assets, which Cole refers to as “fine grain asset insights and support demand management optimisation.”
4. Get your retailer to take more risks – the value in load shifting
Stadler advises companies to actively negotiate with their retailers before entering into any kind of electricity supply agreement.
Load shifting is a type of demand management that times certain energy-intensive activities such as building heating or cooling outside the peak pricing period
She says retailers often charge a single peak or off-peak price, when in reality up to five tariffs would better reflect the market’s daily price fluctuations.
Having more granular tariffs will create the incentives for companies to consider load shifting, a type of demand management where they time certain energy-intensive activities such as building heating or cooling outside the peak pricing period.
If companies run offices or shopping centres that consume a lot of energy during daylight hours, they should consider exposure to a solar power plant as its output most effectively mirrors their energy use.
“The whole concept of peak/off peak doesn’t make sense anymore – it’s a market convention,” Stadler says. “To futureproof your electricity procurement – you need to get the retailer to take more of that risk.”
Is your building EV-ready?
As part of their journey, most customers want to take steps to make their buildings EV-ready, which electricity retailers are now also advising on. In preparing a building for EVs, owners need to consider how occupants or customers will use the charging. “What is the dwell time for people at the EV charging station? Is it eight hours or 15 minutes?” says Engie technical director, green mobility, Dr Chris Munnings.
He advises building a financial model to factor in both the capital cost of installing the charging equipment but also the costs of operating it over the asset’s life, which can be up to 10 years.
There are numerous available pricing models, from membership models to one-off charges for using EV chargers, Munnings adds.
Building owners do not need to own the equipment. Charge oint operators install, own and operate a fast-charging station with a DC rapid charger.
Consumers pay the CPO to use the charging equipment. The operator carries out all the maintenance and help with design, and installation.
For office and residential buildings with longer dwell times, inbuilt AC charging is more suitable. In office buildings, owners can install the charging equipment and then pass on the cost in a tenancy agreement.
For a residential development, the business model is more complex.
“You might need to upgrade your electricity switchboard and run long cables. You must consider many charging stations you should install. How do you guarantee they will be used? How do you recover the cost?” Munnings says.
He says AC chargers cost around $1500, while super-fast DC charging units can cost up to $200,000. Cabling can make up a large part of the total installation cost – up to $100,000 depending on the building’s existing infrastructure.
New conduits to bring the cables from the switchboard to the car park might need to be installed. If the property owner is billing customers for the EV charging use, they also need to install data cables to enable billing software to operate.