Originally published on RenewEconomy.
By Sophie Vorrath
Contracting for renewable energy development by big corporate energy users – as a way to keep a lid on electricity prices and guarantee supply – has been slow to catch on Down Under.
In the US – as the RMI chart below illustrates – companies contracted for 1.56GW of off-site renewables in 2016, and more than twice that in 2015. In Australia, meanwhile, the recently expanded 116MW solar project proposed for north Queensland by Sun Metals marks the first large-scale solar farm to be built directly by a major energy user.
But according to Sydney-based energy market advisors, Energetics, this could be about to change.
In a report published last week, Energetics principle consultant Anita Stadler predicted 2017 could be the tipping point for corporate renewable power purchase agreements in Australia, as local and global market forces align to make offsite renewables an economically attractive option for large energy users.
As illustrated in the chart below, these forces include long-term upward electricity price pressure; falling renewable energy and storage costs; increased volatility in electricity markets; and – one for the Turnbull government – the need to replace ageing coal-fired capacity in a market where there is no investor appetite for new coal-fired power.
What does all this mean? Basically speaking, says Stadler, it means that for large energy users, contracting with a renewable energy generator and/or retailer to meet all or part of your energy supply needs is now a commercially viable proposition.
“There are strong signals that 2017 may be the year where economic considerations, rather than government policy becomes the major driver of both corporate energy procurement strategies and investment in energy infrastructure,” Stadler writes.
“For large energy users this will require a longer term strategic view and the ability to cut though the short term political noise.”
As noted above, this is precisely what Sun Metals did last week, when the Korean-owned zinc miner decided to expand the size of its proposed solar farm to 116MW, in line with plans to expand its refinery operations.
“This is a large refining company that views solar as better alternative to their current power solution,” said Jack Curtis – the Asia Pacific regional manager of First Solar, who is building Sun Metals’ solar farm – in comments last week.
Curtis, like Stadler, believes deals like this one represent some sort of tipping point for large-scale solar.
“This project represents the viability of the commercial and industrial solar market in Australia and the growing trend of major energy consumers owning and operating renewable energy assets,” he said.
Says Stadler: “Interest is certainly growing and unlike a year ago, 2017 will see an increase in the number and diversity of merchant projects in operation.
“This will not only reduce the risk to corporate off-takers, but also significantly shorten procurement timelines and potentially provide for increased flexibility in procurement terms.
“Following the conclusion of a few large deals, innovative contracting models will emerge to deal with some of the regulatory challenges and build on the lessons learned by all parties engaged in these transactions.”
Reprinted with permission.