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South Australian Energy Market Changes 2017

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The South Australian Government released its energy plan today, with a view to instituting short, middle and long term solutions that support a renewable future within the state and provide system security going forward.

 

Background

Power system security has been of utmost concern to the South Australian Government, particularly in light of the System Blacks that occurred in 2016 and most recently, on 8 February 2017.

The South Australian government, today announced several measures that Premier Jay Wetherill hopes will “… restore security and put downward pressure on prices”.

Measures released, very broadly seek to provide short, middle and long run solutions to support a structural change to the South Australian Energy Market with a focus around gas being a transitionary source of emergency power going forward.

 

Incentivising Competition – Tender to be advised – effective 1 January 2018

As foreshadowed in our earlier legal alert, the South Australian Government intends to:

  • tender 75% of its electricity needs over the next 10 years in order to incentivise new generators to enter the South Australian market; and
  • tender the remaining 25% of electricity load to support dispatchable renewable energy initiatives.

These contracts will begin on 1 January 2018 and we expect that any tender process will be initiated in the middle of 2017.

 

New Generators – Changes to Technical Requirements

Although the details are unclear at this stage, new generators with a capacity greater than 5 MW will be required to demonstrate “how they add to local energy-system security”.

On its current reading, the South Australian Energy Plan suggests that it will now be a requirement for “developers to include power system security services as part of their projects in South Australia”[1] which will be attained through a separate process to be governed by the Office of the Technical Regulator.

We note that these technical requirements will be imposed as additional requirements and complement existing licensing arrangements imposed by the Essential Services Commission of South Australia (which are also, in part, being reviewed).

 

Incentivising Gas Exploration – Effective Immediately

The South Australian Government has announced that it will provide an extra $24 million as part of the current Plan for Accelerating Exploration (PACE), effective immediately in order to incentivise new Gas exploration in South Australia, with some commentary being provided about potential opportunities for exploration within the Cooper Basin.

 

Incentivising Gas Projects – Landholder Royalties – Petroleum fields

Landholders whose property overlies a petroleum field will be entitled to 10% of royalties pursuant to the PACE Royalties Return Scheme.

 

Emergency Prevention – New Gas Power Plant – Tender to be advised

The South Australian Government intends to invest in a new gas-fired power plant with a capacity of up to 250MW in order to support the State in the event of an emergency.

The Government has advised that the tender process will begin shortly although a date has not been released.

 

Emergency Prevention – Interim Measures

Today’s announcement indicates that the Government will seek to work with distribution and transmission companies in order to temporarily generate 200 MW of energy until the new gas power plant goes online.

The manner in which such temporary power will be provided has not been released however, it is likely that such a measure will be in effect for several years, particularly considering the time required to construct any proposed gas power plant.

 

Battery Storage – New Renewable Technology Fund

A new $150 million Renewable Technology Fund (the ‘Fund’) will be established by the South Australian Government in order to support projects that “make renewable energy available 24 hours a day, seven days a week”. [2]

The Fund will encourage the development of projects by providing entrepreneurs and private innovative companies with:

  • $75 million in grants; and
  • $75 million in loans.

 

Battery Storage – New Project

The South Australian Government has announced that its first investment using the new Fund would involve the construction of a grid-connected battery that will “provide the state with 100 MW of storage”.[3]

 

Energy Retailers – Energy Security Target

Retailers will be “compelled to source a percentage of energy from local generators rather than from Victorian coal through the interconnector”. [4]

The government has also expressed a view to join up to any national Emissions Intensity Scheme or Lower Emissions target if and when national policy changes.

No effective date for this measure has been provided by the Government.

 

Intervention – New South Australian Ministerial Powers

The Minister for Energy will be given new powers to:

  • Direct the national market in the case of an electricity shortfall;
  • Direct generators to operate; and
  • Direct AEMO to control flow on the interconnector.

It appears, that such powers may well detract from those given to the Market Operator (AEMO), and in doing so have the potential to disrupt the wider market of which South Australia forms part.

Accordingly, there could be broader national resistance to this measure and subsequently a need to cooperate more broadly with other market participants before this is necessarily put into place.

New legislation will be required in order for this to occur, and the Government has advised that drafting of this legislation will occur immediately.

A copy of South Australia’s Energy plan can be accessed here.

  • [1] Government of South Australia, Our Energy Plan, 2016, pg 5, < http://ourenergyplan.sa.gov.au/assets/our-energy-plan-sa-web.pdf>.
  • [2] Ibid at pg 4.
  • [3] Ibid.
  • [4] Above n 1, at pg 5

 

This Alert is intended as an alert only. It does not purport to be comprehensive advice. Readers should seek professional advice before acting in relation to these matters.

 

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