2024 features record volumes but less deals
The renewable PPA market in the NEM continues to set new records in 2024, with a recent spate of deals pushing the total announced agreements to ~7.5TWh with one deal marking the first large-scale Australian mining operation to operate on 100% renewable electricity.
BM Alliance Coal, a joint venture between BHP and Mitsui & C.O, announced the ~780 GWh p.a. deal will come into effect in FY2027 in accordance with BHP’s emissions reduction target of 30% Scope 1 & 2 by 2030.
Other notable records from 2024 include:
- the largest multi-state retailer intermediated PPA transaction in the NEM so far, the third stage of QIC & IFM buyers group initiative at 311GWh p.a, the ability to hedge against energy market volatility
- Rio Tinto PPAs which set the record for the largest PPAs signed by end users in the NEM at ~2.6TWh each
- Demand is likely to remain strong throughout the rest of the year, with a further ~1.2TWh p.a. of transactions facilitated by Energetics, that are concluded, but yet to be announced, or already in the market. This excludes the landmark Tomago Aluminium transaction facilitated by Energetics which is expected to be released in Q3 2024 and may well challenge the new benchmark set by Rio Tinto.
Whilst 2024 has been driven to record highs through resources and heavy industry players, the number of deals relative to 2022-2023 has fallen, reflecting the tightness in the supply of corporate offtake opportunities. Projects in Victoria are facing extremely tight conditions and the New South Wales backlog is due to upcoming access rights tenders for REZ areas, zones which are also facing delays. In contract, projects in Queensland are proceeding faster, reflected in the states dominant 85% share of CPPA so far in 2024, although only very large players have been able to secure supply at scale to warrant contract execution.
Issues with project delivery also plague renewable supporting projects, as Fortescue’s Gibson Island hydrogen project misses a critical deadline to execute its 2023 PPA with 337.5 MW Genex. As such the deal is considered to have expired which reduces the total for 2023 to ~3TWh, a deficit compared to 2022 record of ~3.7TWh.
Energetics has been tracking the market for renewable contracting in the NEM since 2017. After a subdued 2019, the market rebounded strongly and has set records in each consecutive year since 2020. As of July 2024, the volume of energy contracted for annual delivery through renewable PPAs with end users since 2017 is estimated at ~24TWh.
Aside from changes in the market overall, what else do we learn? Between 2017 and 2023, retailer intermediated PPAs and financial PPAs accounted for an even share of the end-user contracted renewable electricity volume as measured in GWh p.a. In recent years, retailers, acting as aggregators, have become a more attractive option as they have the ability to better support corporates with smaller electricity loads to reduce market risks. However, several large financial PPAs announced so far in 2024, have skewed this ratio somewhat.
Since 2017 to date, we also saw wind being the favoured technology type (53% of contracted volume) over solar (39% of contracted volume). This is because the production weighted average price expected to be realised by wind tends to be higher than that of solar. The residual is a mix of technologies.
See our interactive tracker below for an overview of PPAs of 10GWh p.a. or more announced in the NEM since 2017. The view can be segmented by deals, states, technology type and industry.
What can we expect from the remainder of 2024?
As a rule of thumb, organisations with 2025 renewable energy targets are typically less energy intensive (i.e. built environment). Most would have contracted by now and those with 2025 targets that have not, will be faced with a very tight near-term supply demand balance and high PPA prices.
Developers and retailers can therefore expect demand for later dated PPAs to increase as buyers seek to secure supply from 2027 onwards to safely meet 2030 targets; and tenures to extend well beyond 2030. Companies with 2030 targets include some major ITC, industrial and resources players, as well as the healthcare sector which is noticeably absent from the PPA tracker at present.
These loads can be significant as illustrated by the recently announced Rio Tinto PPAs and Tomago smelter's announced tender process. Noting that Tomago consumes ~8TWh p.a. ,accounting for ~12% of the total NSW electricity load.
The good news for organisations with 2030 targets is that the tightness in the supply demand balance over the 2028 to 2030 horizon is expected to ease with Renewable Energy Zones being connected.
A look back on 2023
What were the key market trends?
Demand from the large retail retailers, ITC (information technology and communications) majors, and the resources sector dominated the market. However Energetics observed the start of what could be a trend of renewable PPAs being signed with the exclusive intention of supporting green hydrogen production. Two deals, both in Queensland, were substantial, totalling ~1.7TWh p.a. Whilst we included the 25-year Fortescue / Genex Power PPA[1] in our tracker; the 15 year Stanwell PPA with Acciona’s Aldoga Solar Farm for its CQ-H2 project[2] is treated by Energetics as a wholesale (retailer to generator) PPA and is therefore excluded. This is based on our understanding that the Aldoga Solar Farm PPA is not with the hydrogen project, but with only one of its consortium partners Stanwell, and that the output, prior to the hydrogen project being energised will supplement Stanwell’s retail portfolio.
Developers continued to experience cost pressures due to increased financing costs, exchange rate volatility, increased commodity (eg. steel) and equipment costs, as well as supply chain constraints and skills shortages. PPA prices rose as a result. Energetics has seen these effects, not only in the transactions we supported, but also other deals, where Energetics has acted as a peer reviewer, or advisor to members of a buyers’ group facilitated by a third party.
While leading developers are signalling that equipment cost pressures for solar have eased somewhat, costs are still higher than 18 - 24 months ago. However, the cost of wind equipment is expected to remain elevated for some time relative to the historical technology “learning curve” trend[3].
Reputational risks also moved centre stage during 2023, with project-specific environmental impacts deemed a key contributor to delays in projects passing through the development planning approval gates. Furthermore, the impact environmental factors can have on the commercial success of projects was well illustrated by the termination of tech giant Apple’s agreement with Windlab’s now renamed, Gawara Baya Windfarm (formerly Upper Burdekin Windfarm) in 2023[4]. The project faced strong community opposition on environmental grounds, with reports indicating unavoidable and significant impacts on the habitats of threatened species which resulted in the project being scaled back to 80 turbines, down from 136, and significant delays.
Energetics is a market leader in corporate PPAs
Energetics played a leading role during the formative days of the renewable PPA market, providing commercial and technical advice on landmark deals such as Sydney Desalination Plant (2009), as well as the MREP1.0, Sydney Metro and Monash University (a member of the Telstra Club) in 2017.
Recently, Energetics advised Woolworths Group’ on their NSW transaction, the third PPA for the Group, covering 100% of their NSW and ACT operations for 8 years. The retailer intermediated PPA, with SmartestEnergy, incorporates an innovative, structured renewable solution, backed by an offtake from Octopus Investments’ Darlington Point Solar Farm and Woolworths’ existing PPA with Squadron Energy’s Bango Wind Farm. Energetics also supported Equinix, in securing the PPA with Golden Plains Wind Farm which is expected to represent the last 4% required by Equinix to achieve a global 100% renewable target based on current consumption.
Other Energetics’ clients who’ve announced PPAs, often across multiple jurisdictions, include ALDI Stores, Brisbane Airport, Charter Hall, City of Adelaide, CSIRO, Dexus, Fujitsu, ISPT, nbn, Transurban, Woolworths and Newcrest Mining. We’ve also advised on several buyers’ groups such as MREP 1.0 and 2.0, the 52-member Victorian Energy Collaboration (VECO), as well as individual members of other buyers’ groups (i.e. IFM /QIC Buyers Group and the Lion / Australia Hotel Association Buyers Group).
We offer strategic and commercial transaction advice – from business case development to market engagement, evaluation, deal negotiation and, where required, AFSL intermediation. We also provide post-deal implementation and validation services.
Footnotes
[1] Genex to supply 337.5MW of solar power to Fortescue (power-technology.com)
[2] ACCIONA Energy Inks PPA with Stanwell Corporation for Aldoga Solar Farm (blackridgeresearch.com)
[3] The rate of improvement in the technology’s performance and cost as more renewable energy units are produced and deployed.
[4] This transaction has now been removed from our PPA Tracker.
