Project: Retailer intermediated supply linked PPA support
Date: August 2021
Under the leadership of the City of Darebin, and inspired by the success of the Melbourne Renewable Energy Project, the Victorian Energy Collaboration (VECO) was formed to support the decarbonisation objectives of councils and to reduce utility costs. Following the endorsement of the business case in 2019, 46 councils engaged the market for a retailer intermediated renewable power purchase agreement (PPA) in late 2020 to meet these objectives.
Energetics supported VECO from the initial business case development and capacity building stages, through the tender development, market engagement, evaluation and commercial negotiation and executive decision support stages of what became the largest emissions reduction project by local government in Australia.
Energetics was engaged as an energy advisor to provide end-to-end strategic, market and analytical support for the buyers’ group. Initially focussed on building the decision making capacity of council representatives though large-group, interactive training events and the development of a business case in 2019, Energetics was retained to provide commercial and technical services throughout the procurement process.
The initial market tender close was in the midst of the COVID-19 lock downs which saw a fall in Australia’s electricity demand. Black power fixed priced contracts for two to three years could be secured at multi-year low prices. Energetics worked with VECO to challenge the design of potential suppliers’ price offers. This resulted in more compelling offers with a balanced risk sharing arrangements between the buyers and potential retailers.
"VECO is the largest (in GWh) retailer intermediated renewable power purchase agreement (PPA) in Australia. Concluded at a time of multi-year low prices, this deal demonstrates that a well-designed PPA can deliver value to energy users in all market conditions."
- Anita Stadler, Head of Energy Renewable Investments | Energetics
Through the design of specifications and the provision of negotiation support, Energetics made a significant contribution to securing a favourable commercial (price, volume and service management framework) outcome for the buyer’s group at a time of unprecedented change in the National Electricity Market (NEM).
In May 2021, the 46 Victorian local councils entered into an agreement with Red Energy Pty Ltd for a nine-and-a-half-year term ending December 2030, pooling their large market, small market and unmetered accounts with a combined load of ~240GWh per annum.
“When VECO was first conceived, we knew we needed a strategic partner to help guide and build the capacity of our large buyers group and enable us to collectively shift to 100% renewable electricity supplies. We have been very pleased to have chosen Energetics as our key energy advisor for this project. The industry knowledge, technical application and strategic advice that Anita, Matt and the broader Energetics team provided to VECO played an essential role in making our journey possible. As a result, we’re proud to have shifted nearly 60% of Victorian Councils to purchasing 100% renewable electricity and deliver the largest ever emissions reduction project by local governments in Australia.”
- Hugh Butcher, VECO Project Manager | Darebin City Council
For most of the councils, renewable electricity supply commenced on 1 July 2021, powering their council-owned infrastructure, such as town halls, sports grounds, community venues, leisure centres and streetlights. The remaining councils will commence supply at the end of their current contracts. Based on Energetics’ assessment in early 2021, the councils have gained a compelling commercial value proposition, including greater electricity and environmental budget certainty and the potential for significant electricity and carbon reduction cost savings over the life of the agreement. The pricing model offers a partially fixed price, but with significant market exposure which allows councils to benefit if prices trend lower in the future. The innovative price reset mechanisms, developed by Red Energy, and which apply to the variable priced portion of the load have two valued features: transparency, with well-defined risk bounds that protect the group in the event of significant price increases in the future. The second is a significant reduction in time-to-market risk compared to standard fixed price contracts.
Other benefits include a robust service management framework suitable for a long term agreement of this kind and a competitive, fixed price for large scale generation certificates (LGCs). In addition, new and existing councils have the option to include additional, unlimited load into the future (subject to the agreement’s T&Cs).
The agreement enables participating councils to reduce their collective carbon emissions by approximately 260,000 tonnes per annum, whilst making a positive contribution to social and economic development in regional Victoria, with supply of electricity to come from the Murra Warra II and Dundonald wind farms.
For further information about the Victorian Energy Collaboration (VECO), please visit their website. This project was also profiled by the ABC News in May 2021.
 the Buyers’ Group, formally the Victorian Local Government Power Purchase Agreement Project