A tender will open in a few days under the long-term roadmap for the electricity system of New South Wales (NSW), through which 550MW of long-duration energy storage (LDES) could be procured.
The process will open 22 May 2023, through AEMO Services, a subsidiary of the Australian Energy Market Operator (AEMO). While the parent organisation’s remit is overseeing the National Electricity Market (NEM), as the name suggests, AEMO Services provides energy and consultation services to NEM member governments and partners.
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As such, AEMO Services is playing a key role in implementing the state of New South Wales’s Electricity Infrastructure Roadmap, the state’s plan to facilitate transition to renewable energy from its current overwhelming dependency on coal.
About three quarters of NSW’s generation is coal-fired and replacing it with cleaner sources presents the challenges of maintaining reliability of supply while keeping costs low. Like other Australian states, NSW is developing very large Renewable Energy Zone (REZ) developments which will host a mix of renewable energy assets, storage and transmission infrastructure.
The tender launching next week is AEMO Services’ is part of an ongoing, 10-year series of ‘rolling competitive tenders’ on behalf of the state in its role as Consumer Trustee.
The organisation said in a release that the round will seek to procure around 950MW of generation as well as just over half-a-gigawatt of long-duration energy storage.
AEMO Services will host a webinar 30 May in which it will give more details.
In addition to generation and LDES tenders, AEMO Services is also tendering presently for firming resources that can dispatch their capacity over two hours or more, with energy storage also eligible for participation in that.
Agreements will underwrite a portion of LDES project revenues
In the previous round of generation and long-duration energy storage tenders, one LDES project was successful, a battery energy storage system (BESS) project proposed by RWE with 8-hours’ duration, alongside three generation projects, as reported by Energy-Storage.news earlier this month.
As with the prior round, the tenders will comprise a two-stage process:
Stage 1: Project bids are assessed under non-financial criteria, which include community benefit and local employment opportunities.
Stage 2: Financial assessment of projects shortlisted via Stage 1 and their long-term economic impacts for NSW’s electricity customers.
Successful LDES and generation projects will enter into long-term energy service agreements (LTESAs) with the state, which can have terms of up to 20 years. That will establish much-needed revenue certainty for developers, owners and investors of participating assets.
This reduction of investment risk will be paired with the potential upside of revenues that can be earned from other sources, such as corporate power purchase agreements (PPAs) and spot market trading. This is starting to become a prevalent way for large-scale storage procurements to be held in markets around the world, from Germany to New York, to Canada and elsewhere: government contracts underwrite some of the overall risk, but developers still have to take some merchant risks themselves to increase profits.
A similar approach looks set to be taken in Australia at a national level when tenders begin under the recently-confirmed Capacity Investment scheme, which will comprise competitive solicitations for dispatchable low carbon energy.
Energy storage will be an essential component of those tenders, and Australia’s energy minister Chris Bowen recently described the scheme as a de facto energy storage strategy for the country, to be coordinated and implemented at state and territory level.
One other interesting aspect of the NSW tenders is that targeted procurement amounts are indicative. Therefore, AEMO Services has “discretion to award more or less if it is in the long-term financial interest of NSW consumers to do so”, AEMO Services acting general manager Graeme Edie said.
The idea of hosting rolling tenders is that bidders can take what they’ve learned from unsuccessful bids and perhaps come up with stronger non-financial or financial metrics to show AEMO Services in subsequent rounds.
The previous tender round had resulted in strike prices 40% below the levelised cost of electricity and an equivalent Contract for Difference, Edie said, adding that this demonstrated that “the market understands the advantages and value of the LTESA contract”.
Energy-Storage.news’ publisher Solar Media will host the 1st Energy Storage Summit Asia, 11-12 July 2023 in Singapore. The event will help give clarity on this nascent, yet quickly growing market, bringing together a community of credible independent generators, policymakers, banks, funds, off-takers and technology providers. For more information, go to the website.