Energy and Sustainability Services (Asia Pacific) 01 April 2016 WWF Renewable Energy Commercial Buying Group RFI
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Contents 2 Questionnaire Instructions... 5 3 Sustainability... 6 4 Procurement... 7 5 Treasury... 9 6 Marketing... 10 7 Frequently-asked Questions:... 12 Appendix A... 17 Legislated Renewable Energy Target and expected trajectory... 17 Appendix A (contd )... 18 Large-Scale Generation Certificates (LGC) Market Prices... 18 Appendix A (contd )... 19 Futures wholesale prices... 19 Appendix A (contd )... 20 Appendix A (contd )... 21 Renewables... 21 3
1 Introduction Dear Renewable Energy Aggregation Program Member, The Renewable Energy Aggregation Program (REAP) is now at a point in time where we must determine the feasibility of the project. The purpose of this RFI is to understand the likely load and success factors of the demand side group, and to compare this to the likely cost of the product in the market. There are four key areas of focus in the RFI: procurement, finance, sustainability strategy/targets and marketing. The questions in each section are aimed at understanding the key drivers for your company to participate in the REAP, how much load you will contribute, where the load will be, how much you will be willing to pay and what barriers you would need to overcome to sign up to the REAP. After receiving the RFI responses, JLL will analyse the data and form an opinion on the viability of the group going forward. We aim to proceed with a group of participants whose success factors will be likely to be met by the Tender. It is important for the group and the success of the Tender that the participants who proceed are best suited, so that the load size does not change either before or after the Tender. If you wish to participate in the REAP it is imperative that you respond to this RFI. Your participation in this will directly impact on the resulting feasibility, so we need to understand the quantity and quality of your potential participation. We ask that you use this formal process to start the internal conversations required to prepare your organisation for signing up to the REAP. The JLL draft engagement letter is included for your review and comment. Please do not hesitate to contact Simone Concha (simone.concha@ap.jll.com) if you wish to discuss anything. The documents forming the RFI include: 1. RFI questionnaire 2. FAQ document 3. JLL Engagement Letter draft (to be issued separately) 4
2 Questionnaire Instructions The attached Questionnaires are split in to four internal management departments to cater for each business categories views: (a) Sustainability (b) Procurement (c) Treasury (d) Brand Awareness - Marketing Please complete each section and return to JLL. The four separate sections are provided for your convenience, so that you can ask each department to complete their section. We understand that some organisations will have one individual who can answer all the sections. If you are in this situation and you notice questions are repeated in more than one section, please feel free to respond as per previous section. 5
3 Sustainability 1. Does your organisation currently or have you in the past, purchased any of the following: GreenPower, LREC, SRES, carbon offsets. If yes, how? & when? 2. How do you think your organisation rates compared to your competition in terms of sustainability or renewable targets? a. Does not rate b. Market follower c. Market leader 3. What percentage of your organisation s electricity would you like to obtain through renewable energy by 2020? And 2030? 4. What environmental reporting (mandatory or otherwise) does your organisation currently undertake? i.e. GRESB, NGER's etc. 5. What are your business s current sustainability targets? If you do not have a Sustainability Statement, is this something your organisation is looking in to? 6. Does your organisation have national or global policies or commitments regarding energy and sustainability? And if so, what are they? 6
4 Procurement 1. Please confirm your organisation s total annual consumption per MWh per State and current pricing as per the table below: NSW Consumption in MWh Electricity rate Peak c/kwh Electricity rate Off- Peak c/kwh Electricity rate Shoulder c/kwh LREC c/kwh Electricity Consumption Rate Other VIC TAS QLD SA WA 2. Please confirm your current electricity contract expiries: a) One national contract covers all our sites. Expiry / / OR b) NSW:... Expiry / / c) VIC:.. Expiry / / d) TAS:.... Expiry / / e) QLD:.... Expiry / / f) SA:..... Expiry / / g) WA:.... Expiry / / 3. Has your company entered into a standard retail contract; what was the term of the last contract and what, if any, special conditions does your organisation require to enter into a longer term (>5 years) electricity program? a) 4. What was the Title/s of the person/s that signed the last Electricity contract? a) 5. Please provide the load that you d commit to renewables in each state and describe the load shape (eg. Consistent, peaky, 24/7 shoulder, off-peak, weekday). I. Load (MWh) Load (MWh) II. NSW QLD III. SA VIC 7
6. Are there any policies in place that restrict your organisation in the manner in which it procures electricity i.e. single retailer or sponsorship? Please provide details. a) 7. Does your organisation currently purchase: GreenPower, LREC, SRES, carbon offsets. If yes, why? a) 8. What is your current exposure to market fluctuations i.e. does your company purchase its electricity/lgc/other electricity products in the wholesale market? a) 9. Which of the following categories do you believe influence the forward electricity price and rank them from 1 7, in influence (with most influential being 1) a) Weather b) Politics c) Government policy d) Generation type e) Generation closures f) RET g) Technology 10. Is your procurement negotiated in-house or do you engage a consultant? a) 8
5 Treasury 1. What special conditions does your organisation require to enter into a long-term (>5 years) electricity program? What is the title of the person who would sign a 10 year contract? 2. What value would your organisation perceive in using the WWF Logo and how would you use it? 3. What is your current exposure to market fluctuations in the wholesale electricity price, LGC or other related markets? 4. Which of the following categories do you believe influence the forward electricity price and rank them from 1 7, in influence (with most influential being 1) a. Weather b. Politics c. Government Policy d. Generation type e. Generation closures f. RET g. Technology 5. What are your organisation s long term budgeting plans? Would a 10 year energy budget add additional value? What are other categories that the organisation requires long term forecasts for? 6. Provided that there is no capital expenditure required by your organisation for this project, are you aware of any other barriers, projects or commitments that might impact the organisation's decision in committing to this project? 7. Does your Organisation purchase any other commodities? If yes, what are they and who is responsible for the purchase? 9
6 Marketing 1. What value would your organisation perceive in using the WWF Logo and how would you use it? 2. Provided that there is no capital expenditure required by your organisation for this program, are you aware of any other barriers, projects or commitments that might impact the organisation's decision in committing to this program? 3. How would you market this internally? 4. What previous commitments has your organisation made to a sustainable/greenpower future? Have you previously invested in renewable energy (separate from GreenPower)? 5. Would you consider that there is a marketing benefit associated with having a specific renewable technology type (eg wind or solar) used for producing power for your organisation? Which technology type would provide the best benefit? 6. How will your global business prospects be affected by not having the green energy credentials of other international players? 7. How important is corporate responsibility as part of your company s brand strategy? Please give a ranking from 1 to 10 where 1 being not at all important and 10 being critical to success. 8. Within the corporate responsibility strategy how important is the aspect of sustainability? Please rank 1 to 10 as above. 10
9. Within sustainability how important is renewable energy? Please rank 1 to 10 as above 10. How important is it for you to have a marketing kit for you to use with clients and prospects to demonstrate your commitment to renewables? Please rank 1 to 10 as above. 11
7 Frequently-asked Questions: 1. What s the name and purpose of the Project? Name: WWF Renewable Energy Buyers Forum (the Forum ) Purpose: In addition to providing opportunities for networking and peer to peer learning amongst the various forum participants from the demand, supply and government sectors, the Forum is exploring a range of different purchasing options to supply the aggregated renewable energy demand. In October we received indications of interest from seven of our members in the supply of over 100GWh of grid renewable energy each year. We now intend to explore options to satisfy this initial level of demand while continuing to build the demand pool. 2. Who are we partnering with to supply the aggregated demand? WWF has been working with a range of renewable energy project developers, generators and retailers during the Forum process and with the at NSW Government Greenpower team. During the process we became aware that Jones Lang Lasalle (JLL) had completed corporate Power Purchase. Agreements in the US and elsewhere and was well advanced in planning for a similar effort here with a group of their customers. While continuing to work other options, WWF and JLL have agreed to join forces by giving Forum members the opportunity to join the JLL group, adding to its scale and buying power. 3. How will the JLL program work? JLL s project is known as Renewable Energy Aggregation Program (REAP). REAP aims to further the expansion of renewable energy projects in Australia by aggregating creditworthy energy users (participants), of varying consumptions and load shapes, into a large scale volume that will drive the market to provide the best possible combination of $/kwh pricing, contract term and escalation rates to participants. It is intended that this project will be structured and managed so that it is not collective bargaining or acquisition and will result in a series of bilateral agreements rather than a group agreement. 4. How does REAP help meet corporate carbon goals through additionality? All renewable electricity purchased under REAP will include the associated LGC stream. Participants can arrange to voluntarily surrender the LGCs ensuring a claim of additionality can be made, as discussed in the introductory section above. The decision on whether or not to voluntarily surrender the LGCs can be taken by each participant individually. We anticipate some participants will do so to be able to claim carbon neutrality for this portion of their electricity supply under the Carbon Neutral Program Guidelines of the National Carbon Offset Standard and reduce their emissions reported to NGERS if they are liable to report. Others will not, and will come to an arrangement with the selected retailer recognising the value of the future LGC stream, while some may elect to voluntarily surrender a portion only of the LGC stream. If additionality is not elected it may still be possible for participants to claim they are helping achieve the RET by making a new project possible. WWF and JLL are comfortable having a mix of additional and non additional renewable electricity supplied from the projects selected, and the Clean Energy Regulator has indicated that this is an acceptable arrangement from their viewpoint. 5. Who will be responsible for forming and operating REAP? REAP will be formed and operated by JLL, a global leader in real estate management, facilities management and the procurement and application of renewable energy in the Commercial and Industrial markets. JLL will act as the participant s Client Advocate and fiduciary in the process of securing renewable energy and its associated LGCs. JLL and WWF will sign non disclosure agreements with each participant to ensure any data submitted be the participant during the process is kept confidential. WWF will participate as an unbiased observer and facilitator, supporting the process with coordination and verifying that best procurement practices are used. 12
6. What will be the contractual structure for REAP? REAP will evaluate the market and select both: a project developer (or project developers), and a retailer to provide renewable energy to participants. The process will facilitate a Power Purchase Agreement (PPA) between each selected project developer and the selected retailer. An Energy Services Agreement (ESA) will then be negotiated between the selected retailer and each participant for the portion of their load they have nominated. To be clear, a single retailer will be selected and will agree bilateral terms with each participant. The participant may elect to roll the rest of their electricity supply needs into the same contract or another contract with the same retailer, or may keep this separate. The price for wholesale electricity from the selected project(s) plus LGCs will be the same for each participant. Other charges for distribution, transmission, AEMO costs, peak/off peak and environmental programs etc will vary depending on the participant s site locations, load profile and so on. The following diagram illustrates the portions of the electricity bill that REAP can influence (not to scale): 7. What happens to the rest of my company s electricity consumption (so if my organisation puts 10% of our load on the table, what arrangement needs to be put in place for the rest of our electricity)? Your remaining power would be supplied through a normal ESA with the electricity retailer of your choice. Together, the REAP ESA and the normal ESA will serve your complete electricity needs. The retailer(s) may require the ESAs to specify which meters/nmis are covered by each. 8. Does the size of my load matter, will participants with a smaller load be discriminated against? The purpose of REAP s aggregation strategy is to create economies of scale; all participants will benefit from being part of a larger purchase than they could with just their own load. All participants will get the same price for wholesale electricity plus LGCs regardless of their percentage of total load. 13
9. What types of renewable energy projects will be considered? The most likely renewable energy technologies to be selected are utility scale wind and solar. The specific projects considered for inclusion in the Program will likely be one of three types: 1. Incremental projects: Projects that add to an existing project s infrastructure but need new off takers in order to be built. These would most likely be the lower price option as building permits, grid interconnection and other aspects of development are already in place. 2. Shovel ready projects: Unbuilt projects which have all their approvals in place, including EIS, local and state planning, only requiring off takers to secure financing (though these projects may still take up to 2 years to be operational). 3. Merchant projects: Projects already committed and which will be completed without an offtake agreement for their generation. These projects will sell their generation on the spot market as it occurs unless they can secure an offtake agreement. 10. How will projects be selected? In the first quarter of 2016, pre-qualified renewable energy developers will be invited to participate in a pricing and qualification tender which states the size of the aggregated load and the desired deal structure terms. To ensure transparency in pricing there will be a simplified matrix that all bidders will be required to populate. The matrix (below) will provide a mix of pricing options for varying contract terms and annual escalation rates. As discussed above, this pricing will be for wholesale electricity plus LGCs for supply to the whole group. After projects are selected, the selected retailer will add network and other charges as normal based on the situation of each individual participant. While those costs will likely be similar to what the participants currently pay, JLL needs to understand the bill breakdown for each participant to ensure the Success Factors are met. Based on the developer s ability to meet the Success Factors they will be asked to participate in an interview process where they will be screened further and asked to fine tune their pricing. 14
11. What terms/deal structures make up a PPA? Beyond the legal boilerplate found in all PPAs, the primary business terms between the selected developers and the selected retailer are typically focused on the following points: A guaranteed volume of electricity/lgcs to be delivered per year The price/kwh for the power delivered The annual price escalation rate associated with the price/term The term of the PPA The contractual terms and costs (Termination Value) associated with early termination of the PPA 12. How will the REAP work in practice? 1. Each participant nominates a percentage of their electricity load and define the go/no go criteria they require before entering an ESA (Success Factors). 2. The aggregated pool of power is put out to tender to invited pre-qualified project developers, retailers and teams of developers/retailers. 3. Submitted bids will be screened on pricing and ability to meet or beat the Success Factors. A winning retailer and developers will be selected based on a combination of $/kwh pricing, contract terms and the credibility/financial strength of the bidder. 4. Once selected, the winning retailer would negotiate a PPA with the winning developer(s) and an ESA with each participant individually. 5. The winning retailer purchases all the energy from the project once generating and that matches over the year (but not instantaneously) the amount purchased by the participants. This arrangement is shown graphically below: 13. How do I decide the proportion of the company s total load to nominate under REAP? An ESA negotiated under REAP offers you a known electricity price for a much longer term than you can usually obtain from an electricity retailer (network and other regulated charges will still vary). Nominating a portion of your company s load gives you an effective hedge against the risk of rising grid electricity prices. The proportion of load committed will depend on your specific circumstances but to date our potential participants have indicatively nominated between 10% and 100% of their load. 15
14. What is the likely timeline for the project? We anticipate moving through the following steps with ESAs available for execution by end-year 2016. March/April Participant engagement and sign up sign NDAs and issue RFI: Respond April/May Feedback from RFI May-July JL and Aggregation Member one on one meetings to agree success factors and sign engagement letters Aug-Nov Tender process; Winning project developers selected to negotiate PPAs, retailer selected to negotiate ESAs If successful this process will result in power delivery by 2017 at the earliest, or 2018. 15. Where else in the world has this group buy model been adopted? Corporate renewable PPAs are surging around the world. According to Baker McKenzie, In the US alone, almost 1.6 GW of renewables capacity was contracted through corporate renewable PPAs in the first half of 2015. The American Wind Energy Association reports 32% of offtake contracts in 2015 were agreed directly with power users, up from 5% in 2013. Locally, the City of Melbourne has a similar project underway, and our Forum member, UTS, concluded a PPA this year with a solar farm at Singleton, NSW. In the US JLL has facilitated projects totaling 70 MW including large scale/multisite aggregation deals and has a 1,000 site aggregated solicitation pending award. For further details please contact WWF: Monica Richter Business Engagement Manager Climate Change 0488 001 273 mrichter@wwf.org.au Or JLL: Simone Concha Sustainability Director 0431057710 Simone.concha@ap.jll.com 16
GWh Appendix A Legislated Renewable Energy Target and expected trajectory In 2009, RET target was set to be as 20% renewable target based on a much higher demand forecast for 2020 (41 TWh renewable generation by 2020); In 2015, this has been reduced to 33 TWh by 2020 which will be ~23.5% of Australia s generation in 2020 based on AEMO s demand forecast. In terms of renewables built this means that a doubling of capacity from renewables is required in the next 5 years. After reaching a financial investment decision for a project it potentially takes up to 2 years to build a new wind or solar farms facility. The graph below shows the potential generation requirement to meet the 33TWh RET target, based on meeting the interim targets each year. 35,000 Doubling of renewables required to meet RET Target by 2020 30,000 25,000 20,000 15,000 10,000 Approximately 6,500 MW of new capacity is required out of which 3,000 MW of Solar Utility is expected. 5,000-2015 2016 2017 2018 2019 2020 New Build Solar Utility Current Renewables Build (mostly wind) Source: PUB Forecast New Build Wind Legislated Target Assuming 35% Capacity Factor for Wind and 21% for Solar Utility Scale. The current Renewables build means the renewables that are eligible to create the RECs. 17
Appendix A (contd ) Large-Scale Generation Certificates (LGC) Market Prices Green Energy Markets reports that the current Large-scale Renewable Energy Target (RET) will fall short of the 2018 target of 28,637 GWh of Large-scale Renewable Generation, due to a lack of financier confidence. Following comments by the Abbott Government suggesting a lack of faith in the target and a potential scrapping of the scheme, the finance community was wary to invest in large scale renewable generation, in no small part due a result of the lack of certainty surrounding the project s future. Last year s amendments to the RET have renewed confidence in renewable energy projects, but has imposed significant restraints on these projects to be completed in time. Green Energy Markets suggests that a further 4400 MW of Renewable capacity would need to be committed this year to still reach the 2018 target, indicating a likely shortfall. This has been reflected in the LGC price, which has eclipsed the $65 shortfall penalty late last year. This financing uncertainty has been a major driver of the LGC price upwards, with current prices at around $80/MWh (Refer Figure 2 below); at these prices, changes or cancellation of the RET becomes a less significant risk to financiers. This high LGC price, however, is encouraging investors and retailers to reconsider large scale renewable projects. Confidence in these projects should return with an estimated 1100 MW expected to be committed in 2016, allowing renewables a chance to rebuild confidence and price certainty, to allow a stronger push to achieve our 2020 targets that is, provided the Federal Governments avoid further market intervention. Figure 2 18
Appendix A (contd ) Futures wholesale prices Retailers purchase significant volumes of electricity in the wholesale futures market and sell packages of smaller volumes to its customers. The price they pay in the wholesale spot market is highly volatile, ranging from minus $1,000 to $13,800 per MWh, while the price they receive from customers is largely fixed over designated time periods. This exposes retailers to a high degree of financial risk. To hedge against the financial risk and provide themselves with greater price certainty, generators and retailers use financial contracts such as electricity forwards and exchange-traded products. The prices specified in these contracts vary over time, meaning it is possible to negotiate a better retail contract when the forward price for energy is low relative to historical prices. The following graphs indicate the movement of the futures prices for 2016, 2017 and 2018 by State in the National Electricity Market since the start of 2015. Figure 3 Figure 4 19
Appendix A (contd ) Figure 5 Figure 6 SA prices have been largely affected by the market s reaction to the permanent withdrawal of the its last remaining brown coal plants, Northern Power Station scheduled for the 31st of March 2016. This is likely to lead to increased volatility as the state relies more on wind and interconnection with Victoria. On a positive note: SA currently has a tad more than 40% of its power being supplied by renewables. 20
Appendix A (contd ) Renewables The new energy generation: Anticipated to be cheaper than coal fired electricity The grid is the reserve supply for localised generation To move away from just a consumer to a producer (prosumer) is the way of the future Figure 7 21
JLL Sydney Level 25 420 George St Sydney NSW 2000 Australia Simone Concha Sustainability Director, Australia +61 2 9220 8654 +61 431 057 710 simone.concha@ap.jll.com www.jll.com/asiapacific Jones Lang LaSalle 2016 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to Jones Lang LaSalle and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of Jones Lang LaSalle and shall be kept confidential. Reproduction of any part of this document is authorized only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorization of Jones Lang LaSalle. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.