New clean energy bulk-buy offers important lessons

Date November 2017

This article was originally published by Footprint

A clean energy group buy involving 14 high-profile organisations will deliver participants greater price certainty and lower costs, according to project lead advisor Energetics.

The City of Melbourne today announced it had finalised a joint power purchasing arrangement with 13 other organisations that will underpin the construction of a new 80MW wind farm.

Participants include Melbourne University, RMIT, Zoos Victoria, three suburban councils (Yarra, Moreland and Port Phillip), NAB and Australia Post.

The group will annually purchase 88GWh of electricity, under the terms of a 10-year contract.

In an arrangement that will provide the participants with much-needed certainty about power costs, 40% of the contract price is firm, with the rest indexed to the electricity market.

Not all the participants will meet 100% of their energy needs through the contract, although some will.

Pacific Hydro will build the wind farm near Ararat in western Victoria and the power will be supplied by its retail arm, Tango Energy.


Scale benefits and risk mitigation

Consultancy Energetics was lead advisor on technical and commercial aspects of the deal, while Ashurst handled legal matters.  Energetics' principal consultant Andrew Tipping told Footprint a group buy provided several advantages.

They include the "scale benefits" of negotiating with suppliers for a large contract and lower transaction costs, compared to each organisation individually dealing with energy retailers.

Approaching a clean energy purchase as part of a group also "reduces the risk of being the first mover" and allows for knowledge-sharing, he said.

Tipping added that thorough stakeholder engagement with each participating organisation had proved crucial for success.

That's not easy as each organisation will have different decision-making processes and levels of understanding, he noted, adding that project leader City of Melbourne had performed the task very well.

Others contemplating similar arrangements should look for organisations "with similar world views" to ensure the process runs smoothly, Tipping suggested.


Different needs slowed decision-making

In recognition of the ground-breaking nature of the deal, the group has produced a guide to purchasing off-site renewable energy.
The guide notes that one challenge faced by the group was that members had different views on what they wanted to do with the large-scale generation certificates (LGCs) created by the clean energy project.

For that reason, the tender required suppliers to provide a range of different LGC treatment options.

"This added complexity and delayed the development of tender documentation and the awarding of the tender," the guide acknowledges.

"It would have been simpler if all organisations had the same needs and tendered for one way to treat LGCs."

The guide also notes that a group involving a smaller number of organisations, with a greater degree of senior-level involvement, would have been easier to manage.

The 14-member renewables group issued its tender for the supply of clean energy in April last year (see background here).

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