The power of partnerships and wind

Major global events have increased the profile of environmental issues in business.  

The United Nations Sustainable Development Goals have been launched; boards are acknowledging their fiduciary duties to disclose climate-related risk; and the Paris Agreement has been ratified, to cite just three.

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The Paris Agreement has generated a ripple effect and now individual countries, sectors and organisations have announced their own aspirations to contribute to the global 2°C goal.   

"The project will provide significant environmental benefits and substantial support to the local community and regional economy.” – Rebbeck

Environmental markets are also impacting companies’ bottom line while barely a day goes by without Australian mainstream media discussing the domestic energy market.

Australian electricity spot prices have tripled since December 2016 with volatility remaining prevalent due to factors like major coal-fired generators closing and ongoing policy uncertainty.

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So how do organisations achieve energy affordability in increasingly volatile markets while delivering environmental agendas? 

ANZ, Coca Cola Amatil, Telstra and University of Melbourne collaborated to solve this very problem through a renewable energy power purchase agreement (PPA).

The PPA focuses on the Murra Warra Wind Farm, located near Horsham in North West Victoria.

An electricity supply contract between a renewables project and an energy buyer, a PPA typically has a long contract term of around six to 12 or more years. They require an upfront agreement on the cost of electricity and/or green products for the life of the contract.

As a result, a PPA can generate substantial energy cost savings whilst delivering new and additional renewable energy onto the grid.

“Environmental sustainability is a major focus area for ANZ and we are committed to being in line with the global 2°C goal, increasing our renewable energy consumption and maintaining Net Zero Carbon," Kate Langan, ANZ GM Group Property says.

“The PPA delivers positive social and environmental impact and has a potential to save us $A16 million in future energy costs.”

The companies involved announced the execution of bilateral PPAs with the Murra Warra Wind Farm in late 2017 with successful financial close announced in early 2018. 

The organisational PPA journey is best summarised as a four step process.

1. Identify your sweet spot.

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This matrix illustrates some of the options ANZs considered during the PPA process.

University of Melbourne Director Corporate Finance, Daniel Baird says they sought to understand all of the PPA considerations from a project and contract perspective. 

“This knowledge gave us the confidence to explore the market and see if our ideal project existed,” he says.

3. Align your preferences.  

Leveraging Telstra’s expertise in running an earlier market process, the availability of Murra Warra allowed the group to quickly move to negotiation. 

The two-stage project, when completed, will produce 429 megawatts of energy making it the largest known wind farm currently operating in the Southern Hemisphere. 

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“After the success of the Emerald PPA, we understood pain points and how best to help other organisations on this journey,” says Telstra Energy Head, James Gerraty.

“We wanted to share our expertise to help the sector transition from talk to action and ultimately achieve a better commercial outcome for all involved.”

3. Negotiate, negotiate, negotiate. 

Led by Telstra, key features of the group’s negotiations with the wind farm owners included:

  • Energy buyers paying a fixed electricity price throughout contract life;
  • Telstra Energy responsible for large-scale generation certificates, (a form of “green product”) creation and transfer to buyers;
  • identical contract terms for each buyer, save for volume of energy and LGCs purchased;
  • structure enables financial hedging for buyers against retail electricity prices.

Macquarie Capital Division Director, Infrastructure, Utilities and Renewables, Kirsten Hannan says the ability to rapidly and successfully conclude the negotiations was made possible by having a small group of high quality and outcomes-focused organisations represented by a single point of contact.

RES Australia CEO, Matt Rebbeck says the innovative approach of the consortium has resulted in a landmark transaction in the Australian renewable energy market.

“As well as reducing energy costs, the project will provide significant environmental benefits and substantial support to the local community and regional economy.” 

4. Find in-house sponsors. 

Asking executives or boards to agree to a fixed electricity cost over 6-12 years when there is so much market uncertainty is not always easy so recruiting effective and trusted in-house sponsors is a better way forward. 

It’s important to ensure sponsors are engaged throughout the process so they can confidently express the risks and benefits of the PPA at critical moments. 

“We saw the PPA as a solution that balances energy affordability with a good environmental and community outcome,” says Coca Cola Amatil Head of Procurement, Michael Haynes.

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Pic: Computer generated image of Murra Warra windfarm Source: Murra Warra website

Murra Warra will achieve positive outcomes across the group but for ANZ specifically, once the wind farm commences generating energy mid-2019, the offtake will satisfy 2020 public targets to increase renewable energy use and decarbonise against our 2°C trajectory. 

So far there are only a small number of Australian organisations who have completed an organisational PPA journey. 

This will increase as more companies demonstrate the effectiveness of a PPA to deliver positive environmental impact while increasing longer term electricity affordability.

Mel Cutler is Head of Environmental Sustainability and Mark Clover is Director of Project and Export Finance at ANZ.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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