Energy storage and power generation

ENERGY STORAGE AND POWER GENERATION

Peaking Plant an early consumer of green hydrogen

The power generation sector has been identified by the West Australian Government as an early consumer of green hydrogen, with a renewable hydrogen target of 1% for electricity generation in the SWIS proposed by the West Australian Government.

Developing a green hydrogen-fuelled (dual fuel) peaking plant delivers into this target and allows Frontier to benefit from increased electricity pricing during peak demand periods. Frontier can create its own hydrogen offtake and therefore does not require a hydrogen offtake agreement with a third party. Green hydrogen would be blended with natural gas and converted into electricity

Peaking plants are designed to firm baseload power in the electricity market and operate during periods of high-level demand for electricity or shortfalls of electricity supply, where weather conditions, i.e. lack of wind or sun, prevent output from renewable power sources. Peaking plants are a mature technology, with multiple Peaking Plants already in operation throughout the world including Western Australia.

Electricity market opportunities

Wholesale Electricity Market (WEM) participants in Western Australia interact to supply and purchase electricity. The average electricity price on the WEM has increased significantly during the past 12 months, with “peak” periods progressively lasting longer and attracting higher prices, as can be seen in the heat map of the average power price for each half hour increment for each month since January 2021.

The heat map shows intervals coloured grey (ie < $40/MWh) and blue (ie < $60/MWh) have disappeared recently, and two daily peak periods of increasing duration and price levels can be seen.

Will WEM prices continue to be supported? The WA Government’s most recent SWIS demand assessment1 indicates demand for renewable energy will increase significantly, with new generation demand of 2.8GW by 2032, a more than 100% increase on 2022 demand. This increase in demand is coupled with the announced closure of all of WA’s coal fired capacity by 20302. Coal fired power generation currently accounts for approximately 30% of electricity generated on the SWIS, and provides the base load power.

While the Government has announced plans for additional battery storage to assist in the transition away from base load coal generation, additional plans for more renewable energy solutions will likely be required to meet the forecast demand.

Reserve Capacity Credit payments are payments made by the Energy Market Operator to electricity generators to ensure there is sufficient generation capacity in the SWIS. The benchmark reserve capacity price for 2025/26 is currently A$193,400/MW and can be secured for five years. As solar energy is intermittent, it is probable a discount factor of around 25% would be applied to solar generation capacity, while a peaking plant would have no such discount factor.

Large-Scale Generation Certificates – renewable energy producers in Australia with accredited power plants may create LGCs. This is effectively a government backed carbon credit. One LGC can be created per MWh of eligible electricity generated. The price of an LGC is currently around A$55 per unit and ranged between A$40 and A$68 over the past 12 months.

1 See https://www.wa.gov.au/government/document-collections/swis-demand-assessment
2 https://www.wa.gov.au/government/announcements/state-owned-coal-power-stations-be-retired-2030-move-towards-renewable-energy