Out-Law Legal Update | 08 Dec 2017 | 12:27 pm | 3 min. read
The Victorian Renewable Energy Targets (VRET) require 25% of the state's electricity to be generated from renewable sources by 2020, rising to 40% by 2025.
On 14 November 2017, the Victorian government opened the first competitive VREAS auction. VREAS 2017 will award commercial contracts in support of up to 650MW of new renewable energy generation. Up to the first 100MW of new large-scale solar projects will be supported under the scheme, with the remainder of the support available for wind projects, further solar and any other energy sources declared eligible by the Victorian energy minister.
Bids for VREAS 2017 must be submitted by 2pm on 14 February 2018, and successful developers are expected to be notified in July 2018.
A proposal must comply with 13 eligibility criteria in order to be considered. Five of these relate to the developer, while the remainder relate to the relevant project.
The five evaluation criteria against which the proposal will be assessed are weighted as follows:
The economic development criterion includes an assessment against Victorian Industry Participation Policy (VIPP) requirements, with developers required to attempt and meet local content figures of 64% for wind and solar projects. Projects will be scored higher if they can exceed the local content figure. The VREAS 2017 request for proposals is expected to be updated to include additional local content targets for locally milled steel, and for the operational phase.
The proposal will also be assessed against the following project-specific eligibility criteria:
Payments under VREAS
Successful proposals will be awarded a 15-year 'support agreement' with the state of Victoria to ensure revenue certainty. Support payments will be made up of a mix of fixed and variable payments:
Support payments will be subject to an overall payment cap over the 15-year term.
Proposed base amounts and payment caps should be included in the proposal, and are subject to escalation during the 15-year term. Successful developers will be required to provide a bank guarantee or a letter of credit for an amount which is depending on the LGC treatment option selected by the state.
The government has set the following CfD 'strike prices' for VREAS 2017:
CfD payments are calculated on the basis of the difference between the relevant set strike price and the price of the MWh in the relevant wholesale market pool, with a floor of AU$0 on the pool price. The CfD operates on a two-way basis. When the pool price is below the set strike price, amounts will be owed to the successful developer. When the pool price is above the set strike price, amounts will be owed to the state.
Amounts owed are determined for each 30-minute trading interval, aggregated, and the net amount paid monthly in arrears.
Interaction with the federal RET [renewable energy target scheme]
Successful developers will be required to register one LGC for every MWh of eligible renewable energy generated. Two bids are required, to allow the state to consider and select its preferred option from the following two LGC treatment options:
Certain terms of the support agreement depend on the LGC treatment option selected by the state.
For each of the two LGC treatment options, developers must submit a fixed price base amount bid in $/MW/year and a proposed payment cap over the term of the support agreement.
Edward Kelly is a renewable energy expert at Pinsent Masons, the law firm behind Out-Law.com.