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The 2017 Victorian Renewable Energy Auction Scheme

Out-Law Legal Update | 08 Dec 2017 | 12:27 pm | 3 min. read

LEGAL UPDATE: Passed on 31 October 2017, the Renewable Energy (Jobs and Investment) Act set legally binding renewable energy targets for the Victorian state government. The VREAS, established by the government, will help it to achieve these targets by awarding commercial contracts in support of new renewable energy generation. Successful projects will receive guaranteed payments for a 15-year period.

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:

  • financial capability and commercial viability (25%);
  • technical capability and viability (25%);
  • economic development (25%);
  • community engagement and shared benefits (15%); and
  • impact on existing electrical network infrastructure (10%).

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:

  • it must be for a renewable energy generating system based on wind, solar or other energy sources declared by the state energy minister;
  • it must be for a single generating system that is able to qualify as a 'large-scale' renewable energy project under Australia's Renewable Energy (Electricity) Act 2000, and therefore be eligible to create and register large-scale generation certificates (LGCs). Capacity is determined at the point that the system is connected to the National Electricity Market;
  • the facility must be no less than 10MW nameplate capacity at its point of connection to the interconnected national electricity system, have already registered, or have begun registration with the Australian Energy Market Operator (AEMO) as an Intending Participant or a Registered Participant, and have submitted a complete connection application to the connecting network service provider, including completed grid connection studies;
  • it must be for a new facility;
  • it must be ready to begin commercial operations in or prior to September 2020;
  • planning permission must have been granted for every aspect of the project from the relevant authority;
  • a minimum of 10% of the total estimated labour hours associated with the project must be delivered by apprentices, trainees or engineering cadets under the Major Projects Skills Guarantee;
  • the proposal must demonstrate local community support by satisfying the standards of the 'involve' spectrum level of engagement as described by the Community Engagement and Benefit Sharing Guide.

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:

  • a fixed 'base amount' paid annually in arrears;
  • a variable contract for difference (CfD) payment paid monthly in arrears.

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:

  • AU$56.52/MWh for wind projects;
  • AU$53.06/MWh for fixed plate solar projects;
  • AU$56.85/MWh for single-axis tracked solar projects.

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:

  • one auction bid that includes the bundled transfer of all LGCs to the Victorian government, for re-sale by the government;
  • one auction bid that allows for retention of all LGCs by the successful developer.

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.