National Energy Guarantee: an opportunity for water utilities

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MHC recently identified the need for water utilities to have a long-term energy strategy including solutions that could help water utilities manage energy risks while potentially capturing opportunities to reduce their energy costs. The recent release of the National Energy Guarantee (NEG) has reinforced this need and represents a potentially significant new revenue stream for water businesses.

Water utilities are significant users of energy, in particular through their treatment plants and pumping stations, on top of relatively large scale general operations. For this reason, water utilities have relatively high levels of adoption of on-site generation capacity, especially diesel or gas back-up generators. Other cost-effective on-site generation technology solutions that are currently being adopted by some water utilities to assist in managing average and peak energy prices include wind, solar, biogas, and waste-to-energy. Water utilities in Victoria, such as South East Water, Yarra Valley Water and North-East Water have already implemented advanced demand response solutions to reduce their own electricity costs, or take advantage of the benefits offered by some electricity distributors through their network support initiatives.

In addition to demand response, a new opportunity is emerging with the recent announcement of the National Energy Guarantee.

The National Energy Guarantee (NEG), recommended by the Energy Security Board (ESB) and accepted by the Commonwealth Government in October 2017, consists of two parts – a reliability guarantee and an emissions guarantee. Through the reliability guarantee, the NEG requires electricity retailers to deliver a minimum amount of flexible dispatchable capacity in each state. This can be sourced from ready-to-use technologies such as coal, gas, pumped hydro and batteries, as well as customers who have flexible dispatchable demand response capacity who could participate in the short-term hedge market. The emissions guarantee will be set to ensure Australia contributes to its international commitments to reduce emissions[1][2].

Electricity retailers will be required to purchase a specified proportion of their energy needs from dispatchable sources whilst ensuring that a specific emissions threshold is maintained. The reliability level will be set by the Australian Energy Market Commission (AEMC) and Australian Energy Market Operator (AEMO), while the emissions threshold will be determined by the Commonwealth Government and enforced by the Australian Energy Regulator (AER).

Figure 1: Proposed contract market between retailers and dispatchable resources to meet the reliability and emissions guarantees (source: https://www.energy.gov.au/government-priorities/better-energy-future-australia)

Through this framework (Figure 1), retailers ultimately make their own decisions around the energy mix they procure in order to meet their obligations under the NEG. As such, retailers would seek to contract reliable or dispatchable sources of energy into its portfolio at the lowest possible cost. Implementation of a reliability standard on retailers has the potential to open up new markets – and water utilities are well placed to capture the opportunities from these markets.

For those that are engaged energy users and have dabbled with demand response solutions (such as those above), water utilities already own and operate generation assets that can be despatched at short notice to meet peak demand, but are otherwise used relatively infrequently. South East Water, for example, has the ability to shed 3.2 MW through demand response, utilising existing infrastructure and systems[3].

Additionally, those water utilities involved in wastewater treatment operations are in a unique position of being able to capture biogas from their treatment plants and convert these to on-site to zero carbon electricity, thereby also meeting the emissions guarantee as part of the NEG.

The opportunity to do so is huge – new covers installed at two anaerobic lagoons in Melbourne Water’s Western Treatment Plant is estimated to collect 110,000 m3 of biogas each day, potentially delivering $3.5 million savings per year. The amount of biogas captured is more than enough to meet the plants electricity requirements. Future plans are under development to expand the power station so that the plant will be an exporter of power[4].

Water utilities also own and operate assets that are well-positioned for pumped hydro opportunities. Melbourne Water has a history and commitment to generating hydroelectricity, transferring water from its major storage reservoirs at high elevations to smaller service reservoirs at lower elevations. With its network of new mini hydroelectric power stations, Melbourne Water is able to generate more electricity that it requires from 2014 to 2016, and is estimated to produce an excess of 69,500 MWh of hydroelectricity per year by 2017[5]. SA Water has a similar network of mini-hydro facilities[6]. Converting existing sites or future sites to pumped hydro storage could provide an opportunity for water utilities to participate in the NEG.

While details around the reliability level and emissions guarantee are currently being worked out by the ESB and with states through COAG[7], the responsibility on retailers (Figure 1) could see potential contractual arrangements with water utilities to help meet both National Energy Guarantee requirements. As details of the reliability guarantee and emissions guarantee are released in the next year for implementation in 2019 and 2020 respectively, investigating these contractual arrangements could represent significant additional revenue streams for water utilities.

For further details on the National Energy Guarantee and the Energy Security Board’s advice, please follow these links:

A better energy future for Australia

COAG Energy Council National Energy Guarantee   

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[1] https://www.pm.gov.au/media/national-energy-guarantee-deliver-affordable-reliable-electricity

[2]http://www.coagenergycouncil.gov.au/sites/prod.energycouncil/files/publications/documents/Energy%20Security%20Board%20advice%20on%20the%20National%20Energy%20Guarantee.pdf

[3] Presentation by Ben Spedding, “Demand Management – Our approach” 16 June 2017, accessed at http://www.marchmenthill.com/qsi-online/2017-06-16/volatile-energy-markets-water-sector-risk-opportunity/

[4]http://www.awa.asn.au/AWA_MBRR/Publications/Latest_News/Melbourne_utility_capturing_biogas_to_improve_energy_efficiency.aspx

[5] https://www.melbournewater.com.au/community-and-education/about-our-water/liveability-and-environment/energy/hydropower

[6] https://www.wsaa.asn.au/sites/default/files/publication/download/SA%20Water-%20Mini%20hydro%20installation%20in%20North%20South%20Interconnection%20System%20case%20study.pdf

[7] The ESB has recommended that COAG works towards a final approval of rule change by year end 2018 with implementation in 2019 for the reliability guarantee and 2020 for the emissions guarantee.