Subtle but important changes to key renewable energy tenders have been made to ensure that successful wind and solar projects can do more than claim victory in an auction, and can actually get built.
The changes have been made by ASL, the company charged with managing key tenders in NSW and in other states under the federal government’s Capacity Investment Scheme.
They will take effect initially in NSW, which is now back to running its own tenders to make sure it has the capacity to replace its ageing coal fired generators, all of which are due to retire within the next decade.
But the industry is keen to see if it will be adopted more widely in the remaining CIS tenders to address the fundamental problem with the tender structure to date: In the face of rising wind costs, and the lack of corporate and utility buyers, the underwriting arrangements have simply not been strong enough to get things built.
Few of the 31 wind projects awarded underwriting agreements under the federal CIS have reached financial close or started construction. Just three to date – Palmer and Carmody’s Hill in South Australia, and Waddi in Western Australia.
CIS project status. Source: Rystad Energy.
Now, because NSW has met its capacity allocation under the federal CIS, the state is resuming its own auctions, with at least 2.5 GW of capacity to be awarded at an auction already under way, and another 2.5 GW at an auction later this year.
It also has had a problem getting projects over the line on financial closures and construction, particularly with wind projects. Despite an enormous pipeline, only one wind project is currently being built in NSW – the Uungula project in the central west by Andrew Forrest’s Squadron Energy.
And the key change to the tender design means that ASL will no longer be looking at the lowest priced bids, but the best value to ensure that a project has the revenue certainty to land the finance it needs and to get built.
“We cannot wait until coal retires for price signals to stimulate investment. We need the investment to happen now,” ASL CEO Nevenka Codeville said in a recent market briefing.
“Our messaging to the market now is that projects should bid into tenders competitively but for what they need to get built. Not to secure windfall gains, but to reach a genuinely bankable position and move rapidly to FID.”
Thimo Mueller, ASL’s head of commercial, acknowledged at the same market briefing that cost pressures, supply chain constraints, network connections and near-term curtailment risks are real issues facing wind and solar project developers.
“The constraint in NSW is not the project pipeline. The challenge is conversion: taking projects from pre-FID to financial close, then construction and ultimately operation. This next phase of the Roadmap is designed to unlock that conversion,” he said.
“When we last ran Generation LTESA tenders, the environment looked very different: corporate PPAs were more readily available, buyers were racing to meet 2025 sustainability targets, contract tenors were longer, business cases were stronger, and LGCs provided a meaningful additional revenue stream.
“Generation LTESAs were often viewed as insurance—useful to have, but unlikely to be exercised. Pricing expectations were close to debt break-even.
“That is not the environment we are operating in today. Many of you are dealing with stronger inflationary pressures, higher capital costs, tighter financing conditions, supply chain constraints, grid congestion and connection risk, and fewer long-term offtake opportunities.
“At the same time, our ambition has increased: 82% renewables nationally by 2030, and a stretch target of 16 GW of new generation in NSW by 2030. The practical implication is clear – LTESAs priced at debt break-even will not deliver what NSW needs. LTESAs must be capable of supporting reasonable project returns.
“The good news is that policy support for the transition is strong. The Roadmap framework is in place, and the LTESA is a core part of that framework—designed to fill the financial gap, support projects in achieving FID, and sit comfortably alongside future wholesale market and offtake strategies.
Mueller told the market briefing that bids would now be assessed on the ability of the developer to bring them to market.
“I’m going to be very explicit here to avoid any misunderstanding,” he said. “Bidding competitively does not mean bidding unrealistically low. It means bidding just enough to get the project built.
“We expect proponents to bid competitively to secure the support needed to reach FID. Higher-cost projects can still succeed where the benefits to consumers justify the support required.
“For example, generator-specific network upgrades or near-term curtailment can be reflected through sculpted pricing—higher prices in the near term, reducing later when curtailment is expected to be lower. Our assessment considers these higher costs against the benefit to consumers of bringing generation online sooner.”
Market observers suggest that the changes bring the NSW tenders closer to the contract for difference design that made auctions held by the ACT nearly a decade ago so successful.
But they are keen to see how, and if, this translates to the federal scheme given that it is aiming for 40 gigawatts of new wind and solar capacity by 2030 to meet its renewable energy targets, but has seen only a few gigawatts get underway under the CIS, mostly through solar and solar and battery hybrids.
Battery storage has not been an issue, largely because of the multiple revenue streams for the technology, and because of falling costs and their modular nature. However, the new focus on value and buildability will also be applied to long duration storage in NSW, applying to facilities offering eight hours storage or more.
The difference between the NSW and federal auctions is that ASL set the rules and makes the choices in the NSW tender, but while it manages the federal tender the rules and choices are made by the federal department.
Matthew Brine, the secretary of the federal department of Climate Change, Energy, the Environment and Water, told a conference last week that 14 CIS projects had reached financial close and a further 33 were expected to do so by the end of the year – that includes solar and battery storage.
“While we are seeing some progress … we would like to see much faster progress. We’ve increased the priority of deliverability in the tenders compared to financial costs, and we are starting to actively manage our CIS contacts to terminate engagement if we aren’t seeing the progress that we expect.”
Note: This story has been modified to ensure that the right quoted were accredited to the correct speaker.
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Giles Parkinson
Giles Parkinson is founder and editor-in-chief of Renew Economy, and founder and editor of its EV-focused sister site The Driven. He is the co-host of the weekly Energy Insiders Podcast. Giles has been a journalist for more than 40 years and is a former deputy editor of the Australian Financial Review. You can find him on LinkedIn and on Twitter.
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