Victoria, Queensland and South Australia release new renewable energy auctions

Victorian renewable energy auction

The first reverse auction to take place under the Victorian Renewable Energy Auction Scheme (VREAS) will be the largest renewable energy auction that Australia has seen to date.

The VREAS is intended to contribute significantly to the achievement of the Victorian Renewable Energy Targets (VRET) of 25% by 2020, scaling up to 40% renewable energy by 2025. The first round of the VREAS will be initiated in mid-October through a Request for Proposal (RFP) for up to 650 megawatts (MW) of renewable energy generation consisting of 550MW of "large scale technology neutral renewable energy" and up to a further 100MW of large scale solar generation. Subsequent auctions will be required in order to deliver the 5,400MW of new solar and wind farms by 2025 that will be required to meet the VRET.

While the RFP will set out the terms and selection criteria applicable to the VREAS, the Victorian government has provided some high level details of some of the key features of the auction.

Payment Mechanism

A hybrid payment mechanism under the VREAS is anticipated, which will involve a contract for difference (CfD) and a fixed price (FP) payment. The strike price applicable to the CfD will be set out in the RFP. Proponents will bid in their proposed FP, which is intended to provide the necessary guaranteed revenue to support their project (based on the predetermined CfD strike price). The FP will be based on the capacity of the project and will be paid quarterly in the form $/MW/year.

Given the current level of wholesale prices in Victoria, the potential of the project paying the Victorian government under the CfD is relatively high, though this may change as more renewable energy is introduced into the supply mix.

The hybrid payment mechanism suggests that the strike price will be lower than the cost of the project, such that the FP will be required for the balance of the project costs.

Support Agreement

The hybrid payment mechanism will be included in a support agreement with the State of Victoria (Support Agreement), which will be 15 years in length. Among other key features of the Support Agreement will include the interaction between the VREAS and the Federal Renewable Energy Target (Federal RET) (particularly with respect to the treatment of Large-scale Generation Certificates (LGCs) generated under the Renewable Energy (Electricity) Act 2000 (Cth)), as well as change in law provisions.

A 15 year tenor should support projects in obtaining competitive pricing for their debt portions.

Interaction with the Federal RET

The VREAS will be complimentary to the Federal RET before 2020 and additional after 2020. Proponents intending to participate will be required to commence commercial operation before the last quarter of 2020. LGCs will be treated in two possible ways, whereby proponents will be required to provide two auction bids:

  1. one auction bid that includes a bundled price and the transfer of all LGCs to the Victorian government (which will be re-sold by the government);
  2. one auction bid that does not transfer LGCs to the Victorian government, leaving proponents to trade the LGCs themselves.

Project proponents that are able to secure an offtake agreement for the sale of LGCs will be at an advantage with respect to option (b). The above eligibility criteria suggests a potentially tight timeline to get successful projects to commercial operation by the third quarter of the 2020 calendar year.

Mandatory Criteria and Solar

The Victorian government has stated that "only new projects including those which have not yet reached financial close may bid" and "expansions of existing projects and proportions of new projects will also be eligible". Further clarity of this criteria, particularly what constitutes new projects will be set out in the RFP.

Of the 650MW allocated to the first round of auctions, 100MW has been reserved for solar projects, to ensure that the VREAS is not overly reliant on wind, which is considered to be the cheaper technology in the region.

All projects must be connected to the National Electricity Market at a single connection point and must be of a size no smaller than 10MW.

As part of a strategy of flexibility, the government will design the VREAS auctions on a case-by-case basis, adapting to the market conditions at any given point in time. This will allow the government to manage market risk under the first auction by setting new volume and pricing parameters in future auctions.

Projected Timeline of First VREAS Auction

Queensland's "Renewables 400" auction

A call for expressions of interest (EOI) for one of the largest reverse auctions ever seen in Australia is now open until 2pm on 25 September 2017, following the "registration of interest" process which closed on 28 August 2017. The State will short list projects by October and plans to issue an RFP in November, which will be the basis of the reverse auction. The Queensland reverse auction seeks tenders for the installation of a 100MW energy storage solution, along with 400MW of new solar and wind farms, as a key component of the Palaszczuk government's Powering Queensland plan.

The stated aims of the auction process are: to diversify Queensland's sources of electricity generation; support system security and reliability; accelerate the deployment of energy storage; and to support local business and employment.

Eligibility to participate in the auction is contingent on status as a renewable energy technology under the Federal Government's Large-scale Renewable Energy Target. Queensland's Department of Energy and Water Supply is likely to allow all grid-connected renewable energy generation sources defined as eligible renewable energy sources in the Renewable Energy (Electricity) Act 2000 (Cth) to take part in the process. A variety of project forms will be considered, including standalone renewable energy projects, standalone energy storage projects, and integrated projects. Solar PV and wind generation projects will need to be a minimum of 30MW of alternating current.

Additionally, solar PV projects must participate as part of an integrated project, requiring a usable storage capacity providing a minimum of 20% of the average daily energy yield of the plant.

The State may also consider other technical factors such as ability to provide inertia, ability to improve system strength, ability to act as a synchronous condenser, capabilities to provide FFR, and the anticipated contribution to the resilience of the network.

The Project Mechanism (and associated agreements) will depend on the nature of the project as a power purchase financial agreement (PPFA) is contemplated for Renewable Projects and Integrated Projects and a Availability Based Payment Agreement (ABPA) is contemplated for Storage Projects and Integrated Projects.


Although the State Government has not finalised the power tariff that will be paid to Renewable Projects that win the auction, three price options are under consideration for generators:

  • Fixed strike for all calculation periods for the duration of the PPFA;
  • A sculpted strike price - this would involve the Queensland Government setting two tariffs, one being higher for peak periods which could be set for the year ahead; and
  • A cap and floor option - the Queensland Government would pay a generator if electricity market prices were to fall below the floor. If market prices exceed the cap, the generator pays the government. When market prices fall between the cap and the floor, the generator receives the market rate, with no payment to or from the state.


State support is being proposed via periodic availability payments for a specified capacity and duration of energy storage being available over a specified period (Availability Based Payment). These payments would be made so long as the Storage Project was capable of exporting power to the grid (and not undergoing either planned or unplanned outages), irrespective of whether electricity was physically being exported to the grid.

The State is currently considering two options in respect of the dispatch and operational control for the ESD:

  • where the State would have dispatch and operational control over the ESD. This could be implemented through the State, or GOC counter-party, which would become the intermediary with AEMO for the ESD within predefined operational limits. If the State is the intermediary, all market purchases and revenues would be for the account of the State.
  • where the Successful Proponent would have dispatch and operational direction over the ESD. Under this option, the net revenue (after market purchases) generated from the ESD (eg, arbitrage payments, ancillary service payments, MLF enhancements) would be shared between the Successful Proponent and the State (effectively as a reduction to the Availability Based Payment).

South Australia's energy storage projects

South Australia has released three Calls for Proposals seeking to continue its renewable energy drive. The three areas of focus, to which applicants have until 5pm on 28 September to respond are:

  • Renewable energy firming – projects that can help the integration of renewables onto the grid and make energy available ‘on demand’ ie, dispatchable. These firming projects should be scalable and replicable throughout the state. This could include the addition of energy storage, synchronous inertia or fast frequency response.
  • Bulk energy storage – this Call for Proposals asks applicants to put forward plans to develop significant amounts of energy storage. It calls for either renewable projects with associated energy storage developments, or simply a plan that could deploy 400MWh of energy storage in the state. Project ideas should, as in the case of firming projects, be scalable and replicable and help attract investment.
  • Bioenergy – the final call of the three is for a large-scale dispatchable bioenergy plant for the state. Successful bidders will be given access to the AUD 150 million (USD118.5 million) Renewable Technology Fund, a program to foster private investment and accelerate project development in clean energy technologies.

For more details on South Australia's current energy plan, please follow this link.

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