Genex bets on higher energy prices in NSW

Renewables developer Genex Power is betting on NSW power prices continuing to rise after deciding to sell on the spot market.

Renewables developer Genex Power is betting on NSW power prices continuing to rise after deciding to sell generation from its planned Jemalong solar plant on the spot market rather than through traditional long-term contracts with retailers.

The company plans to start construction of the 50 megawatt project, located near Forbes in the state’s central west, by June — with first production due in 2020.

Genex said selling into the spot market instead of signing a traditional power purchase agreement for supply from the facility would generate up to double typical wholesale prices of $60 per megawatt hour as the closure of coal-fired power stations including AGL’s Liddell in the Hunter Valley kept tariffs elevated.

“What we want to do is keep the project exposed to future NSW energy prices and the reason for that is we see prices in NSW remaining at elevated levels for the foreseeable future,” Genex executive director Simon Kidston told The Australian.

“The prices we expect to achieve in the spot market are more than double what you’d expect in the long-term contracted market. We think, with the retirements of existing coal-fired fleet over next decade, prices will be higher in NSW rather than lower, which will add strong cash flows over the next four to five years.”

Genex’s 50MW Kidston stage one solar project in Queensland, backed by a 20-year government support deed, is being used by its adviser NAB as “cross collateral” for the Jemalong project

“It’s a smart way to finance,” Mr Kidston said. “Banks typically wouldn’t fund the construction of a solar or wind farm by itself as a stand-alone project without a PPA. We can avoid that because we are paring it with Kidston.”

The Kidston solar farm is part of a bigger renewable energy hub in far north Queensland, west of Townsville, which also includes a 250MW hydro project, a further 270MW solar development and a 150MW wind farm.

EnergyAustralia is studying acquiring a potential 50 per cent stake in the hydro component, although it warned yesterday approving such projects in its investment pipeline would partly hinge on the outcome of the federal government’s underwriting new generation scheme.

Genex said there continued to be congestion issues in the national electricity market in areas such as northwestern Victoria.

The Australian Energy Market Operator issued a draft ruling on marginal loss factors in the network, which represent the increasing losses incurred when electricity moves between power stations and market customers in remote parts of the grid.

“The national electricity market is transforming, driven by new technology, a changing generation mix and new supply hubs, leading to large year-on-year changes in marginal loss factors,” AEMO said in its draft ruling.

“In many locations, MLFs have fallen by large margins which in turn have material financial implications for existing and intending market participants.”

The final marginal loss factors which will apply for the new financial year, starting on July 1, are due to be published by AEMO on April 1.