South Australia's New Plan for Energy Security

Tuesday, 14 March 2017

The South Australian Government today announced a new plan to take charge of its energy security and to provide a rapid fix to some of the problems that have plagued the supply of electricity in South Australia over recent months.

The strategy includes six key components:

Australia's Largest Battery Storage Facility: The State will call for tenders to develop Australia’s largest battery facility (comprising a 100MW battery) to store renewable energy (costing an estimated $150 million and to be funded via a renewable technology fund).  The battery storage facility will be a privately owned 'grid-scale' facility, with a contract to supply the State.  It will be funded by a grant of $75 million, with the balance being secured via $75 million in low interest loans from a new Renewable Energy Technology Grant Fund.

New 250MW Gas-Fired Power Plant: To offset the intermittent nature of supply from renewables, the State will develop a new 250 megawatt gas-fired power plant which is expected to cost $360 million and would deliver up to 10 per cent of the South Australia's peak demand.  It is understood that the new power station will be a 'fast start' aero derivative gas-fired power plant that would be owned by the State.  It will be a peaking plant that will operate as an "insurance policy" at times of peak demand.  The source of gas for the new power plant has not yet been disclosed, and in the current tight gas market, this will be key to the viability of the solution. The new plant will need to be wholly outside the market structure, otherwise it may just hasten the retirement or mothballing of privately-owned gas plant.

Legislation to Allow Market Intervention: New legislation designed to invest the South Australian Energy Minister with powers to intervene in the electricity market.  This will include powers to instruct electricity generators to turn-on or ramp up generation output in times of peak demand.  It is not yet clear precisely what these new powers will entail or how those directions could be given by the Minister to the market, or how these powers will differ from the existing emergency powers under the Emergency Management Act (SA) to direct the operation of plant or equipment, and the existing role of the state's system security coordinator under the National Electricity Market Rules (rule 4.3.2) in determining what load can be shed.

New Energy Security Target: The establishment of a new “energy security target” with a commencement date of 1 July 2017, which would require electricity retailers to purchase 36 per cent of their energy from locally-generated baseload sources in South Australia.  The State will also use its bulk buying power to attempt to attract further investment for new power generation (possibly in the form of additional gas-fired power plants that would be privately owned).  The State Government also confirmed its commitment to achieving a 50 per cent renewable energy target as part of the plan. This will require some new credit or certificate scheme, as retailers purchase their energy from AEMO rather than directly from generators.

Investment in Gas Exploration: The South Australian Government also announced an injection of a further $24 million into a PACE grant scheme to add to an existing $24 million, which has already been announced, in order to incentivise companies to extract more gas in South Australia.  However, it is understood that there will be a requirement for new gas to be sold domestically first.

Gas Royalty Incentive for Landowners: The State has also agreed to pay landowners 10% of royalties that it receives for new production of gas and petroleum which comes from production fields on their land.

It will be interesting to see reactions evolve around this new announcement and whether the plan will deliver on its objectives (within projected costs of around $550 million) in the short to medium term. There have been some positive early signs from energy industry players.  Regardless, it seems certain that significant change is about to occur in the South Australian energy market.

This article was written by Andrew Bruton, Partner and Graeme Dennis, Partner.

For more information, please contact:

Andrew Bruton
Partner | Brisbane
P +61 7 3169 4837
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Mitch Artus 
Partner | Perth
P +61 8 9420 1508
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Graeme Dennis 
Partner | Sydney
P +61 2 9334 8730
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Peter Dreher 
Partner | Melbourne
P +61 3 8644 3616
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Michael Durrant 
Partner | Adelaide
P +61 8 8205 0828
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Richard Giles 
Partner | Darwin
P +61 8 8943 0483
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Kate McKeough 
Partner | Adelaide
P +61 8 8205 0534
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Gail Owen 
Partner | Melbourne
P +61 3 8644 3504
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Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 14 March 2017. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.