Implications of AEMO's 2021 Electricity Statement of Opportunities (ESOO)

Good morning,

AEMO has today released its latest annual Electricity Statement of Opportunities (2021 ESOO). The document is comprehensive and I recommend anyone interested give it a read.

The main implication for Genex in my opinion is the forecast reduction in operational demand.

Operational demand is expected to fall considerably in the next five years. This is driven primarily by strong rooftop PV growth, as well as some improvements to energy efficiency. All else equal, this is expected to present quite a challenge to the wholesale electricity spot market in the 2020s, particularly in South Australia, Victoria, and Queensland.

"under the Central scenario, operational consumption is forecast to reduce from 178 terawatt hours (TWh) in 2020-21 to 163 TWh in 2025-26, largely due to distributed PV uptake. Additionally, forecast investment in energy efficiency activities also tend to partially offset growth in consumption due to new household connections"The following chart presents the difference between AEMO's 2021 Central operational demand forecast with its 2020 forecast (highlighted)

This will pose a challenge for any renewable energy developers or operators (solar in particular). Kidston SF is currently on an excellent long-term PPA with the QLD government, so this will not impact revenues for that project, however Jemalong SF in NSW is however currently exposed to the spot market. As a holder I am hoping we can lock away a long-term offtake with someone soon for that energy. For LGC revenues, this decrease in operational demand may deter competition and keep certificate prices higher in the 2020s which could counteract some of the loss in energy revenues in the spot market.

For the Bouldercombe battery project, this will likely reduce the cost of charging, which could improve gross margins. In addition, more rooftop PV increases the ramping requirements between daytime and evening peak, which could increase spot price volatility (and again, a battery's gross margins). So I'm quite glad Genex is serious about getting Bouldercombe off the ground by the end of next year.

For Kidston Pumped Hydro, this change will not affect revenues from the fixed contract with Energy Australia.

In summary, this could present a challenge for revenues from Jemalong SF, however prices are less sensitive to operational demand in NSW since we have a strong baseload of demand from industry and businesses, there is more flexibility in our coal fleet than is currently being exhibited, and we have a couple of existing pumped hydro projects (Tumut 3 and Shoalhaven) which can add demand when solar output is high. In addition, cheaper charge costs and higher volatility between daytime and evening periods in QLD are likely to create better revenue opportunities for our battery project.

Either way, I'm happy that Genex has pre-emptively switched their focus from solar projects to battery and wind projects which will have a better outlook in the 2020s.

As I read more into the document, if I find anything else worthwhile mentioning in the context of Genex I will add it to this thread.