Victoria’s Renewable Energy Target Auction Scheme now open for bids

Publication November 2017

The Renewable Energy (Jobs and Investment) Act 2017 (Vic) was assented to on 8 November 2017, making Victoria the first Australian State to reflect its renewable energy targets (VRET) in legislation.

The VRET requires 25 per cent of electricity generated in Victoria to come from facilities that generate electricity by using or converting renewable energy sources into electricity by 2020 and 40 per cent by 2025. The first target requires approximately 1500MW of renewable energy and the 2025 target requires approximately 5400 MW of new capacity.

To complement the VRET, the Victorian Government has now commenced Australia’s largest ever renewable energy auction (VRET Auction) by releasing the Request for Proposal (RFP) on the Victorian Tenders website

Key features of the VRET Auction include:

The Basics

  • The format is a reverse auction.
  • Up to 650MW of capacity will be available through this auction, including up to 550MW of large scale wind, solar or other energy sources declared by the Minister, and up to 100MW will be specifically for large scale solar renewable energy.
  • Bids are open from 14 November 2017 until 14 February 2018 and are to be received on the formal RFP submitted through the Victorian Tenders website.
  • The RFP sets out the terms of participation, the design of the VRET Auction, technical, eligibility and evaluation criteria, the consideration of ‘value for money’ of proposals and the governance framework.
  • Projects will need to demonstrate ‘value for money’ including the project’s financial and technical viability, contribution to local economic development, best practice community engagement, benefit sharing and job creation, impact on the electricity network infrastructure and the capacity and capability to ensure the delivery of the project.
  • Successful proposals will be awarded a 15 year Support Agreement with the State of Victoria which will be administered by the Department of Environment, Land, Water and Planning.
  • Key components of the Support Agreement include project milestones, the option for a tripartite agreement, termination rights, development of a Communications and Community Engagement Plan, Safety Health and Environment Plan and protections in case of a change in law.

Payment

  • Payment will involve a two part hybrid mechanism, comprising a fixed-price base amount (Base Amount) and a variable contract-for-difference payment (CfD Payment).
  • Under the CfD Payment, the State sets the ‘strike price’ in the form of $/MWh of electricity generated which is $56.52/MWh for wind, $53.06/MWh for fixed-plate solar and $56.85/MWh for tilted solar projects which is to be paid monthly.
  • The CfD payment will be calculated based on the difference between the specified ‘strike price’ and the wholesale market pool price. If the wholesale price is higher than the ‘strike price’, the proponent must return the difference to the Government and when the wholesale price is lower, then the Government will pay the difference to the project proponent to ensure they have ongoing income.
  • The Base Amount will be paid annually in the form of $/MW/year. Project proponents will bid into the VRET auction their Base Amount which is intended to be a contribution towards capital costs.
  • The Support Agreements will have a Payment Cap that includes all Base Amounts and CfD Payments over the life of the Support Agreement. Where a Payment Cap is reached, no further payments will be made until any net CfD payments made to the Government result in the cumulative net amount paid being below the Payment Cap.
  • All bids must contain the minimum Base Amount and a minimum Payment Cap required to support a project.

Interaction with the Federal RET

  • Successful projects will be complementary with the Federal RET before 2020 and additional after 2020. Projects will be required to be accredited under the Federal RET.
  • Auction proponents must have the ability to commence commercial operations prior to September 2020, to enable the creation of Large-Scale Generation Certificates (LGCs) before the end of 2020.
  • Two sets of bids must be placed which include, one set for the bundled transfer of all LGCs from projects to the Victorian Government, which will then be resold by the Government, and one set, which includes no transfer of LGCs to the Government, in which case LGCs can be traded by project proponents.
  • Projects incentivised by the VRET reaching commercial operation post 2020 will be additional to the Federal RET, and LGCs from those projects will be voluntarily surrendered to the Clean Energy Regulator.
  • In the event that the Federal RET is repealed, the agreed Base Amount and the CfD Payment ‘strike price’ in the Support Agreement will not be adjusted. Any LGCs required to be transferred, but which cannot be transferred, due to the repeal of the Federal RET, will not incur a penalty.

Eligibility Criteria

  • Only ‘new projects’, including those which have not yet reached financial close, are entitled to bid, although some preliminary works may have commenced. A ‘new project’ is defined as a project yet to reach financial close, i.e. finance has not been secured and unconditional board approval has not yet been obtained. Substantial commencement of construction and the commencement of ordering or installation of major equipment must not have occurred.
  • Expansions or augmentations of existing projects, proportions of new projects and specific stages of a larger project are also eligible.
  • A single contracted entity responsible for the RFP submissions and Support Agreement must be proposed.
  • Projects may involve generation of electricity from all renewable energy sources, including wind and solar or other energy sources declared by the Minister.
  • All projects must be connected to the National Electricity Market (NEM) at a single connection point and:
  • must be of a size of no smaller than 10MW at its NEM connection point;
  • have registered or have commenced registration with AEMO as an Intending Participant or as a Registered Participant;
  • have submitted a complete Connection Application to the connecting network service provider, including completed grid connection studies.
  • A current planning permit must have been obtained for all components of projects including the project itself, the transmission lines and other infrastructure to connect the project to the network, if a permit is required. Where no planning permit is required for transmission, proponents must be able to demonstrate that other necessary approvals have been obtained such as for easements, connection suite of approval and native vegetation removal for the project and transmission lines.
  • Projects seeking to amend an existing planning permit to increase the number or size of generators will be ineligible, as the permit must be consistent with the exact details of the project that bids into the VRET auction.
  • A minimum of 10% of a project’s total estimated labour hours must be undertaken by apprentices, trainees, or engineering cadets under the Major Project Skills Guarantee program.
  • The proposal must demonstrate local community support by satisfying a minimum standard of engagement and benefit sharing described in the Community Engagement and Benefit Sharing Guide in the RFP.

Evaluation Criteria

  • While the primary determinant of ’value for money’ will be the project proposal price bids, satisfaction of other evaluation criteria to address the objectives of the VRET and other factors will be required. Evaluation will occur against five criteria (with respective weightings as follows):
  • Financial capacity and commercial viability – 25%
  • Technical capability and viability – 25%
  • Economic development – 25%
  • Community engagement and shared benefits – 15%
  • Impact on existing network infrastructure – 10%

Timing

  • A briefing on the VRET Auction will be held by the Department of Environment, Land, Water and Planning on 28 November in Melbourne.
  • Potential participants have three months to complete their proposal and submit it through the tender process by 14 February 2018. Evaluation of tenders by an independent assessment panel will then occur, with formal notification to successful proponents in July 2018.
  • Support Agreements will be entered into with successful proponents following the tender process.

How we can help

Norton Rose Fulbright’s energy team is currently working on a large pipeline of renewable projects, including over 30 wind and large scale solar projects across Australia. Norton Rose Fulbright also has significant experience in assisting clients with responses to government tenders and RFPs. If you would like further information or are considering participating in the VRET Auction, please contact Simon Currie, Elisa de Wit, Jo Crew or Jacqueline Plant.


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