Case study: Why a power purchase agreement is a great outcome for UNSW
UNSW’s long-standing commitment to solar power in Australia has been strengthened after forging a deal with retailer Origin Energy.
UNSW has been promoting the use of solar power for decades. By 2017, the university had installed solar panels on all its suitable rooftops – but it still relied on the electricity grid for most of its power. The university’s energy manager Nick Jones, and his team, began exploring offsite options.
“The commercialisation technology for rooftop solar was actually developed at the university, so we have a close affinity with solar power,” Jones says.
“Early on, we had ideas of developing our own solar farm. “We’ve got some large field stations out in New South Wales but unfortunately grid constraints conspired against us. We couldn’t get a connection agreement, even though we had some suitable land. So, our plan B was to talk to developers who’d already started and got their development applications and connection agreements set up.”
UNSW talked with a new solar farm near Balranald in western NSW called Sunraysia Solar Farm and came to an agreement for the total volume of offsite energy consumed by the university. They agreed that retailer Origin Energy would act as the broker or middleman.
Jones says he entered into a retail arrangement with Origin so UNSW didn’t need to go through the technical process of registering itself as a retailer. “Unless you’re a licensed retailer, you need to have a retailer intermediary in the mix,” he explains. “Unlicensed parties can’t deal in the national electricity spot market.” Under the deal, a ‘contract for differences’ was agreed with Sunraysia Solar Farm based on the electricity spot market. If the spot price is less than the contract’s strike price when the solar farm is generating, then UNSW pays the solar farm the difference. If the spot price is more than the strike price when the solar farm is generating, then the solar farm pays UNSW the difference.
Origin Energy charges UNSW the spot price for solar power with the net outcome being that UNSW always pays the contract’s strike price. Excess solar electricity generated by Sunraysia Solar Farm in the middle of the day is bought by Origin Energy, but UNSW retains the large-scale generation certificates, which it needs to help it achieve its long-term goal of carbon neutrality. When the solar plant is not producing, UNSW buys the electricity it needs from Origin under terms similar to a standard retail electricity contract.
UNSW purchase large-scale generation certificates equivalent to 120% of the power it requires. The extra 20% is assigned to Origin to meet its renewable energy target obligation.
Jones says that constructing the power purchase agreement was not a straightforward process. “Three years ago, there weren’t many power purchase agreements in the market,” he says. “We pretty much made it up as we went along.”
But he says strong support for sustainability at the university gave his team space to perfect the deal. “The drive came from the vice-chancellor, which was very handy for progressing this through the organisation.”
His advice for others is to brief early and brief often. “As the proposal unfolds, your executives need to be comfortable with the terminology and methodology involved, otherwise you won’t get a smooth run.”
He says: “In our case, even though our vice-chancellor was quite savvy, we still needed to bring the other executives up to speed on the market, the mechanisms and the other technical aspects of the agreement. That took time.”
But Jones says the effort was worth it: “In the end, it was embraced by all the stakeholders. There weren’t any dissenters among the executive teams or the student body.”