Title

Subtitle

Second VRET Auction

Consultation Paper

September 2020

Photo credit

Cover: Gannawarra Solar Farm: WIRSOL and Edify Energy

Acknowledgment

We acknowledge and respect Victorian Traditional Owners as the original custodians of Victoria's land and waters, their unique ability to care for Country and deep spiritual connection to it. We honour Elders past and present whose knowledge and wisdom has ensured the

continuation of culture and traditional practices.

We are committed to genuinely partner, and meaningfully engage, with Victoria's Traditional Owners and Aboriginal communities to support the protection of Country, the maintenance of spiritual and cultural practices and

their broader aspirations in the 21st century and beyond.

© The State of Victoria Department of Environment, Land, Water and Planning 2020

This work is licensed under a Creative Commons Attribution 4.0 International licence. You are free to re-use the work under that licence, on the condition that you credit the State of Victoria as author. The licence does not apply to any images, photographs or branding, including the Victorian Coat of Arms, the Victorian Government logo and the

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Disclaimer

This publication may be of assistance to you but the State of Victoria and its employees do not guarantee that the publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication. The market sounding is for information purposes only and is not part of any formal procurement. Proposed positions outlined in this consultation paper should be viewed as initial policy positions only. The State of Victoria makes no commitment as to the design or conduct of the auction. Written responses to this consultation paper and insights from meetings with stakeholders will be used to inform the detailed design of the second auction. No payment is being offered or will be made for participation in the market sounding. Participants will take part in the market sounding at their own risk, and the Victorian Government disclaims all liability that participants may suffer or incur as a result of their participation in the market sounding.

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also available on the internet at www.delwp.vic.gov.au.

VRET II

Consultation Paper

1

Context

The Victorian Government has legislated renewable

energy targets (VRET) of 25 per cent of electricity

generation by 2020, 40 per cent by 2025, and 50 per

cent by 2030.

In 2017-18, the Victorian Government conducted a

Request for Proposal (RFP) for its first renewable

energy auction (VRET I), which supported 928

megawatts (MW) of new renewable energy projects,

including three wind and three solar farms.

The Victorian Government has committed to conduct

a market sounding process to examine options to

meet the VRET target of 40 per cent of renewable

energy generation in Victoria by 2025 (VRET II).

VRET II will also support the renewable energy

supply chain, deliver more affordable, reliable

energy supply and create new jobs and investment

following the COVID-19 pandemic.

The government is also investigating options to

purchase renewable electricity to match its own

consumption and reduce emissions from its

operations.

Purpose of the market sounding process

The purpose of the market sounding process is to

obtain industry and community insights on key

auction design issues for VRET II. Feedback from

the market sounding will inform the final auction

design.

This consultation paper provides an opportunity for

parties to provide input and share perspectives on

matters relating to the auction. These matters

include:

• contracting arrangements

• dispatchability and energy storage solutions

• network support services

• economic development

• social licence and community engagement.

By responding to this consultation paper,

stakeholders can ensure that their views on these

and other relevant topics will be considered in the

development of VRET II.

Depending on the nature and extent of written

responses, respondents may be invited to

participate in individual meetings to explore themes

in further detail.

Responses to this consultation paper can be

submitted by midnight Friday, 9 October

2020. Please note that this market sounding is being

undertaken for information purposes only and is not

part of any formal procurement process, and no

payment is being offered or will be made for

participation. Participation in this market sounding

process will give rise to no advantages or

disadvantages to respondents in any future

procurement process.

DELWP may publicly release responses to this consultation paper; respondents should indicate where any material is commercial-in-confidence and should not be released.

Introduction

2 VRET II

Consultation Paper

Context

In 2017-18, the Victorian Government conducted an

RFP for VRET I. This resulted in the development of

928 MW of new renewable energy projects,

including three wind and three solar farms. The

renewable energy projects supported under VRET I

will:

• stimulate $1.16 billion in capital investment

• create 900 jobs and retain 600 jobs, including

270 apprentices and trainees.

This investment has supported growth in Victoria’s

renewable energy supply chain.

In addition to these economic benefits, the

community engagement requirements under VRET I

have generated other benefits for local communities,

such as the Safe Housing Program supported by Tilt

Renewables.

Lessons learned from VRET I

DELWP has reviewed the VRET I process. Key

findings include:

• Proponents are responsive to the weighting of

the auction evaluation criteria and associated

guidance.

• Additional guidance would benefit proponents,

including:

– clarifying expectations and distinct focus of

the ‘value add’ aspects of a proponent’s

submission in relation to the Local Industry

Development Plan, local investment

opportunities and the Community

Engagement and Benefit Sharing Plan. This

could be achieved through providing case

studies and best practice guidelines

– additional materials outlining how to plan

and manage the connection process with

the Australian Energy Market Operator

(AEMO) and the relevant network service

providers.

• The renewable energy market has evolved since

2017. Accordingly, the design of VRET II will

need to consider these new market conditions,

including key lessons or themes being drawn

from recent market activity, technical challenges

in the Victorian power system, and increased

expectations for community engagement.

Planning for VRET II

The Victorian Government is considering different

auction sizes for VRET II, including:

• 600 MW

• 600+ MW.

The government is also exploring auction design

options, including:

• the inclusion of dispatchable technology (e.g.

energy storage systems)

• potential coverage of the Victorian Government

load (either virtually or directly)

• scope to provide additional transmission and

network support given the current and future

outlook of the power system in Victoria.

These options could have fundamental impacts on

the final VRET II design, including:

• potential roles for electricity retailers

• integration of energy storage systems within the

VRET II auction

• managing price and volume risk when VRET II

renewable energy generation exceeds or under-

supplies the Victorian Government load

• managing delivery risk to achieve a

commissioning target date of December 2024.

Market questions

1.1 Were you involved in VRET I? What was

your role?

1.2 What are your key reflections from VRET I?

1.3 What are the key risks and opportunities you

identify for VRET II?

1.4 Assuming a two-stage tender process for

VRET II, what timeframes would you

recommend for the Expression of Interest

(EOI)? In your response please include

information regarding how much time is

needed to prepare a response including, for

example, time needed to establish your

consortium (if relevant) and time needed for

financing and funding?

1.5 Similarly, what timeframes would you

recommend to prepare and submit a

proposal in an RFP process? Please reflect

on timelines, key risks and issues that may

impact the quality of your proposal.

1. Planning for VRET II

VRET II

Consultation Paper

3

1.6 Do you think the COVID-19 pandemic would

impact your ability to respond to an EOI and

RFP?

1.7 What are the risks and opportunities

associated with conducting VRET II as

follows:

a. one auction where all projects are

required to meet a common delivery

date?

b. multiple smaller auctions with

staggered delivery dates?

1.8 Is there a preferred position on the auction

size and delivery dates? Are there other

more innovative approaches to spread the

benefits of industry and supply chain

support from a VRET II auction over time?

1.9 Do you consider there are opportunities for VRET II to specify requirements beyond the existing framework of regulatory and industry standards (including, but not limited to, laws and regulations relating to occupational health and safety, electrical work and installation, and payment of contractors) as they apply in the context of the design, construction and operation of utility-scale renewable energy projects? If so, please explain the rationale for VRET II in this area, the benefits this would bring to the program or the Victorian community, and known barriers or costs.

4 VRET II

Consultation Paper

Context

In VRET I, the Victorian Government contracted with

successful utility-scale renewable energy projects

under a 15-year Support Agreement that included

the following price structure:

• base amount ($/MW/year)

• strike price (contract for difference $/MWh with

reference to a price set by the Victorian

Government)

• payment cap covering the base amount and

strike price.

Lessons learned from VRET I

The contract and price structure used in VRET I

were appropriate for the government to support

private sector investment in utility-scale renewable

energy projects in Victoria based on the market

conditions at the time.

The longevity of the 15-year price signal, backed by

a Victorian Government Support Agreement,

achieved critical investment hurdles for developers

to secure equity and debt funding.

The payment cap enabled the Victorian Government

to manage its exposure to future market price risk.

Planning for VRET II

For VRET II, the Victorian Government is exploring

the option of procuring renewable energy for its own

consumption.

The government is seeking further insights regarding

potential contracting arrangements for government

consumption. To this effect, feedback is sought on

sleeved and unsleeved Power Purchase Agreement

(PPA) options, which are described below and

illustrated overleaf.

Sleeved PPA (Options 1 and 3 overleaf)

• Projects are pre-selected according to value for

money and evaluation criteria to deliver the

VRET II policy objectives.

• One or more electricity retailers sleeve the pre-

selected projects to cover government load.

• The Victorian Government remains party to the

PPAs (Option 1), which could be settled by

either the retailer or the Victorian Government.

Alternatively, the retailer enters into the PPAs

with the project owners directly (Option 3).

Unsleeved PPA (Option 2 overleaf)

• Projects are pre-selected according to value for

money and evaluation criteria to deliver the

VRET II policy objectives.

• The Victorian Government enters into PPAs with

project owners directly.

• Total generation traded under the PPAs is

aligned with the Victorian Government load.

• Current retail contracts are maintained (or are

renegotiated or retendered later).

2. Contracting arrangements

VRET II

Consultation Paper

5

Figures 1 and 2 below illustrate the concepts of a sleeved and unsleeved PPA.

Figure 1 Illustrative diagrams of sleeved PPA arrangements (Option 1 and 3)

Figure 2 Illustrative diagram of unsleeved PPA arrangements (Option 2)

6 VRET II

Consultation Paper

The table below outlines the three options for sleeved or unsleeved PPA arrangements.

• Options 1 and 2 are project-led rather than retailer-led, with the Victorian Government selecting projects

to sign PPAs.

• Option 2 is a single-stage procurement process for an unsleeved PPA, which is relatively simple to

implement and provides flexibility in relation to retail contracts.

• Option 3 is retailer-led, with the retailer managing the procurement process and projects.

Table 1: Procurement options for VRET II

Option 1: Sleeved PPA two-stage,

project-led

Option 2: Unsleeved PPA single-

stage, project-led Option 3: Sleeved PPA single-

stage, retailer-led

Description • The first stage relates to the

procurement of projects

• Victorian Government pre-selects

projects

• The second stage relates to the

procurement process of the

retailer for the Victorian

Government load

• Retailer sleeves the pre-selected

projects

• Victorian Government remains

party to each PPA. The PPAs are

settled by the retailer or the

Victorian Government

Description • Victorian Government pre-selects

projects

• Victorian Government enters into

PPAs directly

• Total generation traded under the

PPAs is aligned with the Victorian

Government load

• Current retail contracts are

maintained (or modified / re-

contracted at a later date)

Description • Retailer procurement process

• Retailer selects projects, and

consolidates generation in

sleeved arrangement

• Retailer enters into PPAs directly

with project owners

• Victorian Government is not a

party to the PPAs

VRET II

Consultation Paper

7

Market questions

Assuming a sleeved PPA arrangement

2.1 What are the opportunities and challenges

regarding a sleeved PPA arrangement

between the project owners, retailer and the

Victorian Government?

2.2 How are these potential issues best

addressed?

2.3 Have you been involved in any PPA

sleeving arrangements in the past? If so,

how have you dealt with issues of spill

energy costs and settlement costs?

In this context, spill energy for a trading

interval is the amount by which the volume

of energy traded under the PPA for that

trading interval exceeds the offtaker’s

energy consumption during that same

trading interval. It arises due to imperfect

correlation between the PPA project’s

generation profile and the offtaker’s demand

profile.

2.4 What are the commercial implications for the

retail contract if project selection and PPA

arrangements are led by the Victorian

Government and the government remains a

party to the PPA with the retailer performing

settlement functions?

Assuming an unsleeved PPA arrangement

2.5 What are the opportunities and challenges

in contracting directly with the Victorian

Government?

2.6 How are these potential issues best

addressed?

Related questions

2.7 What are the minimum viable PPA and retail

contract terms currently available in the

market?

2.8 What is the preferred contract structure and

payment mechanism for a hybrid project

(e.g. combined battery energy storage

system and renewable energy generator)?

2.9 Are there lessons learned from the Support

Agreement for VRET I that should be

considered in VRET II?

2.10 What key commercial trade-offs may need

to be incorporated into retail contract offers

when considering sleeved versus unsleeved

PPAs (including price differentials for firming

and sleeving)?

2.11 Are there mechanisms for the retailer or a

project owner participating in VRET II to

manage volume and price risk for the

Victorian Government (such as monetisation

of spill energy under other arrangements)?

2.12 What commercial terms are available under

sleeved and unsleeved PPA offerings,

including:

a. contract term, including any call or

put options to extend contracts

b. strike and floor price

c. offtake shape

d. minimum generation obligations

e. marginal loss factor (MLF) risk

f. price cap mechanisms

g. PPA price structure (single supply

price, variable price, etc).

2.13 What are the financing implications for

proponents of (i) the PPA term and (ii)

partial contracting (i.e. the Victorian

Government contracts a pre-specified

percentage or volume of the project’s

output)? Is the current economic climate

likely to impact financing appetite for

renewable energy projects in Victoria?

Alternative arrangements

2.14 Are there alternative contract or payment

structures that may need to be considered

for VRET II? If so, please provide a

description of the alternative structure(s).

2.15 Have you considered the application of a

proxy revenue swap? If so, please describe

the success factors from the perspectives of

the project owner and the offtaker.

2.16 Do you have a preferred option for

contracting with government and why?

8 VRET II

Consultation Paper

Context

At a system level, variable renewable energy needs

to be supported by dispatchable resources to ensure

the power system can reliably meet demand at all

times. In line with the transition from thermal

generators to variable renewable energy

technologies, AEMO’s Integrated System Plan finds

that, depending on the transition scenario, 6-18 GW

of new dispatchable resources are needed in the

National Electricity Market (NEM) to firm up the

inherently variable distributed and utility-scale

renewable generation.

Dispatchability can be provided by a number of

renewable energy technologies, including utility-

scale energy storage (e.g. battery energy storage

systems or pumped hydro), demand response, and

distributed batteries participating in a virtual power

plant.

Utility-scale energy storage is flexible, being able to

provide a number of power system services,

including frequency management, shifting the timing

of renewable energy export to the grid, changing the

loading of intra-regional network elements, and

providing firming support when renewable

generation is low or during times of peak demand.

Lessons learned from VRET I

Dispatchability did not feature in the VRET I auction;

however, through a separate initiative, the Victorian

Government is supporting two utility-scale battery

energy storage systems: the 30 MW / 30 MWh

Ballarat Energy Storage System and the 25 MW /

50 MWh Gannawarra Energy Storage System.

Planning for VRET II

Given the importance of dispatchability for the NEM

power system, the Victorian Government is

investigating if this feature should be incorporated

into the VRET II design and, if so, which services

should be provided by the service provider and what

payment models are appropriate for those services.

3. Dispatchability and energy storage solutions

VRET II

Consultation Paper

9

Market questions 3.1 Do you think dispatchability needs to be

procured with utility-scale energy storage

system as part of VRET II, or are there

sufficient incentives for the private sector to

respond to actual or forecast dispatchability

shortfalls in Victoria?

For the purposes of the following questions,

please assume that dispatchability is provided

by a utility-scale battery energy storage system.

3.2 Which of the following services would you

be able to provide to the Victorian

Government and/or the Victorian power

system:

a. Firming / balancing of the Victorian

Government load whether directly or

via a derivative product (e.g. cap)

b. Frequency management services

(e.g. Frequency Control Ancillary

Services markets, primary

frequency control, fast frequency

response, synthetic inertia)

c. Network loading control services

(including dynamic management of

thermal constraints)

d. Others (e.g. system restart, voltage

control).

3.3 Do you think there are any advantages or

disadvantages in having the battery energy

storage system co-located with a renewable

energy generator that is also participating in

VRET II? Do you see any limitations in a

battery energy storage system being

potentially used to firm / balance the

Victorian Government load when it is not

linked (by location, control or ownership) to

a VRET II renewable energy project?

3.4 There are numerous payment models that

could be used to pay for services provided

by a battery energy storage system. Which

payment model do you think is most

appropriate in the following contexts:

a. For firming / balancing services?

b. For network support services?

c. Where only part of the battery

energy storage system capacity is

‘reserved’ during specific periods of

times for use by the Victorian

Government?

d. Where the battery energy storage

system can generate returns from

its trading strategy in excess of a

‘base case’ return on investment

required to secure financing?

3.5 What is the impact on capacity/size,

including the energy to power ratio (i.e.

MWh per MW), for the battery energy

storage system based on the range of

services to be provided by that system?

3.6 What key financing challenges exist with the

addition of a battery energy storage system?

How is the Victorian Government best

placed to assist to overcome them while

also addressing Victoria’s power system

challenges?

10 VRET II

Consultation Paper

Context

The electricity generation sector in Victoria, and

more broadly in the NEM, is undergoing a rapid

transition from one that is based on centralised,

scheduled, thermal generators, to a future that is

built around decentralised, variable, renewable

energy technologies. This transition is not without its

technical challenges.

Regulatory and planning processes for network

augmentation are being outpaced by the pipeline of

existing and proposed connections of variable

renewable energy in network areas that have strong

renewable resources but limited generation hosting

capacity or other weaknesses relating to network

reliability or security.

Lessons learned from VRET I

DELWP is reviewing the network specific eligibility

and evaluation criteria from VRET I and associated

project outcomes. DELWP is considering the

following key lessons in the context of the VRET II

auction design:

• How the weighting and specification for the

network specific evaluation criteria could be

used as a lever to mitigate project delivery risk

and create incentives for the provision of

network support services.

• To what extent could project delays potentially

associated with network connection issues be

mitigated by project costing (including adequate

contingencies), risk allocation, and strong

financial support and diversity of financing

sources.

• To what extent could project delays potentially

associated with network connection issues be

mitigated by appropriate grouping and sharing of

connection assets.

• The extent to which greater detailed guidance

should be made available to proponents

regarding the various stages of the network

connection process, including minimum

documentation requirements and anticipated

timelines as specified by relevant authorities.

Planning for VRET II

Given the current outlook for the power system in

Victoria, VRET II would be designed to ensure that

projects can provide some form of network support.

From a network support perspective, the primary

objectives of the VRET II auction are to:

• minimise project delivery risk with respect to

network connection (schedule and cost); and

• further consider network support services that

can add to power system reliability and/or

security.

4. Network support services

VRET II

Consultation Paper

11

Market questions

4.1 What network support solutions relating to

network system reliability and/or security

could be procured as part of, or in

conjunction with, VRET II?

Note these solutions would be above and

beyond the requirements under the National

Electricity Rules to obtain a connection offer.

In general, solutions relating to reliability

refer to services for relieving thermal

constraints and solutions relating to security

refer to services for frequency management

(including inertia) and/or system strength.

4.2 What guidance should the VRET II auction

materials contain in relation to the technical

or functional specifications for the network

support solutions that are being sought?

4.3 How can the risks to projects of MLF,

congestion and commissioning be

managed? What level of information will

proponents be able to provide in respect of

the project’s forecast MLF and constraint

outcomes, and your commissioning plan?

4.4 What further action could be taken by

government or energy institutions as part of

the VRET II auction design or process to

better facilitate your project’s network

connection?

4.5 How will you manage any potential

additional costs and delays associated with

network connection issues? What financial

backstops will you put in place for this

purpose?

4.6 What innovative technologies can play a role

in providing network support services under

this auction?

4.7 What financial or practical support would

you need from the Victorian Government to

provide network support services?

4.8 What are the key commercial implications

when providing both network support

services and offtake volumes to the

Victorian Government?

12 VRET II

Consultation Paper

Context

The VRET provides long-term policy certainty for

new investment in renewable energy generation in

Victoria and underpins the Victorian Government’s

commitment to an orderly renewable energy

transition.

The VRET also intends to support the development

of a sustainable renewable energy industry and

supply chain, building new skills and capabilities in

renewable energy in Victoria, and boosting the

competitiveness of local businesses.

Lessons learned from VRET I

VRET I has been successful in driving new

investment in renewable energy generation in

Victoria, creating new jobs and establishing local

industry and supply chains.

VRET II offers the opportunity to build on these

benefits and address some of the challenges that

face the local renewable energy industry. These

opportunities include:

• boosting the cost competitiveness of local

content suppliers

• further growing the capacity of local suppliers to

meet demand

• continuing to support sustainable demand for

renewable energy projects

• enhancing the sector’s ability to compete for

labour.

Planning for VRET II

Since 2017-18, development and construction risks

have been reassessed and local market appetite

has shifted given the departure of major

engineering, procurement and construction

contractors, and the departure or reluctance of

vertically integrated developers or funds to invest.

VRET II will be important to maintain the existing

renewable energy industry, but there is a risk that it

may not be enough to incentivise and attract new

players to establish operations in Victoria.

DELWP is seeking stakeholder input as part of its

review of the parameters of the auction evaluation

criteria.

Evaluation criteria

Proponents will be evaluated on their past

performance and proposed commitments with

regard to:

• contribution to economic development in

Victoria, including jobs, supply chain,

manufacturing and service industries, with an

emphasis on regional Victoria

• local content requirements

• compliance with the Major Project Skills

Guarantee (MPSG).

The local content requirements for VRET II will be

set in accordance with the Local Jobs First Act 2003.

The Act sets a mandatory weighting of 20 per cent

(10 per cent for industry development and 10 per

cent for job outcomes).

Proponents will be required to submit:

• MPSG

• Local Industry Development Plan (LIDP)

• Local Investment Plan (LIP).

5. Economic development

VRET II

Consultation Paper

13

Market questions

For VRET I participants

5.1 What reflections can you share following

your experience on meeting VRET I local

content requirements?

5.2 Do you have any other reflections about the

documentation requirements to meet the

economic development criterion from

VRET I?

For all market sounding respondents

5.3 What opportunities are there for VRET II to

further unlock the local supply chain?

5.4 How could VRET II help to develop a local

industry that is more cost competitive and

sustainable?

5.5 What is the market’s appetite and suggested

approach for developing local jobs and skills

in energy storage solutions?

5.6 Please provide any other comments or

insights regarding the proposed approach

for VRET II to drive economic development

outcomes.

14 VRET II

Consultation Paper

Context

The rapid pace of renewable energy development in

some parts of Victoria is creating community

concerns, which may erode the social licence for

renewable energy in those areas.

Community engagement and benefit sharing are

tools to improve social licence and help ensure that

utility-scale renewable energy projects can be

leveraged to provide localised benefits for the

communities hosting the projects.

Lessons learned from VRET I

Overall, wind and solar proponents were asked to

meet criteria classified as ‘involve’ on the

International Association of Public Participation

(IAP2) engagement spectrum. Of the submitted

proposals, those from the wind industry were

generally stronger and more developed in this area.

For VRET II, an updated version of the Community

Engagement and Benefit Sharing (CEBS) Guide

would further enhance developers’ understanding of

the Victorian Government’s expectations and help

ensure that successful projects provide valuable

contributions to their host communities.

Planning for VRET II

From a community engagement perspective, the

overarching objectives of VRET II are to boost social

licence for the renewable energy industry and boost

outcomes for individual communities. DELWP is

considering improving eligibility and evaluation

criteria from VRET I with the following updates:

• Encourage letters of support from local council,

including feedback on proponent’s Community

Engagement Strategy

• Benefit sharing to be targeted at immediate and

surrounding local communities, and to include a

granular budget showing the timing and

geography of funds deployment

• Social Risk Analysis to include a concise,

independent review of community sentiment and

cumulative impacts of multiple projects in the

region.

Eligibility criteria

The proponent’s proposal must demonstrate an

overall approach to CEBS commensurate with the

‘involve’ level.

Evaluation criteria

• Assess approach to community engagement

during planning, construction and operation,

over and above the eligibility criteria.

• Assess how project financial benefits will be

shared with local and regional communities,

over and above the eligibility criteria.

Market questions

For VRET I participants

6.1 What are your reflections of the CEBS

eligibility and evaluation criteria from

VRET I?

6.2 What have been the CEBS outcomes from

VRET I?

6.3 Do you have any comments on the CEBS

Guide provided in VRET I?

For all market sounding respondents

6.4 What are the current trends in community

expectations and social licence for

renewable energy projects? How have they

changed since VRET I?

6.5 What are leading examples of positive

community engagement and benefits

sharing?

6.6 What are your thoughts on allowing some

level of community ownership or co-

investment in the project as part of a

project’s CEBS?

6.7 Please provide any other comments or

insights regarding the proposed approach

for VRET II, including the eligibility and

evaluation criteria.

6. Social licence and community engagement

VRET II

Consultation Paper

15

Thank you for taking the time to engage with this market sounding process. All responses are highly

appreciated and are welcome before midnight Friday, 9 October 2020.

Please email VRET2@delwp.vic.gov.au to submit responses to this consultation paper.

For any queries regarding the process, please email VRET2@delwp.vic.gov.au.

DELWP may publicly release responses to this consultation paper; respondents should indicate where any

material is commercial-in-confidence and should not be released.

Further information

16 VRET II

Consultation Paper

Glossary

Term Definition

Auction Auction refers to the overarching Victorian Government process of bringing online new

renewable energy, with actual design and delivery of the mechanism to be finalised

following the market sounding.

Floor price In the context of the strike price, a floor price (in $/MWh) refers to the base or lower bound

where the strike price is structured as an index-linked or otherwise variable price.

In the context of the wholesale market pool price, a floor price (in $/MWh) is used in place

of the pool price if the pool price falls below that floor price. For example, a floor price set at

$0/MWh would exclude negative pool prices.

Offtake shape The electricity volume profile that is traded under a PPA. This profile may differ from the

generation-following profile of the renewable energy project attached to the PPA.

Proxy revenue swap A financial hedge which is designed to produce stable revenues for renewable energy

projects regardless of power price fluctuations and weather-driven intermittency.

Sleeved PPA A customer enters into a contract with the retailer/s for its electricity supply. The retail

contract integrates energy volumes contracted by or on behalf of the customer with project

owners under one or more PPAs. There are various contracting options for this

arrangement between the customer, retailer and project owners.

Spill energy Where the volume of energy traded under the PPA exceeds the customer’s energy

consumption during a trading interval.

Spill energy arises due to the imperfect correlation between the PPA project’s generation

profile and the customer’s demand profile.

Strike price The price (in $/MWh) specified in a PPA that is payable by the offtaker to the project owner

for the volume of electricity traded under the PPA.

Unsleeved PPA A customer enters into two separate sets of contracts (which are not formally linked), one

with the retailer/s and another with project owners. Contracts with project owners are PPAs

and have no integration into the retail contract with the retailer/s.