Earths Energy Limited is pleased to announce
that an initial market assessment report regarding the Company’s South Australian
projects has been prepared by Resources WA (Report), an independent boutique
energy consultancy (www.resources-wa.com.au).
HIGHLIGHTS
• Large proportion of South Australian renewable installed (~70%) see wholesale
power prices peak between $250 and $300 per MWh during the early morning and
late afternoon, they remain elevated > $100 per MWh throughout the night
o Given the baseload reliable nature of geothermal power production,
electricity can be produced reliably during these peak periods to
optimise revenues
• Demand for ancillary services (i.e. electricity on call at short notice) is also
identified as a lucrative addition, with rates of between $647 and $999 per MWe
o These higher rates have prompted the Company to further incorporate
the potential of storage options into its current project assessment and
development plans
• Report confirms the Company can expect prices of at least $150 per MWh sold
from its Flinders West and Paralana projects
o This is achievable through a combination of PPAs, wholesale power sales
and ancillary services revenues
• Current connections availability of up to 70MW at the Flinders West project
o SA connection process confirmed as being low cost and supportive of
speedy development timeframes (12 to 18 months)
CEO Josh Puckridge commented: "This initial market assessment independently
confirms the excellent commercial conditions for the Company’s South Australian
projects to sell future green baseload power.
“Confirming the power that we bring online from our South Australian projects can be
readily sold under a PPA or into wholesale markets at prices that robustly support
current commercial development, is yet another endorsement of the Company’s
projects and strategy.
“This work underscores the strong potential for our geothermal projects to generate
commercial and consistent revenue streams while contributing to the transition
towards renewable energy in Australia. We are confident that our South Australian
projects are positioned to play a key role in meeting the growing demand for
sustainable energy solutions for Australia."
MARKET DYNAMICS FAVOUR GEOTHERMAL ENERGY DEVELOPMENT
Large proportion of renewable installed generation in SA (~70%) results in wholesale
power prices peak at $250-300/MWh during the early morning and late afternoon,
that remain elevated > $100/MWh throughout the night. See Figure 1, which is a
volume weighted representation of South Australian prices between 2021 and 2023.
Geothermal energy is particularly well-suited to take advantage of peak electricity
prices, which occur during periods when other renewable sources, such as solar and
wind, are less effective. For example, in the early morning and evening hours, when
solar energy generation is low due to limited sunlight, geothermal energy can reliably
supply power. The Report suggests that by configuring geothermal plants to operate
in conjunction with BESS, these projects can achieve highly competitive pricing within
the market, ensuring a stable supply of electricity during periods of high demand.
POWER PURCHASE AGREEMENT
The Company engaged specialist electricity market consultant Resources WA to
prepare an initial assessment of offtake alternatives for electricity for the Company’s
South Australian projects.
Resources WA’s report indicates that a primary market mechanism in SA is large scale
power purchase agreement (PPA), combined with ancillary services sold into the
wholesale market.
Energy Pricing: $65 to $100 per MWh
The Report outlines that energy dispatch pricing in South Australia typically ranges
between $65 and $100 per megawatt-hour (MWh), depending on factors such as
time of day, demand, and market conditions. For instance, during peak hours in the
evening when residential and commercial energy consumption increases, the
demand for electricity drives prices toward the higher end of this range. Geothermal
energy, with its ability to provide continuous baseload power, is well-positioned to
take advantage of these peak periods. This capability allows geothermal plants to
secure electricity prices that reflect the upper end of the market range, thereby
enhancing their economic viability.
Market and LGCs: Approximately $12 per MWh
In addition to grid charges, the Report highlights the importance of market charges
and Large-scale Generation Certificates (LGCs), which contribute approximately $12
per MWh (Source: Resources WA, 2024). LGCs are similar to carbon credits but
specifically apply to renewable energy generation. They represent the environmental
benefits of generating electricity from renewable sources and can be sold to other
entities seeking to meet renewable energy targets. For EE1, the ability to generate
LGCs means an additional revenue stream on top of the energy sold. For example, if
EE1 produces 100,000 MWh of electricity annually, the associated LGCs could
potentially add up to $1.2 million in additional revenue.
Significant Revenue Potential from Ancillary Services
Beyond energy pricing, the Report emphasises the significant revenue opportunities
available through the FCAS market, particularly with the introduction of "very fast"
FCAS services. These services, which require response times within seconds, provide
financial incentives for generators that can quickly adjust their output to maintain the
stability of the electricity grid. For instance, during a sudden drop in wind generation,
geothermal plants equipped with BESS can rapidly increase their output to balance
the grid, earning up to $16,600 per MWh in ancillary service revenues (Source:
Australian Energy Review, 2024). This is akin to being paid a premium for being on
standby and ready to provide emergency services when needed. EE1’s geothermal
projects, with their ability to integrate BESS, are well-positioned to capitalise on these
high-value ancillary services, further boosting their revenue potential.
Grid Charges: $30 per MWh
The Report also addresses grid charges, which represent the costs associated with
transmitting electricity through the high-voltage transmission network. In South
Australia, these charges are approximately $30 per MWh. To put this into context, grid
charges are akin to the tolls paid for using a motorway; just as vehicles pay a fee to
travel on a toll road, electricity generators pay a fee to use the transmission network
to deliver power to consumers. These costs can significantly impact the profitability of
a power project. However, EE1’s geothermal projects, which are strategically located
near key substations and high-capacity transmission lines, are expected to incur lower
grid connection expenses. For example, by being closer to the Mount Gunson
substation, which has higher capacity, EE1 can minimise the distance electricity needs
to travel, thereby reducing transmission costs and improving the overall financial
performance of Paralana and Flinders West. While these charges are anticipated to
be passed onto the buyers, their current level is still manageable, with no anticipated
net impact of future cash flows.
STRATEGIC GRID ACCESS ENHANCES PROJECT VIABILITY
Finally, the Report confirms that Paralana and Flinders West are strategically located
near key substations and high-voltage transmission networks. This proximity is
comparable to setting up a manufacturing plant near major motorways and ports,
where the ease of access to transportation infrastructure reduces logistics costs and
enhances operational efficiency.
For EE1, proximity to substations such as Mount Gunson and Davenport reduces the
distance electricity must travel to reach the grid, thereby lowering connection costs
and improving the economic feasibility of the projects. This strategic positioning not
only minimises logistical and financial barriers but also ensures that EE1’s geothermal
projects are well-placed to become leading providers of green baseload power in
South Australia’s energy market.
EE1 has potential to secure connections for up to 70MW at Mount Gunson and Pimba
sub stations.
NEXT STEPS
Following the findings of the Report, the Company is addressing the following:
Power Storage Solutions
Given the high potential revenues associated with Ancillary Services detailed in the
Report, the Company is furthering its investigation into the economics and efficiencies
of various storage options that may work well with a geothermal power plant.
These options include thermal battery systems, mechanical battery systems and
lithium-ion systems.
Techno-Economic Assessment
The Company is continuing its techno-economic assessment of its South Australian
projects as announced 16 July 2024 (“Appointment of Global Energy Leader”) with
global energy leader, GLJ Limited.
The Report’s findings will be considered as this assessment is continued to ensure the
Company is considering its projects in the context of the local market conditions of
South Australia. The Company continues to anticipate updating the market on some
of these findings before the end of Q32024.
