Victorian Renewable Energy Target 2017 Auction

Industry Information Session

2

Agenda

Agenda Item Presenter

08:30 – 09:00 Tea and coffee -

09:00 – 09:10 Welcome and session introduction Simon Corbell

09:10 – 09:20 Auction overview Paul Smith

09:20 – 09:50 Key contract features Matt Dickie

09:50 – 10:20 Questions Panel

10:20 – 10:50 Morning tea -

10:50 – 11:05 Eligibility / Evaluation Matt Dickie

11:05 – 11:20 Community engagement and benefit sharing Katrina Hermann

11:20 – 11:35 Economic development / VIPP Athena Andriotis

11:35 – 12:05 Questions Panel

12:05 – 12:15 Session recap and next steps Simon Corbell

12:15 Information session concludes -

12:15 – 13:00 Lunch -

Auction Overview

Paul SmithDeputy SecretaryEnergy, Environment and Climate Change

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• The Renewable Energy (Jobs and Investment) Act 2017 (Vic) sets the

Victorian Renewable Energy Targets (VRET) into legislation:

– 25% renewable energy generation by 2020, and,

– 40% renewable energy generation by 2025

• In Victoria, by 2025, the VRET will result in up to:

– 10,000 jobs

– $7.2 billion in new capital expenditure

– $2.1 billion in additional economic activity

Auction Context

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• The 2017 VRET Reverse Auction was officially opened on 14

November 2017, and will:

– deliver up to 650 MW (389,000 households),

– incentivise up to $1.3 billion of investment

– create 1,250 construction jobs over two years and 90 ongoing jobs

• The auction offers long term Support Agreements (contracts) to

proponents, to create the investment certainty required to build new

energy generation capacity.

Auction Context

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• The design of the auction has been informed by extensive

public and industry consultation by DELWP since the

VRET targets were first announced in June 2016.

Auction Context

Auction Design

Commercial & Legal Advice

VRET Scheme Stakeholder Consultation Paper

June 2016

Summary Report of VRET Stakeholder Submissions

December 2016

Industry Consultation Workshops

2016

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Auction Design

• Bids for this competitive reverse auction from renewable energy projects are submitted under a formal Request for Proposal (RFP) process on tenders.vic.gov.au

• Successful proposals will be awarded a Support Agreement (contract) with the State of Victoria, providing financial support over a 15-year period.

• RFP opened 14 November 2017

• Proponents can request further information on the auction until 31 January 2018.

• The RFP will give proponents 3 months to submit their proposals, closing on 14 February 2018. Evaluations will begin the next day.

• It is estimated that successful proponents will be notified in July 2018.

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Auction Design

• Under the Support Agreement, successful

proponents will be paid through a Hybrid payment

mechanism, which is a mix of a fixed Base Amount

and a variable Contract-for-Difference payment

(CfD).

• Proponents to bid the minimum Base Amount

payment ($/MW/year) and minimum Payment Cap

($) in two scenarios:

– LGCs transferred to State

– LGCs retained by proponent

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• 550 MW of large scale renewable energy generating systems based on wind, solar or other energy sources declared by the Minister.

• 100 MW of large-scale solar-specific renewable energy.

• 13 mandatory eligibility criteria.

• 5 evaluation criteria, that will assess value for money of each proposal, in conjunction with bid prices.

Auction Design

Thank you

Paul SmithDeputy SecretaryEnergy, Environment and Climate Change

Key Contract Features

Matt DickieDirectorRenewable Energy Division

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Payment Mechanism

• Successful proponents will be awarded a Support Agreement (contract)

with the State and paid through a Hybrid payment mechanism

• Contract-for-Difference (CfD)

- State will set the CfD ‘strike price’ in $/MWh of eligible electricity

generated

- Two way payment mechanism, paid monthly in arrears

• Base Amount

- Proponents bid for this component to be paid by the State to the

Supplier on an annual basis ($/MW/Year)

• Payment Cap

- All projects will be subject to a project specific cap which applies to

the CfD and the Base Amount payments

- Proponents bid for this component

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Contract-for-Difference

State pays proponent

Proponent pays State

Floor

price

How a Contract-for-Difference works

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• Strike Price (referred to as ‘Contract Price’ in the

RFP) as set for eligible technologies:

– $56.52/MWh for wind projects;

– $53.06/MWh for fixed plate solar projects; and

– $56.85/MWh for single axis tracked solar projects.

• Floor Price of $0/MWh.

Contract-for-Difference

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• The Base Amount payment is a set price paid annually over

the life of the contract

• Proponents will bid for this component in the form of

$/MW/year

• The Base Amount payment is conditional on the facility having

met availability thresholds over the year:

– 90% of nameplate capacity for wind projects

– 95% of nameplate capacity for solar projects

Base Amount Payment

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• All projects will be subject to a project-specific Payment Cap.

• Once a project’s Payment Cap is reached, no further Support Payments will be made by the State to that project until any net CfD payments made to the State result in the cumulative net amount paid being below the Payment Cap.

• The CfD payment component will continue to be calculated each month, and if the cumulative payments return to be below the cap, then payment from the State to proponents will resume.

• Proponents are asked to bid the minimum Base Amount and Payment Cap they would require to support their project.

Payment Cap

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• Proponents bid the minimum Base Amount

payment ($/MW/year) and minimum Payment Cap

($) in two scenarios:

– 100% of LGCs transferred to State

– 100% of LGCs retained by proponent

• The State will select the option that presents the

best value for money

Large-Scale Generation Certificates

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Support Agreement scope

• Term

– A Support Agreement will be for a length of 15 years under

the 2017 auction

– The anticipated supply date will be a date prior to 30

September 2020, agreed between the State and the

Supplier during the tender process

• Commitments made under the VIPP and the Major

Projects Skills Guarantee will form a part of the

Support Agreement

Support Agreement

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• The Support Agreement contains a number of Conditions Precedent that must be satisfied, including:

– the State accepting the Supplier's Safety, Health & Environment Plan, Communications and Community Engagement and Benefit Sharing Plan, and Industrial Relations Management Plan;

– The Supplier providing a Security to the State

– the occurrence of financial close under the supplier’s financing documents.

• Suppliers have 6 months to satisfy conditions precedent

Conditions Precedent

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• The Supplier is obliged to meet the key Project

Milestones by specified Milestone Dates

• The key Milestones are:

– financial close;

– submission of a draft Safety Health & Environment Plan,

Community Engagement and Benefit Sharing Plan and

Industrial Relations Management Plan;

– commencement of construction; and

– execution of the Connection Agreement.

Project Milestones

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• If there is a change in law which increases or

reduces the costs incurred or to be incurred by the

supplier, the supplier is entitled to pass through

50% of the additional costs, and must pass through

50% of the reduced costs, as an adjustment to the

Contract Price or the Base Amount.

• This sharing mechanism is subject to a threshold of

$500,000

• The Support Agreement also contemplates:

– Repeal/amendment of the Federal RET – no change

– NEM Design Changes – good faith negotiations

– Market Disruption Events – good faith negotiations

Change in Law

Questions?

Matt DickieDirector Renewable Energy Division

Eligibility and Evaluation Criteria

Matt DickieDirectorRenewable Energy Division

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Proponent Eligibility Criteria

• The eligibility criteria are designed to guarantee the capacity of

generating systems, and a minimum standard of proponent and

project quality and viability

• 13 eligibility criteria in total

• Proponents must comply with all of the eligibility criteria

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Proponent Eligibility Criteria

EL 1: The proponent must be a non-tax exempt Australian company or subsidiary

under the Corporations Act 2001 (Cth) or a wholly or majority owned Commonwealth or

Australian state or territory government body.

EL 2: The proponent must propose one contracted entity to be legally responsible for

the proponent’s proposal and Support Agreement.

EL 3: The proponent and/or the contracted entity must not be, or become, bankrupt,

insolvent, or be in, or enter into, administration, receivership or liquidation, or take

advantage of any statute for the relief of insolvent debtors at any time during the RFP

process.

EL 4: The proponent and/or the contracted entity must not have had a judicial decision

relating to employee entitlements made against it (not including decisions under

appeal) and not have paid the claim.

EL 5: The proponent and/or the contracted entity must not have been named as an

organisation that has not complied with the Workplace Gender Equality Act 2012 (Cth).

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Project Eligibility Criteria

EL 6: The proposal must be for a facility with a renewable energy

generating system based on wind, solar or other energy sources declared

by the Minister.

EL 7: The proposal must be for a facility which establishes a single

generating system that is able to qualify as a ‘large-scale’ renewable

energy project under the Renewable Energy (Electricity) Act 2000 (Cth),

and therefore be eligible to create and register LGCs. The capacity must

be as determined at its point of connection to the NEM.

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EL 8: The facility in the proposal must:

• be no less than 10 MW nameplate capacity at its point of

connection to the interconnected national electricity system;

• have already registered, or have commenced registration

with AEMO, as an Intending Participant or as a Registered

Participant; and,

• have submitted a complete Connection Application to the

connecting Network Service Provider, including completed

grid connection studies.

EL 9: The proposal must be for a new facility.

Project Eligibility Criteria

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EL 10: The proposal must be for a facility that is able to commence commercial operations in, or

prior to, September 2020.

EL 11: The proposal must be for a facility with a live planning permit from the relevant authority.

EL 12: The proposal must be for a facility whereby a minimum of 10% of the Project Total

Estimated Labour Hours, will be undertaken by Apprentices, Trainees, or Engineering Cadets

under the Major Projects Skills Guarantee (MPSG).

EL 13: The proposal must demonstrate local community support by satisfying the standards of

the ‘involve’ spectrum level of engagement as described in the Community Engagement and

Benefit Sharing Guide.

Project Eligibility Criteria

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• The State intends to evaluate correctly submitted proposals, that

comply with all the Eligibility Criteria.

• Key considerations in the State’s evaluation of proposals to determine

best value for money for the State will include:

– Bid prices with and without LGCs for:

1. the Base Amount, and

2. the Payment Cap.

– Performance against five Evaluation Criteria.

Project Evaluation

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• Proponents must make a price bid by submitting a completed Proponent Information Form, to reflect each of the following:

– in the case that LGCs are transferred to the State:1. Base Amount ($/MW/year – 30 June 2017)

2. Payment Cap ($ – 30 June 2017)

– in the case that LGCs are retained by the proponent:1. Base Amount ($/MW/year – 30 June 2017)

2. Payment Cap ($ – 30 June 2017)

• In the reverse auction, lower price bids will be favoured.

• The State also retains the right to select its preferred LGC treatment pathway for each proposal.

Bid Prices

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Evaluation Criteria

Number Criteria Weighting

EV1 Financial capability and

commercial viability

25%

EV2 Technical capability and viability 25%

EV3 Economic development 25%

EV4 Community engagement and

shared benefits

15%

EV5 Impact on existing electrical

network infrastructure

10%

• While bid prices are a primary variable in the State’s

determination of value for money, the State requires other

important factors to be considered in order to properly address

the wider objectives of this scheme – this is achieved through

evaluation of each proposal against the five criteria below.

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• This criterion accounts for:

– progress in obtaining required financial approvals,

– the financial capacity of the proponent,

– the funding strategy to deliver the project.

• It looks at the proponent’s detailed financial modelling, using the

financial spreadsheet template provided as part of the RFP.

EV1 – Financial Capability and Commercial Viability

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• This criterion evaluates all aspects of the Project’s technical

specifications with a view to determining its technological viability.

• This will include all technology used, forecast production,

maintenance plans, and technical risk.

• What is the feasibility of the project completing construction and

starting on time?

EV2 – Technical Capability and Viability

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• This criterion measures a proposal’s contribution to economic

development in Victoria and the renewable energy industry.

• It will assess the positive impact of a project on the economic

development of services and manufacturing industries, regional

development, demonstrable development of supply chains and

broader economic benefits, such as headquarter locations, job growth

and research and innovation activities.

EV3 – Economic Development

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1. Major Projects Skills Guarantee (MPSG)

Proponents are required to submit an MPSG Compliance Plan. The MPSG

mandates that at least 10% of work carried out on Victoria’s major projects,

valued at more than $20 million, must be undertaken by apprentices,

trainees or engineering cadets. The 10% requirement applies to contract

works in their entirety and extends to all of the works specified as part of

contracts for those projects. Projects will be scored higher if they can

exceed the 10% requirements.

2. Local Investment Plan (LIP)

Proponents should submit a Local Investment Plan using the Local

Investment Guide provided as part of the RFP, outlining their commitment

and approach to increasing capital investment in the renewable energy

industry, manufacturing and associated industries in Victoria, outside of the

renewable energy facility bid into the auction.

EV3 – Economic Development

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3. Victorian Industry Participation Policy (VIPP)

Proponents are required to provide a Local Industry Development Plan (LIDP)

complying with VIPP Strategic Project Framework. Strategic Projects are projects with

a total project value of $50 million or more, excluding maintenance and operational

costs. Strategic Projects are subject to rigorous local content requirements to help drive

additional economic activity and jobs.

To assess how a Project will meet VIPP’s requirements, proponents will be required to

attempt and meet local content figures of 64% for wind and solar projects. Projects will

be scored higher if they can exceed the local content figure.

EV3 – Economic Development

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• This criterion measures a proposal’s community engagement and will be assessed against a best-practice approach that builds relationships with local communities and meaningfully empowers communities to participate in and shape a project’s development, construction and operation.

• Shared benefits will be assessed on the project’s approach to the distribution of financial benefits.

• Proponents must submit documents as outlined in the Community Engagement and Benefit Sharing in Renewable Energy Development – A Guide for Renewable Energy Developers

EV4 – Community Engagement and Shared Benefits

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• This criterion evaluates projects on their impact on transmission

networks and favours minimal direct and indirect transmission

network connection and augmentation costs.

• Where appropriate, projects that also assist with grid stability, grid

reliability, and network and energy security will be favourably

evaluated.

EV5 – Impact on Existing Electrical Network Infrastructure

Thank you

Matt DickieDirector Renewable Energy Division

Community Engagement and Benefits Sharing

Katrina HermannManager, VRET Implementation Renewable Energy Division

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Why embed community engagement into VRET criteria?

• Best practice community engagement and benefit sharing are

fundamental to generating community support;

• it puts local communities at the centre of decisions that impact

them and builds trust;

• the Government wants to be assured that successful projects

work with neighbours and the community, and understand local

priorities;

• it mitigates significant opposition

to a project; and

• it minimises potential delays

caused by a loss of ‘social

acceptance.’

Community Engagement and Benefit Sharing

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Community engagement is both an

eligibility AND evaluation criteria

• The eligibility requirement ensures

projects achieve a level of

engagement necessary to mitigate an

unacceptable level of ‘social’ risk

• The evaluation criteria provides a

mechanism to reward projects that

perform beyond the eligibility

requirement

Eligibility criteria

The proponent must first meet a

minimum level of engagement associated

with the ‘Involve’ spectrum - as outlined

in Table 1 (page 9) of the Guide

VRET Eligibility and Evaluation Criteria

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Table 1: Spectrum of Approaches to Community Engagement

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Table 1: Spectrum of Approaches to Community Engagement

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Table 1: Spectrum of Approaches to Community Engagement

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Evaluation criteria (EV4)

1. Assesses the project’s approach to community engagement during

planning, construction and operation, over and above the eligibility

criteria.

2. Assesses how the project’s ‘financial’ benefits will be shared with

local and regional communities, over and above the eligibility criteria.

Note: ‘financial’ includes in-kind contributions

Four separate documents must be submitted (EL13)

1. Social Risk Analysis

2. Community Engagement Strategy

3. Benefit Sharing Program

4. Reporting, Monitoring and Evaluation Plan

5. (optional) Letters of support, including community support

VRET Evaluation Criteria (EV4)

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Required Documentation (Part C of Guide)

1. Social Risk Analysis

• Context narrative – key aspects of local demographics, culture

and history

• Social impact site map – generator location/s and associated

infrastructure in relation to local residents and the community

• Social risk matrix – key social risks and mitigation strategies

• Stakeholder mapping spreadsheet – identifies relevant

stakeholders etc. Designed to help developers with their own

planning. Remove private information for Government version.

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2. Community Engagement Strategy – includes:

Required Documentation

• possible engagement

activities by project phase

• tailoring to the local context

• starting engagement early in

the development process

• community participation in

decision-making and design

(fair process)

• face-to-face interactions

• complaint management

system.

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3. Benefit Sharing Program

• Requires a fair process that is tailored to the local context and scale

• The Guide does not specify an approach – it’s up to the developer to

design it with their local community

Key Issue: neighbourhood agreements should not

void people’s rights to object or raise concerns

Required Documentation

• Done correctly it can help build

support

• Aims to provide flexibility e.g.

community funds, local procurement,

neighbourhood payments, beyond

compliance activities and employee

volunteerism

Coonooer Bridge Wind Farm, Victoria

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4. Reporting, Monitoring and

Evaluation Plan

• refer to Part C, Section 4

5. Optional letters of support,

including community support

Required Documentation

World’s largest turbine (credit: LM Power)

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Victorian Government does not expect:

• the developer to do everything the community asks for; or

• adopt an approach that is not balanced against other priorities, i.e.

value for money

Practical approach

• Despite the requirement to submit formal documents:

– they are designed to capture the activities many developers already do; and

– they assist Government to assess different bids more transparently.

• the key is to demonstrate understanding, consideration and response

to neighbours’ and host community’s priorities; and

• demonstrate that these priorities have been considered across the

project life cycle.

Closing Remarks

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The following entities have endorsed the Guide:

Endorsement

Thank you

Katrina HermannManager, VRET Implementation Renewable Energy Division

Manufacturing

Priorities and VIPP

Victorian Renewable Energy Target

RFP Industry Information Session

28 November 2017

• 3rd largest industry in Australia - all major

Australian construction companies have

operations in Victoria

• 3rd largest employer

• Largest industry for R&D spending

• Continue to grow into the future:

– State Government investments of over

$38 billion in new infrastructure projects

– Stream of private capital investments -

$678 million in 2017

(20% increase from 2016)

Victoria’s Manufacturing Industry - overview

283,000 jobsor 9% of Victoria’s

workforce

$25.9 billion

value to the State or

7.5% of GSP

• Create new jobs and stimulate industry investment in high growth,

high value industries

Victoria’s priority industries and sectors

Ensuring local SMEs are given a full and fair

opportunity to compete for government

contracts, while still achieving value for money:

– Creating local opportunities and building supply-chain

capabilities

– Over 72 VIPP Strategic Projects confirmed since

December 2014 – include minimum local content

requirements

– Reforms introduced over last 2 years to strengthen

VIPP Policy (DEDJTR) –

www.economicdevelopment.vic.gov.au/victorian-industry-

participation-policy

Industry Capability Network (ICN) –

www.icn.org.au/content/victoria/vipp

Victorian Industry Participation Policy

Local content for VRET projects

Minimum local content requirements set by

government:

64% for renewable energy facilities, including 90% steel products

from locally milled steel

90% during operations phase

First auction delivering renewable energy and local

industry opportunities:

– up to $1.3 billion of investment

– create 1,250 construction jobs

– stimulate manufacturing supply chain opportunities and jobs

– create ongoing jobs.

Local Industry Development Plan (LIDP) –

reflecting the supply chain

Local Content commitments – VRET – current round

• Minimum local content requirements

• Local steel

• Jobs, including apprentices and trainees

Identifying local products and capabilities

• Industry consultation process

• Alerting local industry

• Liaising with international suppliers to engage locally

Assessing local products & capabilities with overseas

equivalent

Product or service selection policy or procedure

Monitoring and reporting

Statement of compliance / Statutory Declaration

Engaging with Victoria’s supply chain –

Industry Capability Network

To register:

https://gateway.icn.org.a

u/

• Identifies local capability, products and

services

• Evaluates ANZ value-added activity

commitments made in LIDPs

• Monitors and reports on outcomes for

Victorian industry involvement

• Links principal contractors and local

suppliers:• Liaising with bidders to identify local goods &

services

• Local supplier advertising on ICN Gateway

• Assisting bidders to complete their LIDP.

• Future Industries

Manufacturing Program

• Sector Growth Program

• New Energy Jobs Fund

Supporting industry growth – key funding

initiatives

• Local Industries Fund

for Transition

Metropolitan

• Annick Pascal - CBD

• David Hunter - West

• Natasha Twigg - North

• Bev Lyttle - East

• Matthew McKean – South East

Regional

• Kushiel Prasad - Geelong

• Nigel Harper - Warrnambool

• Ray Hortle - Hume

• Tim McAuliffe - Gippsland

• Carly Grigg - Loddon Mallee

• Scott White - Grampians

DEDJTR contacts:

Questions and Discussion

Thank you.

Athena Andriotis

A/Executive Director, Advanced Manufacturing

Department of Economic Development, Jobs, Transport & Resources

athena.andriotis@ecodev.vic.gov.au

Session Recap and Next Steps

Simon CorbellVictoria’s Renewable Energy Advocate

Thank you

Victorian Renewable Energy Targets – 2017 Reverse Auction