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NSW Health: Solar PPA Evaluation

project image
client
NSW Government
Category
Design Review
date
07 Apr 2018
status
Complete

The NSW Office of Environment and Heritage (OEH) has established a “Solar for Government agencies” programme, which consists of a Solar PPA suppliers panel. The aim of a solar PPA evaluation is to outsource generation capacity to the private sector so that they may in turn build solar systems or farms and other renewable assets. The contracts run for a period of 15 years.


Location: Australia
Industry: Healthcare
Project Funding: $150k
Project Website: NSW Government Website



Scope

The OEH cites the benefits of a PPA thus:

  • reduce energy costs and environmental impact;
  • demonstrate environmental leadership to the community;
  • provide predictable, discounted energy pricing for the life of the agreement.

While the theory of PPAs are sound, this paper seeks highlight the pros and cons of PPAs in relation to the NSW Ministry of Health property portfolio.

The NSW Government sought to understand:

  • risks with PPAs;
  • opportunity costs;
  • pricing analysis of 4 typical NSW Health sites
    • small regional
    • large regional
    • small metro
    • large metro
  • and ask the question: is an off-site PPA more appropriate than on-site?

From existing academic research and papers, we highlighted the deflationary path for the unit costs of PV and battery storage;

  • provided context as to the decreasing costs of renewable generation and storage technologies; and
  • showed the cost of deployment of renewable generation and storage for the Ministry in forward years.

Government Policy - What Does the NEG Mean for Electricity Prices?

From existing research and papers, we provided a summary of the impact of the then Government’s “National Energy Guarantee” (NEG) upon electricity prices, should it fail, or should it succeed.

  • Government policy has an impact on the risk mitigation effectiveness of a PPA.
  • Will a PPA lock the MoH into historically high electricity prices?

Brief Summary of On-site vs Off-site PPAs

  • Understand the differences between on-site and off-site PPAs.
  • List the pros and cons of on-site vs off-site PPAs.
  • How on-site and off-site PPAs differ for NSW Health.

What is Unique about the NSW Health Property Portfolio?

Through the prism of energy generation, storage and consumption:

  • list the unique opportunities that exist in the NSW Health property portfolio;
  • list the challenges that are unique to the NSW Health property portfolio;
  • what differentiates the NSW Health property portfolio from other property portfolios; and
  • what unique challenges and opportunities exist to provide context to policy making.

Smart Controls

Integration of Energy Consumption, Embedded Generation, Load Management and Electricity Price Risk Management

Outline the implications for reduction in energy consumption and energy cost savings based on integration of these technologies.

  • List the pros and cons of integrating these technologies.




Review Four Typical NSW Health Sites

Projection of costs: Business-as-usual

  • Taking each example, what would the cost of installing solar owned and operated by NSW Health be over 15 years?
  • Cost model of installing rooftop solar PV in isolation, owned and operated by NSW Health.

Projection of costs: On-site PPA

Taking each example, what would the cost of an on-site PPA for NSW Health be over 15 years?

Detailed model inputs and model outputs showing the estimated cost and benefits from on-site PPAs for four subject sites.


Projection of Costs: Off-site PPA

Defining the types of off-site PPA structures

  • Listing their pros and cons
  • Taking each example, what would the cost of an off-site PPA for NSW Health be over 15 years?
  • Cost model of purchasing renewable energy via a regular, off-site PPA.

Projection of Costs: Virtual Power Plant

Taking an example of emerging technologies, illustrate the potential costs and benefits that might flow from the implementation of a VPP over a 15-year period using the four sample hospitals as a portfolio.

Detailed model inputs and model outputs showing the estimated costs and benefits from the VPP example as applied to the four subject sites treated as a portfolio.




Review OEH PPA Pricing Assumptions and Overall Scheme

Producing modelling for PPAs vs. ownership to test the assumption that “prices under a solar PPA are typically 20% cheaper than government contract rates”. For this body of work we provided commentary on publicly available information and information disclosed by the NSW Government.


Projected Retail Electricity Prices

We analysed publicly available information to provide a commentary on projected electricity prices forward 15 years and compared that with an analysis of what PPA prices would do over the forward 15 years.

  • NSW Government Ministry of Health Financial Services and Asset Management Case Study
  • Discuss the impact on 776 and 777 prices may over the forward 15 years
  • Discuss the impact of future wholesale electricity prices in regard to the costs or savings that a PPA entered into today may generate in future years

Other Cost Variables

Define as many other cost variables including foreign exchange, interest rates, bond yields, value of STCs, LGCs and other energy cost drivers and cost trends of solar generation assets.

Tabulate and explain the impact of the identified cost drivers and cost variables on the conclusions this paper draws.


Opportunities

Define a list of opportunities that will be opened or closed as a result of an on-site PPA and off-site PPA vs business-as-usual.

Determine the impact that a PPA has on:

  • Asset management
  • Adoption of new technology
  • Removal of old/outdated/inefficient technology
  • Smart control of generation, storage and consumption
  • Integration of BMS to the integrated controls strategy
  • Adoption of a Virtual Power Plant (VPP) model
    • Avoided costs
    • Offset costs
    • Income generation
    • Secondary benefits to the DNSP/generators

Funding options

Define the different finance models available to the Ministry of Health including the Treasury Loan Facility (TLF) (using publicly available information sourced from NSW Health), lease or bank finance, PPA and how those funding models could apply to different options considered in this paper.




Outcomes

Outline the cost of:

  • TLF/NSW Treasury Bonds
  • Private finance

Describe the competing options:

  • Power Purchase Agreements
  • TLF funded self-ownership (using publicly available information or information sourced from NSW Health)