Agenda of Environmental Sustainability Policy Committee

Environmental Sustainability Policy Committee 1 June 2021

2.1 Electricity Procurement

RECORD NUMBER: 2021/1039

AUTHOR: Lindsay Hall, Sustainability Officer

EXECUTIVE Summary

Member Councils of the Central NSW Joint Organisation (CNSWJO) have been procuring electricity collaboratively for over 15 years. In the past this has provided substantial cost savings to members.

The contracts for small tariff sites (< 100MWh p.a.), large contract sites (> 100MWh p.a.) and street lighting expire on 31 December 2022. CNSWJO is now preparing to coordinate the next procurement process for a contract to commence on 1 January 2023.

While the procurement process in the 2019 electricity contract negotiation was unable to achieve Councils’ request for 20% renewable energy component at the right price, the energy market continues to evolve. A number of councils around the State have been able to secure up to 100% renewable energy Power Purchase Agreements (PPAs) at lower prices than existing electricity contracts.

There is increasing interest across the Central NSW region in energy efficiency and renewable energy, and the upcoming procurement process for the supply of electricity aims to take advantage of this opportunity and seeks a commitment from CNSWJO member councils to contribute a minimum of 50% of the total annual load to renewable energy.

On 4 June 2019 Council resolved to contribute 20% of Council’s electricity load to a renewable energy Power Purchase Agreement where the pricing is financially advantageous

DPIE has agreed to fund $50,000 for third party procurement advice to the 2023 electricity contract where it includes consideration of a 50% renewable energy PPA.

The process of procuring electricity is complex and time-consuming. Expert advice and input are required from a consultant who specialises in the energy market, along with key stakeholders from member councils.

There is growing interest from members to incorporate renewable energy into the contract where until now it has only been regular grid power. While the 2019 process sought a minimum of 20% of the total load from renewable sources, the upcoming process will be increased to 50% on the basis that there is a strong focus on renewable energy opportunities from member councils.

As there are many elements to this process, GMAC will be updated throughout the next 12 to 18 months on this project, and interim direction will be sought from the General Managers providing oversight to the process in-between meetings.

Link To Delivery/OPerational Plan

The recommendation in this report relates to the Delivery/Operational Plan strategy “7.2 Preserve - Ensure best practice use of renewable energy options for Council and community projects”.

Financial Implications

Nil

Policy and Governance Implications

Nil

Recommendation

That Council resolves:

1 That Council note the Report on Council Electricity Procurement;

2 That Council note the alignment between the advice in this report and Council’s renewable energy plan, energy targets and the NSW Government’s aspirations for Net Zero;

3 That Council contribute a minimum of 50% of Council’s electricity load to a renewable energy power purchase agreement where the pricing is lower than the existing contracted price; and

4 That staff advise Central NSW Joint Organisation of Council’s decision.

further considerations

Consideration has been given to the recommendation’s impact on Council’s service delivery; image and reputation; political; environmental; health and safety; employees; stakeholders and project management; and no further implications or risks have been identified.

SUPPORTING INFORMATION

Background to Electricity Procurement

CNSWJO member councils have been procuring electricity through an aggregated approach for over 15 years, with significant savings being achieved. While estimated savings and actual savings differ where there is a change in the total load for individual sites, the estimated savings identified through the 2019 procurement process of the current contracts were $2.92m across the CNSWJO region over the 3-year contract period when compared to the previous contracted prices. The current status of electricity contracts are as follows:

· Small tariff sites – Origin Energy – 1 January 2020 to 31 December 2022

· Large contract sites – Energy Australia – 1 January 2020 to 31 December 2022

· Street lighting – Energy Australia – 1 January 2020 to 31 December 2022

Through the Joint Organisation (JO), work is underway with the Department of Industry, Environment and Planning (DPIE) to deliver a variety of renewable energy and emissions reduction outcomes for member councils. Each member council has identified two key projects which include work such as emission reduction plans, renewable energy action plans, solar and storage assessments, operational efficiency audits of aquatic centres, and smart metering. This work has been fully funded by DPIE’s Sustainable Councils and Communities (SCC) Program.

Orange City Council is participating in the development of a Renewable Energy Action Plan.

The DPIE SCC program has been well received by JO members including the advice on procuring renewable energy. The JO continues to seek funding support for other energy-related programs.

Engagement of Aggregated Electricity Procurement Support

At its meeting of 11 March 2021, the CNSWJO Board received a report on electricity procurement which included information on an upcoming Expression of Interest (EOI) process to be conducted by the JO to identify a consultant to assist the JO and member councils throughout the procurement process. It is expected that this EOI process will be followed by a Request for Quotation (RFQ) process.

In previous contracts for aggregated electricity procurement support, the fee structure has been through an ongoing trailing commission over the life of the contract. It is recommended that the consulting support be replaced with an up-front fee. It is expected that this will result in lower costs for councils overall.

CNSWJO approached DPIE to seek funding to support members in the electricity procurement process. In early April 2021, DPIE provided advice that approval had been granted to allocate up to $50k to CNSWJO member councils for the aggregated electricity procurement support through its Sustainable Councils and Communities Program.

The DPIE funding is predicated on the following:

· the funding is up to $50k, with the remainder payable by participating CNSWJO member councils;

· the result must include a renewable energy PPA;

· the consultant will be engaged to gather necessary energy data from the councils, provide technical advice and run a procurement process to secure quotes from energy providers to supply electricity including a PPA with as high a proportion of renewable energy as possible; and

· that GMAC commits to proceeding with the process with the inclusion of a renewable energy PPA at its 29 April 2021 meeting.

It is expected that the price of the consultant for all member councils combined will be in the vicinity of $100k. Should this be the case, with the $50k funding from DPIE, and assuming all councils participate, the cost to councils for the engagement could be as low as $5k each. This is only an estimation, and the price will be confirmed through the EOI and RFQ process, with approval being required from each Council prior to CNSWJO engaging the successful consultant.

Should the contract for the supply of electricity not include renewable energy, DPIE will not contribute the $50k and councils would be required to pay the full aggregated procurement support consulting fees.

At its meeting on 29 April 2021, GMAC received a report on electricity procurement including information regarding the DPIE funding for procurement support, where the following resolutions were made:

e. Electricity Procurement

Resolved

Mr D Waddell/Mr K Boyd

That GMAC note the report on electricity procurement and

1. nominate the following General Managers to provide oversight and direction to the evaluation panel for electricity procurement: David Sherley, Bradley Byrnes and Greg Tory;

2. approve the RFQ resulting from the EOI for aggregated electricity procurement support to be a selective RFQ if sufficient responses are received to the EOI;

3. approve an up-front fee structure for the aggregated electricity procurement support, with councils paying a minimum of 50%;

4. note the funding of $50k allocated from DPIE including the funding conditions where the contract for electricity supply must include a renewable energy PPA and the balance be paid by participating member councils;

5. commend to the Board that it writes to DPIE to thank them for the support and funding to support the transition to renewable energy;

6. receive proforma reports to Councils for the May Council meetings regarding commitment to the inclusion of renewable energy;

7. each Council nominate the contact person for electricity procurement who will be responsible for providing data in a timely manner;

8. commend to the Board that it writes to the Minister for Local Government seeking amendments to legislation to allow councils to have more options for the uptake of renewable energy;

9. the minimum percentage of council’s total load to allocate to be sourced from renewable energy in the contract commencing 1 January 2023 be a minimum of 50%, subject to pricing;

10. engage an independent probity advisor to oversee the procurement process;

11. refresh the legal advice on the procurement process and acceptance of offers regarding extenuating circumstances for the upcoming process; and

12. recommend to the Board that it does not invite non-member councils to participate in the procurement process.

Procurement Process

While the contracts for electricity supply would not commence until 1 January 2023, it is recommended that the procurement process commence as soon as the aggregated procurement support consultant has been engaged. This long lead time will ensure there is sufficient time for data collection, understanding options and specific council requirements, conducting the procurement process, acceptance of offers, and if need be, seeking a reprice from retailers should offers not be accepted by the evaluation panel.

A Project Steering Committee has been established for Electricity Procurement, and includes:

· Bathurst Regional Council – Neil Southorn and Deborah Taylor

· Blayney Shire Council – Charlie Harris

· Orange City Council – David Waddell

· Parkes Shire Council – Andrew Francis

· CNSWJO – Jenny Bennett and Kate Barker

· DPIE – Mark Squires and Grant Christopherson

· Simply Sustainable – Simon Wright (consultant engaged through DPIE to support councils with the funded energy projects).

While the Project Steering Committee will not be involved in the evaluation of offers, an Evaluation Panel has been established which consists of representatives from JO member councils, and includes:

· Bathurst Regional Council – Neil Southorn and Deborah Taylor

· Blayney Shire Council – Charlie Harris

· Orange City Council – David Waddell

· Parkes Shire Council – Andrew Francis

Oversight to the Project Steering Committee is provided at General Manager level by David Sherley (Bathurst Regional Council), Bradley Byrnes (Cabonne Council) and Greg Tory (Lachlan Shire Council).

Renewable Energy Power Purchase Agreement (PPA)

Councils received reports in 2019 for the last procurement process regarding a recommendation to include 20% of the total load as being sourced from renewable energy. All 10 member councils and Central Tablelands Water resolved to include 20% of load. In the upcoming procurement process, and based on the significant increase in interest from members in renewable energy options, it is recommended that Council increase this percentage to 50%, as per the resolution from GMAC on 29 April 2021.

The stipulation on the 2019 procurement process was that the renewable energy price needed to be financially advantageous. The RFP requested prices for 80% grid/20% renewable energy, as well as 100% grid prices. As the 100% grid prices came in cheaper than the blend of grid and renewable energy, councils were unable to accept the offers. CNSWJO propose to seek offers for 50% grid/50% renewable energy in the upcoming process, along with an option to increase the renewable energy percentage above 50%, but not to decrease it.

There are one or two CNSWJO member councils that have a very small number of large contract sites (>100MWh pa), and where typically small sites (<100MWh pa) do not have ‘time of use’ meters installed, these councils may not be able to achieve the 50% blend due to their unknown daily load profile. More will be known once the aggregated procurement support consultant has been engaged, and affected councils will be presented with alternative options if necessary.

Typically, renewable energy PPAs are long-term agreements of around 7 - 10+ years, while the ‘regular grid electricity’ contracts are much shorter agreements ranging from 12 months to 36 months. A variety of options for duration will be considered throughout the process, however the advice from the aggregated procurement support consultant will determine the duration of contract requested in the procurement process, where there may be several options requested.

Other Considerations

As noted, all JO member councils are currently participating in the regional energy project where the consulting support is being fully funded by DPIE. Each council is participating in different projects according to what their priorities are.

When considering the upcoming electricity contract, councils will need to consider the impact of these projects and other current and future projects on the total electricity load.

Mechanism to Accept Offers

The previous two procurement processes for the supply of electricity have required a resolution from Council deeming there to be extenuating circumstances to the acceptance of offers for the supply of electricity. In 2019, this legal advice was refreshed, and reports were subsequently received by councils where the relevant resolution was made.

While the timeframe for the acceptance of renewable energy offers is typically longer than the acceptance of a regular grid power offer, which can be as little as 48 hours, the balance of the energy purchased would be regular grid power, so the timeframe for at least a portion of the offer may be subject to the 48-hour timeframe.

At its 29 April 2021 meeting, GMAC resolved to refresh the legal advice for the acceptance of offers.

Prior to conducting the procurement process for the supply of electricity and subsequent to the refresh of legal advice, JO member councils will receive a proforma report to Council detailing the process and seeking the relevant resolution.