Energy Developments
Frequently Asked Questions
What is Energy Developments?
Energy Developments Limited (EDL) is an Australian ASX listed company, based in Brisbane, Australia.
EDL is a leading green energy producer with 534 MW of constructed power plants fuelled by landfill gas, coal mine methane, LNG, CNG and pipeline natural gas in Australia, the United Kingdom, the United States and through JVs both in France and Greece.
The majority or power stations are large reciprocating spark ignition gas engines, but the fleet also includes several gas turbines.
What is Landfill Gas and why is it a 'Green Fuel?'
Landfills contain considerable quantities of green waste and biodegradiable food and similar wastes. These decompose in an oxygen deficient enviroment and this produces methane gas as well as lesser quantities of other gaeous products. The methane fuel arises from the carbon that was stored in this material while it was growing - hence the landfill gas is a renewable biofuel. Landfill gas is not only renewable in that the gas burned is produced from bio sources but a good gas collection system also ensures a maximum capture of methane which otherwise can migrate to the atmosphere. Methane is a potent greenhouse gas twenty times worse than CO2 in heating effect.
To provide incentives to capture a high percentage of landfill gas many jurisdictions offer very good sales prices for landfill gas renewable energy. The variety of schemes is somewhat bewildering in the detail and some schemes like the Australian New South Wales Greenhouse Certificate scheme (NGAC scheme) also ensures incentives are present for the destruction of the methane in landfill gases, further encouraging investment in gas collection systems.
Energy Developments frequently undertakes the collection of gas from landfills and maintains the system of low pressure suction pipes and wells in the landfill that provide a vacuum based collection system. The gas is treated as necessary to reduce moisture levels and filter out fine particles and then burned in gas turbines but more typically in modular reciprocating gas engine/generators, typically using large 16 or 20 cylinder engines to produce 1-2 MW of power from each engine. In total EDL has 233 MW of landfill capacity, about half in Australia and the remainder split between the US and the UK/Europe.
EDL’s experience is that landfills are not all the same and gas composition varies considerably as does the climatic conditions and their effects on the gas collection systems and the generators. There are clear benefits from being a specialised developer backed by broad operating experience.
EDL has a large variety of commercial structures but typically its rights to access gas are long term and it sells the power generated on contracts of between 5 and 15 years duration on initial establishment of the project. The environmental credits are sometimes sold bundled in with the electricity sales but in many cases EDL sells these attributes separately.
Royalties are paid to the landfill owner for gas collected. These vary widely across projects and jurisdictions, reflecting the time at which gas rights were secured and the value at that time of generating electricity from the landfill gas. Rising market values for the environmental and renewable credits has also lifted royalty rates (as would be expected in a competitive market) but EDL has considerable value in many of its US, UK and Australian landfill gas rights.
What is Coal Mine Methane?
The mining of coal liberates methane gas trapped in the coal seams. Methane is a potent greenhouse gas but often this is simply vented to atmosphere. Before mining begins it is possible to drill wells to predrain the coal seams and thus to prevent the methane leaking to atmosphere when mining commences and from the areas where mining has been completed. The extracted methane can be utilised as a fuel for power generation, in a similar manner to landfill gas.
Energy Developments, developed and wholly owns the world's largest coal mine waste methane power generation project at the Appin and Tower coal mines in New South Wales, Australia. This 97MW project clearly establishes Energy Developments as the world leader in coal mine waste methane power generation. Additionally EDL has recently commissioned a 32 MW power station at German Creek in Queensland utilising coal mine methane.
This methane would normally escape to atmosphere if it where not collected and again there are material environmental benefits. The cost of installing gas collection systems and of burning the methane in relatively small scale plant can only be recovered when there are schemes that provide substantial top-up on the normal power price.
How Does EDL Provide Clean Fuels for its Remote Power Stations?
In Australia, there are large areas of the country which are sparsely populated and cannot be economically serviced by the main electricity grids. Traditionally there has been no alternative but to rely on diesel fuel for power generation. EDL has invested heavily in building expertise to store and transport clean LNG and CNG fuels to allow these clean fuels to be used in remote power generation. The transport of LNG and CNG in road train configurations is a critical component of this.
EDL has applied it’s expertise in small scale power generation, and in LNG and CNG cartage, to provide clean electricity supply for remote communities and remote mining operations in Australia. Reliability of supply is important and EDL has earned an excellent reputation with its customers. This reputation has been critical to winning substantial expansions of this business with the 60+ MW supply to the remote towns of Broome and Derby in Australia’s West Kimberley region.
The Company operates 7 remote area power generation plants with a combined capacity of 168 MW of electricity plus steam and waste heat for customer process requirements.
What is LNG and how is EDL using it to provide power to the remote West Kimberley?
West Kimberley is the area in the north west of Western Australia with the fast growing town of Broome and with the communities at Derby, Halls Creek and Fitzroy Crossing. Until recently these towns relied on heavy subsidies to cover the very expensive diesel power stations. EDL won a competitive tender in 2003 to transfer electricity supplies to mostly clean efficient LNG powered gas engines.
The project involves purchasing pipeline gas at Karratha, some 1000 km from Broome and 1500 km from Halls Creek, and processing this at the Karratha LNG plant, a relatively small (200 tonnes per day) cryogenic facility. LNG consists of nearly pure methane and all longer chain hydrocarbons liquefy early in the cooling process and are removed. The very low temperature LNG has substantial energy density which makes long distance truck transportation practical.
Triple road train configurations are used in an airline scheduling style operation to transfer LNG to shorter term storages in the remote towns.
This power project is in the final stages of commissioning. The project suffered very material cost overruns, similar to many projects exposed to the cost inflation pressures from the mining boom experienced in Western Australia. Costs to completion are currently estimated at $320m.
What is CNG and how is EDL using it to provide cheaper, clean power to Yulara (Uluru, central Australia)
CNG is compressed natural gas. EDL has adopted standard carbon fibre CNG tanks such as used in gas powered buses into modularized units suitable for cartage by road. This has enabled projects like Yulara to be successfully supplied with gas from remote locations without needing to build pipelines.
Why is the US Business making a loss?
EDL entered the US market early this decade and secured long term gas rights. Power sales arrangements were locked in periods of 10-15 years in most cases at ‘adequate’ return levels based on the business model of utilizing Deutz engines, which provided the potential for very competitive costs. In reality costs have been higher than originally expected and the kWh’s produced have been well down as well. The causes of this are a combination of poor engine reliability and, on some sites, difficulties in managing costs with a high level of siloxanes in the landfill gas. Siloxanes produce tough silicon deposits in the engines which can lead to early degradation of engine oil quality and general degradation of engine output.
These issues have plagued the US performance for some time.
A settlement was reached with Deutz including a maintenance agreement with performance standards for engine reliability and engine operating costs more in line with originally communicated expectations. However EDL still has sites with excessive downtime and repair costs with some failures and costs being attributed to causes outside of the responsibilities accepted by Deutz.
EDL’s segment results show the US business to being making losses of approximately A$3m on assets of over $70m. EDL expects a slow but significant turn around in the US as operational issues are improved and as PPA pricing rolls over to the much higher levels now available. Further green attributes are increasingly becoming converted into property rights called ‘green tags’ and the prices for these are firming. There is considerable surplus gas at EDL’s US sites and EDL’s US gas rights are very long term.
In the UK EDL is already receiving good upside results from the higher priced and more mature renewable policy environment.
How does Infratil view the renewables sector in the long term?
Infratil has long considered that policy changes in response to global environmental concerns would continue to expand in the developed world. For some time Infratil has also considered the science of climate change to be convincing. More recently climate change concerns have moved to be a mainstream focus on a global scale. It is remarkable the shift in global attitudes to climate change science in only a couple of years.
A consequence of climate change moving to become a mainstream focus is that jurisdictions with well developed community support for a more renewable future are now moving their focus to cap and trade mechanisms and economy wide pricing of carbon. New Zealand and Europe are at the forefront of such developments. In the fullness of time should carbon become fully and accurately priced across all sectors of an economy, there will be little logic to specific incentives for renewables or for consumers to elect to pay additional amounts for renewable power when they are already paying for the full environmental costs. However, this situation is theoretical in the extreme and will only ever be approached to a very limited extent in the more mature carbon priced markets such as Europe and New Zealand. Hence Infratil expects there to be a critical role for specific renewable incentive schemes to augment the many limitations that will prevent any carbon to fully priced in to economies. Schemes also have a place in technology nurturing to allow sectors such as solar and offshore wind to advance and improve performance and develop scale in manufacture hence lowering unit costs.
Policies to support renewable investments in power project’s such as EDL’s landfill gas and coal mine methane are currently based on premium prices for the sale of renewable attributes and methane destruction. These policies need stability and assurances of longevity if they are to succeed in driving the desired investment. The UK has delivered such policy settings and the ROC scheme has been designed with investment encouragement in mind. In contrast the Australian schemes have been chaotic in respect to price stability and ongoing certainty and a ‘stop - go’ approach to renewable industry has developed. The current lack of support for the NSW NGAC scheme has been disappointing for EDL and EDL looks for improvement in policy settings that will ensure the scheme meets its aims.
In time Infratil expects to see brown power prices in Australia and the US and Europe to move up to capture some carbon costs but only to a limited amount of what might be thought of as full carbon pricing. These jurisdictions are expected to continue to develop and implement specific renewable policies that will ‘bridge the pricing gap’ to ensure more renewables are developed.
Is Infratil happy with EDL’s performance and its direction?
EDL has struggled to meet expectations in execution of capital projects that add to shareholder value and also in respect to results from the US business as commented on above. Infratil continues to believe that ‘pleasant surprises’ should exceed ‘negative surprises’ for companies in good sectors. Infratil’s approach is to work with companies in sectors it believes in and to assist companies become good performers in that sector.
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