Westpac has pledged to source 100 per cent of its energy from renewable sources by 2025, joining a growing band of big businesses moving away from traditional power sources amid the global push to a lower carbon economy.
Under a power purchase agreement (PPA) unveiled today with Bomen Solar Farm – due to be operational in the second half of 2020 on 250 hectares near Wagga Wagga in New South Wales – the bank will source 63 gigawatt-hours of renewable electricity annually to power its operations globally.
“One of the most exciting things about the PPA is that we’re effectively underwriting the development of a new solar energy facility,” says Ms Ceri Binding, head of energy and utilities in Westpac’s property team. “It will create incremental renewable energy capacity, generating enough electricity to power the equivalent of 36,000 homes, and employment opportunities in the local area.”
In simple terms, the PPA will see Westpac pay Bomen Solar Farm for an amount of renewable energy it will put into the grid, and the equivalent amount consumed by the bank will be recognised as having zero emissions.
Ms Binding says the PPA would deliver 45 per cent of the bank’s 100 per cent clean energy target by 2021 and a range of options including rooftop solar installations on its larger buildings and further supply agreements would be assessed to hit the 2025 target.
Aside from its environmental benefits, Ms Binding said the PPA would deliver “greater cost certainty for the bank’s NSW electricity cost base”, although she didn’t disclose the contract price.
“It is economically the right thing for Westpac to do,” she says, noting that the current cost of renewable electricity is less than the current wholesale price of electricity.
Against a background of sharply rising electricity prices, particularly since the closure of the Hazelwood coal-fired power plant in Victoria in 2017, corporate Australia’s desire for more certainty and lower energy prices has contributed to a sudden spurt in the corporate PPA market. Since taking off in 2016, almost 30 PPAs have been signed – including those by Telstra and BlueScope – supporting solar and wind projects with a combined capacity of nearly 3600MW, according to carbon management consultancy Energetics.
These have contributed to the recent surge in clean energy projects, despite ongoing commentary about the years of energy policy uncertainty that flared up again last year with the collapse of the federal government’s National Energy Guarantee.
Ahead of a Federal Election where energy policy and emissions targets are again a key issue, the Reserve Bank last month noted the dramatic shift in the renewables market in the past decade as “private actors” respond to market forces, labelling wind and solar “cost effective sources of generation” following the “rapid decline” in the cost of renewables.
“(This is) in part because of extensive spending on research and development in renewable energy technology around the world occurring both because of government policies and private actors anticipating the transition to a lower carbon economy,” RBA Deputy Governor Guy Debelle noted in a speech that marked the Bank’s first ever extensive commentary on climate change.
“As a result of the price decline, the investment cost-benefit analysis has changed and continues to change quite rapidly.”
According to the Clean Energy Council, more than $20 billion was committed to around 80 large scale wind and solar projects in 2018, double the value of the previous year, and one in five Australians now have roof-top solar. It says this lifted renewables generation to 21 per cent of Australia’s total power pool last year.
The proportion of renewables is likely to grow over the coming decades as more of the nation’s aging coal-fired power facilities like AGL’s Liddell plant in NSW are closed and, “right now, the cheapest thing to replace them with are renewables”, says Westpac institutional bank’s industry analyst Wayne Gagel.
While this transition has significant implications for the nation’s aging transmission system which was largely designed to cater for coal, Mr Gagel says the emergence of the PPA market reflects a broader evolution underway in the retail energy market.
“What we are seeing is some new specialist retailers coming in, creating new business models where they will contract with renewable energy providers and then pass that, plus the firming element, through to businesses … to essentially make the benefits more accessible to smaller scale businesses,” Mr Gagel says.
While PPAs like Westpac’s make sense for large energy users, Mr Gagel says not every business is going to go down that route as they can be complex to negotiate.
“Because we are going through change (in the energy market), the signal that screams the loudest first is always price… (and that’s) what is happening in the PPA market. Businesses are seeing the price, they're reacting to the price and then other people are … solving that price problem for them,” he says.
Westpac’s declaration to become 100 per cent renewable sees the bank join 171 other companies globally to have signed up to RE100 – a global initiative launched in 2014 by The Climate Group in partnership with CDP to bring together businesses that have made the same public commitment. Other Australian members include Atlassian, Bank Australia and Commonwealth Bank.
The global head of RE100 Sam Kimmins says the growing number of Australian companies joining RE100 sends a powerful signal that businesses want an energy system fit to support a clean economy.
“By setting a 100 per cent renewable electricity target, companies leave no room for doubt,” he says. “They’re committed to accelerate the clean energy transition. This is not just because it’s ‘the right thing to do’ – but because the business case is already there. What businesses now need is long-term policy certainty that enables impactful renewable sourcing strategies.”
The Bomen Solar Farm project, to be operated by listed utilities player Spark Infrastructure, will feature high-efficiency photovoltaic modules expected to produce more than 240 gigawatt-hours of renewable energy each year – or enough to power the equivalent of all the homes in the local Wagga Wagga region. Westpac marks the project’s second PPA, having signed up with FlowPower in December.
Ms Binding says the bank chose the Bomen Solar Farm project and partnership with Spark Infrastructure as it ticked boxes not only in regards electricity supply, but also social outcomes for the local Wagga Wagga community, including a community fund to develop student scholarships, youth facilities and vegetation and habitat regeneration.