NSW LTESAs – Project Bid deadline closing this week!

Peter Staciwa, Stuart MacGregor, Claire Smith, Nick Thomas and Stuart Cosgriff
26 Oct 2022
Time to read: 4 minutes

There is a lot of interest from public and private sector stakeholders alike in seeing how many proponents lodge project bids for the new NSW LTESAs this Friday and what those bids look like.

Last month the Australian Energy Market Operator (AEMO) released its Tender Round 1 Guidelines for proponents interested in bidding for Long Term Energy Service/Storage Agreements (LTESAs) and/or Access Rights to the Central-West Orana Renewable Energy Zone. Interested proponents must submit their bids before 5pm (AEST) this Friday, 28 October 2022.

An AEMO subsidiary, AEMO Services (in its capacity as NSW Consumer Trustee) is governing the bid process and is responsible for selecting which projects will be awarded a LTESA and/or Access Rights.

Following on from our original August 2021 LTESA article this article is the first in a series of brief articles we will be producing on these first of its kind instruments. Subsequent articles will focus on the legal details and risk allocation under the Generation LTESAs and Long Duration Storage LTESAs.

Quick recap: LTESAs

LTESAs form a key pillar of the New South Wales Government’s Electricity Infrastructure Roadmap. At a high level they are designed so that projects get out of the ground quicker than what they otherwise would have been able to if they were to rely purely on the private sector.

LTESAs enable project proponents to access price guarantees through a series of derivative “put” options granted over the life of the project. The strike price for these options (which is one of the key financial bid variables) is designed as a mechanism to enable to project to obtain sufficient finance for financial close of the project to occur and construction to commence. They are not designed to provide an economic return to the project’s proponents. LTESAs are designed to work alongside commercial offtake agreements if, and when, they are obtained by a project.

The tender process

Key dates

Tender process - LTESA

Project bid

Tender Process Deed

As part of their Project Bid, proponents are required to enter into a Tender Process Deed (TPD). The TPD governs the terms of engagement during the tender process. Importantly a security bond of A$4,000/MW (which is capped at A$800,000 per project) is required to be provided by proponents with the terms governing such security bond being contained in the TPD.

Project Eligibility Criteria

The guidelines provide an exhaustive list of conditions that must be satisfied to ensure that a project is eligible. For a generation LTESA, the project must have a generation capacity of at least 30 MW and must involve generation from a renewable energy source. Similarly, for storage LTESAs, the project must consist of storage units with a registered capacity that can be dispatched for at least eight hours.

Other eligibility criteria include evidence of project progress at the time of bidding. For example, a project proponent must:

  • have a connection agreement or an NSP response to a connection inquiry;
  • have lodged an application for planning approval or obtained Departmental requirements for a project EIS; and
  • submit a community engagement plan.

Project location

In addition projects must ideally be located in a NSW REZ. Projects outside of the REZ can still be eligible if they can demonstrate “Outstanding Merit” based on:

  • the long-term financial interests of NSW electricity customers;
  • how LTESAs contribute to achieving the Infrastructure Investment Objectives;
  • the non-financial value criteria of the LTESA; and
  • the impact of any generation infrastructure under an LTESA on congestion in the NSW region.

Project merit criteria

At this initial Project Bid stage there are six key criteria which will be used by AEMO Services to assess each project:

  1. Impact on the electricity system

    What positive or adverse impact the project may have on the existing projects that are currently (or will be) connected to the electricity system will be key. Ideally each project will provide additional value (ie. stability) to the electricity system and minimize negative impacts on existing projects.

  2. Pathway to commercial operation

    Proponents must demonstrate they have a clear pathway (including the financial capacity) to develop, construct and operate the project. Therefore risk allocation under and bankability of the LTESA documentation package will be very important for each project to demonstrate to its financiers, especially as these are first of its kind instruments in NSW and previously there have been some bankability issues with other government run auctions in other states.

  3. Organisational project delivery capacity

    Especially in the current supply constrained market this is a question not only of capability but also capacity. The proponent (along with its team of management, personnel, key suppliers, and contractors) must demonstrate both the capability and the capacity to deliver the project on time, within budget and to a high quality.

    In addition the proponent must engage with key stakeholders (eg. public authorities and regulatory entities, such as AEMO), and operate the project within the relevant regulations and standards.

  4. Land use considerations

    Proponents must consider the unique site-specific context in their site selection and design process. Proponents will be required to produce a project constraints map as well as address one or more of the following focus areas: the co-use of land, their biodiversity initiatives and outcomes, cultural heritage considerations and “matching” the site-specific features and landholders/local communities’ needs to the opportunity.

    The guidelines make it clear that this criterion is not a substitute for environment and planning assessment and approval (which each generation project will need), but is an opportunity to gain a competitive edge in factoring in good environmental and land use compatibility outcomes.

  5. Community engagement/benefits

    Proponents must have a Community Engagement Plan and evidence strong community engagement, including for First Nations peoples, throughout the lifecycle of the project. For example, Proponents will also be assessed on the project’s ability to facilitate high levels of community participation and benefit sharing (which is increasingly a consideration for regional renewable energy projects), including potentially through co-ownership and co-investment.

  6. Regional economic development benefits
  7. The proponent must demonstrate its contribution towards regional economic development and the quality of the proponent’s Industry and Aboriginal Participation Plan (IAPP). The IAPP is a mandatory attachment and will become legally binding should the proponent be successful in an attaining a LTESA.

According to the guidelines, the last three criteria (which are described as “social licence commitments”) will be binding and subject to contractual monitoring and enforcement regimes. This reflects the importance of establishing and maintaining a social licence for a major project in Australia (particularly having regard to regional considerations), the increasing importance of environmental social and governance (ESG) considerations for the public and private sector, and the increasing emphasis on these matters in Government procurement and contracting.

Financial Value Bid

If a proponent’s project is shortlisted AEMO will conduct a portfolio assessment and due diligence on each project with such shortlisted proponents being required to submit a Financial Value Bid which essentially has two components:

  1. Financial – a consideration of the wholesale electricity costs; the costs of network infrastructure and other services; payment made by the SFV under the LTESA; and any other matters that AEMO considers relevant; and
  2. Legal – an assessment of the materiality of any departures from the proforma Project Documents essentially comprising a Project Development Agreement and as applicable a Long-Term Energy Service Agreement (Generation) or a Long-Term Energy Service Agreement (Long-duration storage).

We will be analysing risk allocation under and the bankability of these documents in our upcoming articles.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.