Frontier Energy believes its solar farm and battery strategy will help meet critical electricity demands for WA in the years to come
Demand in WA has already exceed the 2023 peak six times in the first three months of this year
In another vote of confidence for Frontier, company directors and management of the company increased their shareholdings to a collective 12% stake
Special Report: Peak energy demand in Western Australia soared to a record of 4.23GW in February 2024, a development that highlights the urgent need for new energy supplies such as Frontier Energy’s proposed Waroona renewable energy project.
Demand in WA has already exceeded the 2023 peak six times this year, necessitating the use of diesel-generated energy to meet requirements and for the Australian Energy Market Operator (AEMO) to implement ~235MW demand reduction measures.
This resulted in WA wholesale electricity market (WEM) prices hitting a record average of $76 per megawatt hour (MWh), up from the previous record of $73/MWh in February 2023.
Frontier Energy (ASX:FHE) recently delivered a definitive feasibility study (DFS) outlining attractive economics for its Waroona renewable energy project, which comprises a 120MWdc (megawatts of direct current) solar facility with an integrated four-hour 80MW battery that is expected to be invaluable given the increased volatility in electricity prices.
The $304 million project is expected to generate EBITDA of $68 million over the first five years and deliver post-tax internal rate of return of 21.6%.
Meeting WA’s demand
In light of the growing electricity demand in WA, FHE believes its solar farm and battery strategy has the potential to supply electricity during periods of peak demand and higher prices.
Recent record demand days on the WEM. Pic via FHE
It will also help meet demand currently met by coal generation, which provided 32% of the electricity supply during the demand peak.
Most coal generation capacity is owned by the WA State Government, which has advised that closure of coal generation capacity will start in 2025 for a 2029 completion.
FHE has also identified the Federal Government’s $67 billion Capacity Investment Scheme as a potential funding opportunity that could enhance returns from its Waroona project.
The CIS remains on track for initial tenders during April/May 2024 and is planned by Government to be implemented through to 2027.
“There is an urgent requirement for new major energy supply in Western Australia, as electricity demand continues to grow at a rapid rate,” FHE chief executive Adam Kiley said.
“This has again been highlighted by the state’s electricity network recording the six highest ever demand periods in the first two months of 2024, and prompting AEMO to call for supplementary diesel generation and demand side management.
“AEMO has identified growth in business electrification, along with growth in cooling load (air-conditioning), electric vehicles, and the expansion of industrial loads as likely to underpin strong electricity demand growth over the next decade.
“In addition, it has been reported the Water Corporation’s $2.8 billion Alkimos desalination plant will not be able to achieve its target of 100% renewable energy, due to limited new major renewable energy projects coming online.
“With other major industrial projects planned in the region, all with similar renewable energy aspirations and requirements, we believe the strategic value of our Waroona renewable energy project is becoming clearer to the market.”
A show of confidence
Highlighting their confidence in the company’s plans, FHE directors and management have purchasd over 1.3 million shares in 2024, giving them a collective 12% stake in the business.
This represents a strong show of confidence in FHE as it advances towards a final investment decision for the Waroona project, which is due in mid-2024, with both debt financing and strategic processes continuing to move forward.
Kiley flagged that with the “clear and urgent requirement for more renewable energy on the grid”, the company would look to action future expansion as quickly as possible once Stage 1 of Waroona is finalised.
This article was developed in collaboration with Frontier Energy, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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