- 01Waroona credits lifted to 99MW from 88MW.
- 02Annual capacity payments rise to ~$36m from ~$32m.
- 03Forecast annual revenue/EBITDA/free cash flow: $76m/$66m/$38m.
The Australian Energy Market Operator (AEMO) has assigned a reserve capacity credit (RCC) of 99 megawatts for Stage One of Frontier Energy’s (ASX: FHE) Waroona renewable energy project in Western Australia.
The allocation, which has been increased from the previous 88MW, lifts the annual reserve capacity payment (RCP) received by the company from approximately $32 million to $36m.
Stage One will receive a fixed RCP of $360,700/MW per annum for each RCC until 30 September 2032, after which the RCP will revert to a “floating price”.
The RCC increase reflects amendments to the state’s Electricity System and Market Rules which have lifted the contribution of Waroona’s intermittent renewable generation (solar) component during periods of high demand.
Revenue received from RCCs will be in addition to revenue from energy sales.
One-Off Sustained Uplift
Frontier considers the RCC increase to be a one-off sustained uplift resulting from a transition to the revised electricity assessment framework.
The company has accordingly revised its financial forecasts for Stage One (from first generation to September 2032) to include an average annual revenue of $76m (up from $72m), average annual EBITDA of $66m (up from $62m), and average annual free cash flow of $38m (up from $35m).
Executive chair Jamie Cullen said the increase in RCCs would deliver a meaningful uplift in fixed price revenues and further enhance the “already compelling economics” of the Waroona project.
“This is an excellent outcome for Frontier and further strengthens the already robust commercial foundations of Stage One,” he said.
“As we wrap up several key milestones for Stage One’s development, and progress work on Stage Two, a strong platform is being laid to establish Waroona as a major renewable energy hub in WA”.
Peak Demand Mechanism
Introduced in Western Australia in 2006 following a string of blackouts in 2004, the reserve capacity mechanism (RCM) aims to ensure there is enough electricity available statewide to meet forecast peak demand.
The system is unique to WA, with all electricity generation and storage facilities certified under the RCM able to be allocated RCCs based on their size and type.
Facilities that can dispatch energy during peak periods are required to be assessed and certified by AEMO, which typically considers factors such as approvals, network connection progress, equipment procurement, and construction timelines to confirm a project’s capability to meet its obligations.
Those that meet these requirements must be available to provide energy during peak periods and are paid an amount (the RCP) per megawatt of capacity RCCs provided at these times.
The relevant level testing method, which the state government recently introduced to assess the dependable contribution of intermittent renewable generator projects (namely wind and solar) during high demand, is seen as superior to the previous methodology that adopted a conservative assessment of solar generation’s contribution at these periods.
Get the wire before the market opens.
The ASX small-cap stories that matter, filed before 9am AEST. Curated by the Small Caps desk.