MELBOURNE RENEWABLE ENERGY PROJECT Adam Zaborszczyk Senior Sustainability Officer – Sustainable Energy 12 June 2016 How to drive new investment in renewable energy through customer led solutions. Focussed on upstream solutions. Local rooftop solutions insufficient to meet City’s needs. Local Government, Institutions (Universities); Corporates.

CITY of MELBOURNE CONTEXT ZERO NET EMISSIONS AIM: To change the source of our stationary energy supply, ultimately using 100 per cent renewable energy within the municipality. The City set a target of 25% of the City’s electricity being sources from renewable sources by 2018. There is a national target in Australia of 20 renewable energy by 2020. We know that there is currently some voluntary purchase of renewable energy by customers in Melbourne, which makes up about another 1%. Additionally, there is some local rooftop solar (about ) with potential for some more. So 25% really represents a little bit more on top of the national policy targets and voluntary actions that are occurring currently. So the question then is, what can the municipality do to affect this additional 5% or so.

Most of the electricity supply in Victoria comes from fossil fuels – specifically coal. Only about 12 – 14% of our electricity supply comes from renewables. – mostly hydro and wind. We assessed the potential of rooftops for solar and local generation. If you look outside, the central city is characterised by large tall buildings, with relatively small rooftops. There is some potential, but relatively, it is small. We had to look outside the city, upstream in the grid. We don’t control the electricity supply.

THE CONCEPT We quickly recognised that we would need to focus on voluntary purchasing decisions by customers, to drive new investment. 20% RET However, we recognised the lack of investment and the uncertainty in the renewable energy sector There was a ‘buyers strike’. The policy uncertainty led to investor uncertainty. Investment in renewable energy dropped by 85% last year. Elsewhere investment was growing Large energy retailers are not signing contracts for offtake agreements for new electricity facilities. Many retailers have existing generation assets, and we have an over supply of coal and gas plant. So the question for us. How do we use customer demand for renewable energy to drive new investment in large utility scale facilities. We set out to develop a model. So we developed this concept as a way to aggregate the purchasing power of large users who share ambitious sustainability targets The concept we aimed for was for customers to be able to buy electricity from a new, utility scale, renewable energy project. NEEDED MINIMUM 10 YEAR OFF-TAKE AGREEMENT. To provide investment certainty.

MARKET INVESTIGATION What we learned Abundant proposals for new projects Sufficient generation until 2024 Contracts for new projects not being signed – ‘buyers strike’ Renewable projects driven by RET Price premium So we identified: (slide)

MARKET RESEARCH Customer Attitudes - What we learned: GreenPower and Renewable Energy Certificates: Purchased on (short term) merchant market Don’t provide long term price certainty Relatively expensive Not linked to specific projects Lack of consumer confidence Lack of branding ‘value add’ Additionally to our investigation of the electricity sector, We commissioned customer focussed market research To understand attitudes towards renewable energy among large electricity customers

ACHIEVING REPLICABILITY New procurement pathways Achieve scale and reduce overall costs for renewable energy Demonstrate additional benefits of renewable energy (reputation, brand, direct association with projects) The most important aspect to our work was that the model should be replicable. Want others to do the same thing – voluntarily Want to achieve scale.

ORGANISATIONAL DRIVERS Identifying additional value to drive renewable energy. VISION Our initial research indicated that large users could see greater benefits in a tangible connection with a renewable power facility rather than generic GreenPower™ And as we approached potential partners, we found there was a valuable intersection between leadership, reputation and a strong connection to Melbourne Furthermore, we concluded that we could secure a more cost effective option than GreenPower™ if we acted together This as a whole forms the vision that we hope to achieve through this project. Having identified an initial group of potentially interested customers, we undertook a market test. Not a full tender, but a REQUEST FOR INFORMATION from the market to enable us to support a business case.

Local Governments Universities Banks Post Office Data Centre Public organisations: - zoo, - convention centre, - federation square Focussed on Melbourne brands Some of these organisations could have done this on their own, But didn’t want to commit time and cost on something unknown. Safety in numbers.

Challenges Business case Premium compared to black power, cheaper compared to Green Power Shifting to a long term contract (10-15 years – locking in price) Stakeholders Managing purchasing group (14 organisations) – no. and size of load Aligning private and public sector purchasing process Process Timelines Developing new contract structure Different procurement processes across group

Opportunities for local government Relatively stable electricity portfolio Able to take a 10 year view Similar types of organisations & procurement processes Used to undertaking group procurement Electricity contract timeframes are mostly aligned Community support

THANK YOU MELBOURNE RENEWABLE ENERGY PROJECT FINANCIAL & OPERATIONAL CONSIDERATIONS