Frontier Energy secures assigned Certified Reserve Capacity for Waroona renewables project

Frontier Energy lodges required Reserve Capacity Security to secure its assigned 87.2MW of Certified Reserve Capacity
CRC guarantees Reserve Capacity payments for five years, which supports the company’s debt financing strategy
AEMO to determine Capacity Credits and Reserve Capacity Price before the end of September

Special Report: Frontier Energy has locked in the assigned 87.2MW of Certified Reserve Capacity for its Waroona renewable energy project in WA after lodging the required Reserve Capacity Security.

The company was assigned the CRC in mid-August from the Australian Energy Market Operator, a move that guarantees Reserve Capacity payments for five years – aligned with its definitive feasibility study assumptions.

While Frontier Energy (ASX:FHE) had previously estimated in its definitive feasibility study that Reserve Capacity payments would provide up to $27m per annum, or ~36% of the revenue for Stage One, it noted that peak period electricity prices had increased strongly from $127 per Megawatt hour during August 2023 to $160/MWh in August 2024.

Chief executive officer Adam Kiley said that with the CRC assigned and the lodging of the required Reserve Capacity Security, the company was now awaiting the AEMO’s determination of the Capacity Credits and Reserve Capacity Price, which will be released before the end of September.

“Reserve capacity payments, which can be fixed for up to five years, are critical for the development of the project, as they support Frontier’s debt financing strategy,” he added.

“In addition to Reserve Capacity, the project also derives revenue from energy sales (excess solar energy is stored via the battery and released to the WEM during periods of peak demand) and Large Generation Certificates (LGC) (a form of carbon credits).

“Electricity prices and LGC prices remain significantly above those forecast in the DFS. Sustained high electricity prices illustrates the urgent need for energy generation assets, such as the Waroona Project, to be brought online as quickly as possible, as opposed to batteries only, that are storage only and do not generate energy.”

Waroona renewable energy project

Stage One of the Waroona project in WA combines a 120MWdc (megawatts of direct current) solar facility with an integrated 4.5 hour duration 80MW/360MWh lithium-ion phosphate (LFP) battery to supply clean electricity into the South West Interconnected System.

The battery enables the company to benefit from the high energy price during peak periods.

Notably, the project has already entered into a debt financing agreement with Mike Cannon-Brookes-backed Infradebt for up to $215m, enough to fund development of Stage One works.

Stage Two expansion of the project could be underpinned by the Federal Government’s Capacity Investment Scheme for WA, which seeks to underwrite 1.1GW/4.4GWh of new, clean dispatchable energy in WA to address expected electricity generation shortfalls in the state.

This provides both battery-only as well as co-located solar and battery projects with more than 30MW capacity with annual revenue underwriting of up to 90% based on the units of $/MW of capacity credits, if the project falls below a revenue floor for up to 15 years after commissioning.

Should a project’s revenue exceed a ceiling rate, half of its revenue will need to be returned to the Government to cover the costs of the scheme, depending on the capacity credits generated and ceiling bid.

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.