The assignment of CRC by the AEMO is a major win for Frontier’s Waroona renewable energy project. Pic: Getty Images
Milestone Certified Reserve Capacity win underpins revenue for Frontier’s Waroona Stage One
Energy
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- Frontier secures milestone assignment of 87.2MW of Certified Reserve Capacity from the AEMO
- CRC assignment provides guaranteed Reserve Capacity payments that underpin debt financing
- It also recognises the significance of the Waroona renewable energy project to WA’s energy market
Special Report: Frontier Energy has hit a major milestone after its Waroona renewable energy project in WA was assigned Certified Reserve Capacity by the Australian Energy Market Operator.
Importantly for the company, the 87.2MW of Certified Reserve Capacity (CRC) for the 2026/27 capacity year provides guaranteed Reserve Capacity payments for five years that are aligned with its definitive feasibility study assumptions, which in turn serves to underpin debt financing.
Frontier Energy’s (ASX:FHE) DFS for Waroona had estimated that Reserve Capacity payments would provide up to $27m per annum, or ~36% of the revenue for Stage One.
Adding further interest, securing the CRC, which had previously been assigned primarily to major power generators Synergy and Alinta, demonstrates the significance of Waroona to the WA energy market and validates its credentials.
Stage One of FHE’s Waroona renewable energy project 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 average energy price of $143MWh during peak periods by storing electricity generated by the solar panels during off-peak hours when the sun is shining.
FHE 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.
CRC an endorsement of Waroona
“This is a major milestone for the company as the assignment of Certified Reserve Capacity is an endorsement from the AEMO regarding the project’s credentials to become a significant energy producing asset in Western Australia by 2026,” chief executive officer Adam Kiley said.
“Reserve capacity is unique to WA and a key reason why the economics of our project stand out significantly compared to other renewable energy opportunities throughout Australia.
“The DFS forecast Reserve Capacity payments could generate up to $27 million per annum, or around 36% of total revenue. Receiving Reserve Capacity status is perhaps most important from a debt financing perspective, as this fixed and guaranteed revenue stream underpins the Project’s debt capacity.
“The Reserve Capacity payments alone cover interest, debt repayments and some operating costs, allowing the company to sell its energy into the merchant market with no fixed price power purchase agreement, and to take advantage of peak energy prices.”
Uniquely West Australian
The Reserve Capacity Mechanism (RCM) is unique to Western Australia and is designed to ensure that there is adequate generation capacity available to meet forecast peak electricity demand.
Under the RCM, electricity generation plants and storage facilities are certified and allocated capacity credits based on their capacity.
Electricity retailers are required to purchase capacity credits in proportion to their share of the electricity load in peak trading intervals and may meet this obligation by either purchasing capacity credits directly from generators under bilateral contracts or by procuring capacity credits via the AEMO at an administered price (the Reserve Capacity Price or RCP).
A benchmark RCP (BRCP) is set each year by the Economic Regulation Authority (ERA), with reference to the cost of adding generation capacity, to inform the RCPs received by generators.
New generators are able to lock in the initial RCP, escalated by CPI, for five years. BRCP is determined two years in advance of the energy generation period.
Importantly for companies like FHE, the BRCP has increased over recent years, with the latest BRCP rising to $230,000 per MW for the 2026/27 year. An additional 30% premium is applied to this price when the market is forecast to be in deficit.
The BRCP of $230,000 for the 2026/27 capacity year will be adjusted for shortfall or surplus on a sliding scale to determine the RCP that FHE will receive for each Reserve Capacity Credit.
Securing this guaranteed pricing comes at the cost of a lower energy price cap, which is currently pegged at $738/MWh and increasing to $1500/MWh from 2025 onwards compared to the peak of $16,600MW/h on the broader National Energy Market.
However, this is still significantly higher average wholesale price on the WEM over FY24 of $87/MWh and $97/MWh on the NEM.
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.
