New South Wales (NSW) is implementing significant adjustments to its renewable energy tender process, shifting the focus from securing the absolute lowest bid to ensuring that selected wind and solar projects are actually constructed and operational. These changes, managed by the Australian Energy Market Operator (AEMO) Services (ASL), aim to overcome a critical bottleneck in the energy transition: the gap between winning a tender and achieving financial close and construction.
Addressing the “Conversion” Challenge in Renewable Projects
ASL, responsible for administering key tenders under the federal government’s Capacity Investment Scheme (CIS) and state-led initiatives, is introducing these modifications initially in NSW. The state is resuming its own auctions to bolster its renewable energy capacity as its aging coal-fired power stations approach retirement within the next decade. A significant hurdle has been the insufficient strength of underwriting arrangements in previous tender structures, which have struggled to incentivize project completion amidst rising costs and a lack of corporate buyers.
The effectiveness of the federal CIS has been questioned, with only a handful of the 31 wind projects awarded underwriting agreements having reached financial close or commenced construction. This situation prompted NSW to re-evaluate its approach. Having met its federal CIS capacity allocation, the state is now conducting its own auctions, planning to award at least 2.5 gigawatts (GW) of capacity in an ongoing auction, with another 2.5 GW planned for later this year. NSW has also faced difficulties in bringing projects to fruition, with only one wind project, Andrew Forrest’s Uungula project, currently under construction within the state.
Shifting from Lowest Price to Best Value
The core change in the revised tender design is ASL’s move away from prioritizing the lowest-priced bids. Instead, the evaluation will center on identifying bids that offer the best overall value, ensuring projects have the necessary revenue certainty to secure financing and proceed to construction. ASL CEO Nevenka Codeville emphasized the urgency, stating, “We believe market conditions will improve – but we cannot wait.” She highlighted that the primary constraint in NSW is not the availability of projects but the “conversion” process from pre-final investment decision (FID) to financial close, construction, and operation. The new tender phase is specifically designed to facilitate this conversion.
Factors Influencing the New Tender Approach
Codeville acknowledged the persistent challenges faced by developers, including cost pressures, supply chain disruptions, network connection complexities, and near-term curtailment risks. She contrasted the current environment with the period when previous Generation LTESA (Large-scale Target Energy Services Agreement) tenders were conducted. “When we last ran Generation LTESA tenders, the environment looked very different: corporate PPAs were more readily available, buyers were racing to meet 2025 sustainability targets, contract tenors were longer, business cases were stronger, and LGCs provided a meaningful additional revenue stream,” she explained. In that past climate, LTESAs were often seen as a form of insurance, with pricing expectations close to debt break-even.
The current reality is starkly different. Developers are contending with heightened inflationary pressures, increased capital and financing costs, grid congestion, connection uncertainties, and fewer long-term offtake opportunities. This is occurring against a backdrop of ambitious national renewable energy targets (82% renewables by 2030) and NSW’s specific goal of adding 16 GW of new generation by 2030. Codeville stressed that LTESAs priced merely at debt break-even are insufficient to meet these needs; they must support reasonable project returns.
Ensuring Project Viability and Returns
The NSW government’s commitment to the energy transition remains strong, with the Roadmap framework and LTESAs playing a crucial role in bridging financial gaps, supporting FID, and complementing future market strategies. Thimo Mueller, ASL’s head of commercial, clarified the bidding expectations: “Bidding competitively does not mean bidding unrealistically low. It means bidding just enough to get the project built.” He added that higher-cost projects could still be successful if their consumer benefits justify the required support. ASL will consider factors like generator-specific network upgrades or curtailment risks, potentially through sculpted pricing that offers higher initial prices to reflect near-term challenges, decreasing later as risks subside.
Broader Implications and Future Outlook
Market analysts suggest these changes align NSW’s tenders more closely with the successful contract-for-difference model employed by the Australian Capital Territory (ACT) a decade ago. The key question remains whether these adjustments will be adopted more broadly within the federal CIS, which aims for 40 GW of new wind and solar capacity by 2030 but has seen limited progress, primarily with solar and hybrid solar-battery projects.
Battery storage projects have generally fared better due to multiple revenue streams, falling costs, and their modular nature. However, the new emphasis on value and buildability will also extend to long-duration storage projects in NSW, specifically those offering eight hours or more of storage capacity.
Matthew Brine, secretary of the federal Department of Climate Change, Energy, the Environment and Water, acknowledged progress within the CIS, noting that 14 projects had reached financial close and an additional 33 were anticipated by year-end. Nevertheless, he expressed a desire for faster development. “We would like to see much faster progress,” Brine stated, confirming that deliverability has been prioritized over financial costs in tenders, and ASL is actively managing contracts to terminate those not showing expected progress.
Conclusion: A Necessary Evolution for Energy Transition
The revised tender framework in NSW represents a pragmatic response to the evolving economic realities and persistent challenges in developing large-scale renewable energy projects. By prioritizing project viability and the certainty of construction over the lowest possible price, NSW aims to accelerate the deployment of essential wind and solar capacity, ensuring its energy targets are met and its aging coal fleet is effectively replaced.
