Farmers to own biomass co-op

Local farmers will own and operate a new biomass co-operative-style business that will supply Australia’s first straw-fuelled power company on South Australia’s Yorke Peninsula, as part of a business model designed to slash the cost of electricity for local residents.

The $100 million Yorke Biomass Energy project, launched last September, is based on an unorthodox business model that will see local biomass suppliers own and operate a new company called Yorke Biomass Supply (YBS). Assuming a 15MW level, around 125,000MW hours will be achieved, which could go as high as 166,000MW hours.

As part of the initiative, local Yorke Peninsula residents could be given an option to connect to a hybrid microgrid and enjoy discounted electricity costs of at least 15 per cent. With the 6300-or-so customers combined, that’s around $1.9 million a year in savings.

YBS is currently in discussions with SA Power Networks – operator of the South Australian electricity distribution network – regarding how the existing electricity grid network could be used to facilitate lower-cost power.

Yorke Biomass Energy chairman and renewable energy advocate Terry Kallis says the co-operative business model will turn the local electricity market on its head. And he should know; the electrical engineer by trade has more than 30 years’ experience in the power industry, working as chief financial officer of ETSA Corporation for most of the ’90s. He helped develop South Australia’s first wind farm, its first HVDC underground interconnector and is an originator and shareholder of the 600MW CERES Wind Farm project on the Yorke Peninsula.

“Our aim is to shake up the state and national electricity market and provide greener, cheaper power to homes and businesses,” he said.

“The business model has clear and compelling benefits, including providing local farmers with a new and diversified source of income that in itself will inject around $6 million per annum into the local community. In fact, our economic modelling estimates total local spinoffs of around
$27 million per annum will be generated.”

YBS, and the individual farmers and straw aggregators who make up the company, will have an exclusive 20-year contract with Yorke Biomass Energy for the supply of suitable biomass at a base price of $85 per tonne maintained in real terms.

“It’s actually quite a simple process – you’re burning straw and boiling water,” Terry says.

“We test the bails for moisture when they come in. There is a mechanism that probes the bails and makes sure it meets certain criteria. The prime requirements for the bail are to have a particular shape and form, and a moisture content of less than 15 per cent. If it’s very moist it’s sent back to the farmers, so there’s an incentive for them to supply it properly.

“There are also very stringent air quality requirements in the plant. In this particular case, sensors measure the emissions and send the results in real-time to our Environmental Protection Agency, so we can demonstrate compliance with air emissions every second of the day.”

Ultimately, this project has the potential to significantly reduce the power costs to Yorke Peninsula residents, including those in Ardrossan, Maitland, Minlaton, Curramulka and Port Vincent.

Already dubbed the “Uber of the electricity market”, the project will be located near the Ardrossan West substation (currently shared by ElectraNet and SA Power Networks) and be based on global infrastructure company Acciona’s 25MW Sanguesa straw-fuelled project near Pamplona, Spain.

“Simply put, we’re introducing a model that is a non-traditional approach to supplying a better service at a lower cost, so the customer wins,” Terry says.

Nonetheless, Terry says innovators should not alienate the big companies working in the energy sector, but rather try to work together to offer value to customers who will ultimately determine whether an idea flourishes or dies.

“Our primary concern is, can we offer customers an alternative that’s equal to or better than the current system in quality of service and price. Having said that, the structure of the utility market is such there are a couple of monopoly elements that could make it difficult if you’re looking to introduce change,” he says.

“What we do as part of that process is essentially cut costs out – cut out the middleman, the transmission costs, some parts of retail costs and certainly a lot of aspects of generation costs,” Terry says.

“However, the customer, unless they are totally disconnected from the system, will always have a relationship with the wires business, the distributor – which is why I chose to align myself with my local distributor, SA Power Networks.”

SA Power Networks has agreed to work with Terry to explore the concept of a hybrid micro grid, which will involve legislative and regulatory changes to the NEM. What’s in it for them? They have greater certainty under a hybrid micro grid about the return on their assets.

“What we do as part of that process is essentially cut costs out – cut out the middleman, the transmission costs, some parts of retail costs and certainly a lot of aspects of generation costs,” Terry says.

This project will not only be the yardstick for future biomass business models in Australia, but also for any form of micro grid, whether it’s biomass, solar, storage or other. Not surprisingly, from SA Power Networks’ point of view, it’s imperative to get this project right.

“I like to think they know I understand their business well, and they know me and trust me. We’ve been talking about this for more than a year-and-a-half, and now, we’re well advanced having secured the necessary land and garnered extensive interest from local biomass suppliers on the Yorke Peninsula,” Terry says.

“We’ve also secured a streamlined approval process and have in place an exclusive engineering, procurement and construction deal with Acciona, which has a proven track record of establishing large biomass plants. We’ll also be employing an open profit-sharing arrangement between Yorke Biomass Energy, YBS and local electricity customers.”

“It’s important for SA Power Networks to ensure whatever they do doesn’t diminish the quality of service, reliability and availability of their network – that’s sacrosanct. Another thing is, whatever we do, SA Power Networks will want to apply the intellectual property we create in this process elsewhere on their grid, and we’re quite happy to share what we learn in this process.”

Yorke Biomass Energy is already exploring options for its unique business model in other parts of Australia, with Terry saying there’s definitely scope for the model to be replicated. He’s already in discussions with the Victorian Government and the South Australian Government, which have both shown interest in Yorke Biomass.

“We’re looking one biomass project in South Australia, and at least two in Victoria,” he says.

“We’re really excited at the prospect of delivering significantly cheaper electricity to people and are already attracting strong interest from potential partners and investors nationally.

“We’re also really excited about the longer-term environmental benefits, including potential improvements to sustainable local farming in terms of soil health, crop rotation and weed management, in addition to reduced greenhouse gases and improved energy security.”

KPNG is working with Terry on an application for a grant from the Australian Renewable Energy Agency for $25 million. The project is also seeking assistance from the Clean Energy Finance Corporation which, late last year, announced a $200 million equity fund for bioenergy projects.

Yorke Biomass Energy is aiming for the Ardrossan power plant to be operational by 2017.