Frontier Energy Limited (ASX: FHE; OTCQB: FRHYF) ('Frontier' or the 'Company') is pleased to announce the Australian Energy Market Operator (AEMO) has assigned Certified Reserve Capacity (CRC) to the Company's Waroona Renewable Energy Project (Waroona Project or Project).
Stage One of the Waroona Project comprises a 120MWdc solar facility and an 80MW/360MWh DC coupled battery energy storage system
HIGHLIGHTS The AEMO assigns Waroona Certified Reserve Capacity, aligned with Definitive Feasibility Study (DFS) assumptions o Waroona DFS1 estimated Reserve Capacity payments to provide up to $27 million per annum (36%) of the revenue for Stage One Reserve Capacity is unique to WA's Wholesale Electricity Market (WEM) o Reserve Capacity Mechanism (RCM) ensures sufficient power is available when energy demand peaks o Generators on the WEM receive a fixed dollar payment per megawatt from the AEMO based on the Reserve Capacity Price (RCP) and their CRC RCP is set two years in advance and new generators (such as the Waroona Project) can lock it in for five years, with RCP escalated at CPI o Final RCP to be determined by the AEMO at the end of September Reserve Capacity payments underpin debt finance, as they are guaranteed for five years o Subsequent to the initial five years, the Project will continue to receive Reserve Capacity payments over its operating life Frontier will generate additional revenue selling energy into the merchant market during periods of peak electricity prices, maximising total revenuev
CEO Adam Kiley commented: '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. 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.
The RCM in the WEM is designed to ensure that there is adequate generation capacity available to meet forecast peak electricity demand. The RCM is unique to WA and not available in other Australian jurisdictions. Under the RCM, electricity generation plants and storage facilities are certified and allocated capacity credits based on the size of the facility capacity. Electricity retailers are required to purchase capacity credits in proportion to their share of the electricity load in peak trading intervals. The retailers 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 (known as 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. The BRCP has increased over recent years, with the latest BRCP rising to $230,000 per MW for the 2026/27 year6 . The reference technology that the ERA used to determine this is an open-cycle gas turbine. When the market is forecast to be in deficit, an additional 30% premium is applied to this price. This occurred for the 2025/26 capacity year and the actual 2025/26 RCP is $251,400/MW, a 30% premium to the BRCP of $193,400/MW. 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 Frontier will receive for each Reserve Capacity
The report highlights that timely delivery of these committed projects is critical to ensuring the capacity requirement is satisfied. The AEMO flags that various factors impact the delivery of planned projects across Australia, including global supply chain and labour constraints. As such, the AEMO is monitoring the progress of committed projects and encouraging proponents to take early actions to mitigate any potential delays. A further challenge to supply is outages of the current fossil fuelled fleet. The ESOO highlights unplanned outages of fossil-fuelled generators above 19% in January - March 2024. In late 2023, the Government determined a 200MW / 800MWh lithium-ion 4-hour battery energy storage system, with a 330kV connection, to be the future benchmark technology9 . The Government's consultation papers indicate this could result in further increases in future BRCPs because battery technology is more expensive to install than the current reference technology, an open-cycle gas turbine.
About Frontier Energy
Frontier Energy Ltd (ASX: FHE; OTCQB: FRHYF) is developing the Waroona Renewable Energy Project located 120km south of Perth in Western Australia. Waroona has the potential to become one of Western Australia's largest standalone renewable energy projects, as the Company controls 868ha of adjoining freehold land whilst also having approvals in place for a connection onto the WA electricity network (SWIS) with a terminal adjacent to the Project. The Company released a positive DFS on a Stage One development that consists of a 120MW solar farm and 80MW/360MWh battery. Frontier is fully committed to making the Project one of WA's major renewable energy hubs, incorporating multiple value-adding initiatives including batteries and green hydrogen, with full renewable energy potential of more than 1GW based on connection capacity
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