Investing

Frontier Energy

Overview

The world is rapidly transitioning towards renewable energy. While Australia and WA have come a long way, achieving ~35 percent of electricity generated by renewables in 2023, we are still significantly short of the 2030 target of 82 percent. At the same time as the transition is happening, there is an increase in electricity consumption: the Australian Energy Market Operator (AEMO) forecasts WA’s electricity demand will increase between 78 percent and 220 percent over the next decade. This increase in demand, along with the phasing out of coal-fired power supply (which represents roughly 30 percent of current supply) to be completed by 2029, is forecast by AEMO to cause a large and growing gap in power generation capacity over the next decade.

Frontier Energy (ASX:FHE;OTCQB:FRHYF) intends to meet the WA market’s urgent requirement for renewable energy. The company’s Stage One development plan for its Waroona Renewable Energy Project will consist of a 120 MWdc solar facility with an integrated four-hour 80 MW battery. Frontier is on track to finalise a definitive feasibility study (DFS) for Stage One in February 2024 and targets FID during the first half of 2024.

Frontier is also evaluating value-add opportunities, including opportunities to develop green hydrogen production to maximise the value of energy produced. The Stirling Trunk Water Main, which is located ~3 km from the WREP, could enable procurement of water for green hydrogen electrolysis. The Dampier to Bunbury Natural Gas Pipeline, which runs adjacent to the project, could potentially allow for delivery of green hydrogen into future domestic and export markets.

Company Highlights

Frontier Energy is developing the Waroona Renewable Energy Project (WREP), located 120 kms south of Perth in Western AustraliaFrontier believes current market conditions are very favourable for supplying renewable electricity onto the South West Interconnected System (SWIS), WA’s main electricity grid. Frontier enjoys a strategic location and controls 868 ha of freehold land near world-class major infrastructure, including a 330 kV Landwehr electricity terminal located less than 1 km from the WREP project site. This is on the highest capacity transmission line in the SWIS, and the company has shovel-ready solar generation of 355 MW, and access to two connections that can potentially hold >1 GW of renewable power.The company is focused on becoming a near-term contributor to WA and Australia’s renewable electricity generation targets, with an FID for Stage One, an integrated 120 MWdc solar farm and 80 MW four-hour battery, planned for the first half of 2024.Significant revenue streams include Reserve Capacity Payments, which can be fixed for five years, wholesale electricity sales that can be optimised by storing solar energy in the battery and selling at peak times, and Large Generation Certificates (akin to carbon credits) available to renewable electricity providers.Frontier holds significant growth opportunities beyond Stage One, which will utilise only a third of the company’s current land holdings.

Key Project

Waroona Renewable Energy Project

The Waroona Renewable Energy Project is located 120 km from Perth in the South West of Western Australia, and is on track to become one of the largest renewable energy projects in Australia.

The project’s location, close to major existing infrastructure and nearby regional towns, provides several strategic advantages. The nearby 330 kV Landwehr Electricity Terminal will allow the company to sell electricity via the South West Interconnected System (SWIS), Western Australia’s main energy grid. The Landwehr Terminal is located on one of the highest capacity transmission lines in the SWIS. Nearby towns including Waroona, Collie and Mandurah can provide a highly skilled workforce.

In December 2023, Frontier completed the acquisition of Waroona Energy (TSXV:WHE.V), combining two adjacent projects to create a large-scale Australian renewable energy company, with 868 ha of freehold land, shovel-ready solar generation of 355 MW and the potential to expand to more than 1GW.

The company is pursuing a staged development approach targeting high demand markets and future growth opportunities. Given that the WA electricity grid is facing a major supply-demand deficit, the initial development stages will focus on renewable electricity generation and storage. Stage One comprises a 120 MWdc Solar farm with an integrated 80 MW four-hour battery. Approvals, permits and grid connections are all in place.

Revenue Drivers

Reserve Capacity Mechanism (RCM)

The RCM is unique to WA, and is not available in the Eastern States/NEM. Under the RCM, generators receive annual payments per MW, based on a benchmark reserve capacity price (BRCP) determined by the Energy Regulator. New generators can lock in the BRCP for five years. BRCPs have increased strongly over the past five years, to $230,000/MW for 2026/27. Recent changes in government regulations have meant that a four-hour battery proposed for Waroona may qualify for 100 percent of the BRCP. Furthermore, when the market is in deficit, an additional 30 percent is paid, and AEMO forecasts deficits for the next decade.

For an 80 MW battery, this implies ~$24 million per annum. This can be locked in for five years and provides a fixed (increasing with CPI), guaranteed income.

Electricity sales and arbitrage enabled by integrated battery

Wholesale energy prices in WA have increased on average by 77 percent over the past two years, reflecting the increasing tightness of the supply/demand balance.

WA has the most sunlight hours in Australia and one of the highest installation rates of rooftop solar at 38 percent, expected to increase to ~50 percent by 2030. As a result, the electricity price dips during the day, when solar generation peaks, while in the afternoon/evening, demand increases while solar generation declines, causing the price to rise sharply.

The integration of a battery with Frontier Energy’s solar farm allows electricity sales to be ‘shifted’- i.e. electricity is stored in low price periods and sold in high price periods. An 80 MW battery is sized to enable substantial shift of electricity sales. As a result, Frontier’s daily revenue profile will look roughly as follows (subject to solar radiation each day):

Solar energy sales – early morningBattery charge – morning to midday/early afternoonBattery discharge combined with solar sales – early evening (during peak electricity demand).

Management Team

Grant Davey – Executive Chair

Grant Davey is an entrepreneur with 30 years of senior management and operational experience in the development, construction and operation of global mining and energy projects. He is the chairman of Frontier Energy (ASX:FHE), a Director of Lotus Resources Limited (ASX:LOT) and Cradle Resources (ASX:CXX) and is a member of the Australian Institute of Company Directors.

Adam Kiley – Chief Executive Officer

Adam Kiley is an accomplished resources and energy executive, with 20 years’ experience. He brings significant experience in various fields, including equity capital markets, debt advisory, project development studies, and project evaluation, having previously held some senior executive positions. He was previously the managing director and CEO of Waroona Energy and is also a non-executive director of Copper Strike (ASX:CSE).

Chris Bath – Executive Director

Chris Bath is a chartered accountant and member of the Australian Institute of Company Directors, with more than 20 years of senior management experience in the energy and resources sector both in Australia and south-east Asia. Bath has broad experience including financial reporting, commercial management, project acquisition, ASX compliance and governance. He is a non-executive director of Cradle Resources and company secretary of Copper Strike.

Dixie Marshall – Non-executive Director

Dixie Marshall has 40 years’ experience in strategic communications – including crisis communications, editorial media, advertising, marketing and government communications. Currently, Marshall is the chief growth officer of Marketforce, WA’s oldest advertising agency. Marshall previously worked as the Western Australian government’s director of strategic communications, as well as for the Nine Network as a senior news anchor. She is the deputy chair of the WA Football Commission and commissioner of the Australian Sports Commission and director of Lotus Resources.

Amanda Reid – Non-executive Director

Amanda Reid has a significant background in government relations providing advice to a wide cross section of companies and organisations for more than 15 years for two national government relations and corporate communications firms. This included five years as Partner at GRA Partners. She was also a senior adviser in previous WA State Governments with responsibility for managing a strategic communications unit. She has held non-executive board positions across both private companies and not-for-profit organisations and is a member of the Australian Institute of Company Directors.

Warren King – Chief Operating Officer

Warren King is an engineer with 25 years of experience, specialising in the client-side project management of the engineering, design, procurement and construction of mineral processing plants and mine infrastructure (including various gas power solutions and solar). He has worked in Africa, Indonesia and Australia and holds a Bachelor of Engineering (mechanical) and a Bachelor of Laws degree. He has implemented and managed various project execution models (such as EPC, EPCM, and EP with owner managed construction).

Amy Sullivan – ESG Manager

Amy Sullivan has almost 20 years’ experience in the mining industry across Australia, holding executive roles in approvals, environment, community and government relations. Whilst working with VHM Limited, She led the approvals and growth team for the Goschen Rare Earths and Mineral Sands project and played a key role in establishing relationships with government, local councils, and the community, as well as managing the state and commonwealth approvals strategy, including obtaining major project status. Sullivan has practiced as a sustainability and ESG consultant working with companies to implement ESG and sustainability strategies. Sullivan holds a Bachelor of Environmental Management with Honours from the University of Notre Dame.

Martin Stulpner – Corporate Development Manager

Martin Stulpner has more than 20 years’ experience in the mining and financial services industries, including in corporate development, M&A, strategic planning, and equity research (sell side). His previous senior leadership positions include GM at Aquila Resources, where he had accountability for Aquila’s stake in the West Pilbara Iron Ore Project (now under construction as the $3 billion Onslow Iron project), and for Aquila’s South African business. As Director at Macquarie, Stulpner provided equity research of Western Australian metals and mining companies to institutional investors in Australia and globally.

Catherine Anderson – Company Secretary

Catherine Anderson is a legal practitioner admitted in Western Australia and Victoria with more than 30 years’ experience in both high-level private practice and in-house roles, particularly in capital raising, corporate acquisitions, structuring and regulatory compliance. She has advised on all aspects of corporate and commercial law and brings extensive experience in a range of industries, in particular the mining and IT/cyber security sectors.

Anderson is an experienced company secretary for both listed and unlisted public companies and has served as a director of an ASX listed junior explorer. She has provided consultancy services to entities wishing to proceed to IPO and ASX listing, and has twice been nominated for the Telstra Business Woman of the Year Award.

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