Capacity Investment Scheme - The South Australia-Victoria CIS Tender open
13 February 2024
13 February 2024
The CIS is a national framework supporting 32 GW of new capacity nationally, including 23 GW of renewable capacity and 9 GW of clean dispatchable capacity.
The CIS is comprised of:
On 15 December 2023, the Commonwealth opened bids for the inaugural CIS SA-Vic Tender. This tender is a competitive process supporting dispatchable capacity in South Australia and Victoria and seeking an indicative volume of 2,400 MWh of dispatchable capacity that will be operational before the end of 2027.
This tender intends to allocate:
Successful tenderers for a project will be awarded a CISA. This is a "contract for difference" between a proponent and the Commonwealth that provides for:
each subject to an annual cap.
Further details on the CISA, and how the draft full form contract differs from the term sheet previously shared by the Commonwealth, is set out below.
Some further detail on the CISA, and how the draft full form contract differs from the term sheet previously shared by the Commonwealth, is set out below.
Proponents must submit their bids in two stages: Stage A – Project Bid and, where invited, Stage B – Financial Value Bid.
At each stage of the tender, proponents' projects will be assessed against merit criteria (as set out in the tables below). The CIS SA-Vic Tender Guidelines provide more detail regarding how each of these merit criteria will be assessed by AEMO.
Stage A - Project Bid
No |
Merit Criteria |
Weighting |
MC 1 |
Contribution to system reliability |
40% |
MC 2 |
Project deliverability |
20% |
MC 3 |
Organisation capability to deliver |
20% |
MC 4 |
Community and First Nations Engagement |
20% |
Stage B - Financial Value Bid
No |
Merit Criteria |
Weighting |
MC 5 |
Financial value |
70% |
MC 6 |
Commercial departures |
10% |
MC 7 |
Social Licence comitments |
20% |
Key Dates of the CIS SA-Vic Tender
The CIS SA-Vic Tender will progress in accordance with the key dates set out below.
Stage |
Key Date |
Stage A – Project Bid opens |
15 December 2023 |
Stage A – Q&A Process opens |
10 January 2024 |
Registration to submit a Project Bid closes |
16 February 2024 at 5:00pm AEDT |
Stage A – Project Bid closes |
23 February 2024 at 5:00pm AEDT |
Invite to submit Stage B – Financial Value Bid |
April 2024 |
Stage B – Q&A Process opens |
May 2024 |
Announce successful bids |
Mid 2024 |
To assist proponents, we have set out below the key commercial changes from the draft CISA term sheet to the draft full-form CISA. We also set out some high level comments based on NSW's tender for firming LTESA (Tender Round 2 – Firming Infrastructure), which some proponents may be familiar with. In that Tender Round 2, successful proponents were awarded a firming LTESA, subject to entry into and compliance with a Project Development Agreement (i.e. governing the construction and operation of the project) (PDA). The firming LTESA is a contract between a proponent and the Scheme Financial Vehicle (SFV) which:
In general, the full-form CISA is more similar to the NSW LTESA than the CISA term sheet stage, but some key differences remain. There may also be differences in the merit criteria for each scheme, which is not the focus of the table below.
Item |
Draft CISA (term sheet) |
Draft CISA (full form) |
Ashurst Comments |
Term |
Fixed 15 year term. |
Maximum 15 year term. |
Making the term of the CISA a bid variable provides proponents with greater flexibility. Under the firming LTESA, the term is also for a maximum of 10 years (noting shorter contract terms were considered more financially competitive by AEMO Services). |
Payment structure |
The Commonwealth pays 75% of net revenue above the floor. The proponent shares 75% of the of the net revenue above the ceiling. |
The Commonwealth pays 90% of net revenue below the floor, subject to an annual payment cap. The proponent shares 50% of the net revenue above the ceiling, subject to an annual payment cap. |
The proponent has 90%, but not full, protection where net revenue drops below the floor under the CISA. The payment structure is firm – ie the Commonwealth support must always be taken, rather than an option for a proponent to exercise. Under the firming LTESA, a proponent could access a flexible payment structure through a series of one-year options to receive an annuity payment. Similar to the CISA, proponents share 50% of net revenues above a threshold, subject to an annuity cap (noting lower annuity caps were considered more financially competitive by AEMO Services). However, repayments to the SFV were capped at 100% of historical net payments from the SFV to the proponent (the CISA has a flat annual cap). |
Payment calculation and timing |
Commonwealth pays the proponent any positive net quarterly payment and positive annual reconciliation payment. Proponent pays the Commonwealth the absolute value of any negative net quarterly payment and annual reconciliation payment. |
Commonwealth pays the proponent each quarterly payment and any positive annual reconciliation payment. Proponent pays the Commonwealth the absolute value of any negative annual reconciliation payment. |
Under the CISA, the Commonwealth pays quarterly payments upfront with reconciliations made annually. The proponent pays the Commonwealth annually if there is a negative reconciliation payment. The firming LTESA has a similar model to the full-form CISA. |
Annual Revenue Floor and Annual Revenue Ceiling |
Annual Revenue Floor and Annual Revenue Ceiling were previously expressed as single bid variables, subject to CPI. |
The Annual Revenue Floor and Annual Revenue Ceiling may vary for each year throughout the term. |
Permitting the floor and ceiling to vary throughout the term of the CISA provides proponents with greater flexibility throughout the term. This is similiar to the firming LTESA model (noting that low net revenue thresholds bid in were considered more financially competitive by AEMO Services). |
Annual Payment Cap |
No payment cap mentioned in the CISA term sheet. |
The annual payment cap limits the amount paid by the Commonwealth as a support payment and the amount paid by the proponent as a share of net revenue. The annual payment cap amounts are to be provided by the proponent in a schedule and the amounts may vary for each year. |
The annual payment cap will depend on the commercial objectives of the proponent and their requirements for achieving a financial investment decision (for example, any level of support required from lenders). Under the firming LTESA, annuity payments were also capped at an annuity cap. However, repayments to the SFV are also capped at 100% of the historical net payments made by the SFV to the proponent. |
Credit Support |
Initial security of an amount reflecting the Commonwealth's re-tendering costs to be provided 5 business days after signing, until the conditions precedent have been satisfied or waived. Performance security of an amount to be specified in the CISA to be provided during the support phase. |
Performance security to be provided to the Commonwealth within 20 business days after signing and remain valid until the earlier of:
The security amount is to be calculated using the following formula: $20,000 per MW multiplied by the maximum capacity, up to a maximum amount of $4,000,000. |
Credit support is no longer required during the operational period. The security amount required from signing to CODis similar to the firming LTESA. |
Availability Guarantee |
An availability rebate is payable by the proponent if the equivalent availability threshold of 97% is not achieved. Availability relief for reduced capacity due to AEMO direction or instruction in relation to the transmission network. |
An availability rebate is payable by the proponent if the equivalent availability threshold of 90% is not achieved. Availability relief for reduced capacity due to AEMO direction or instruction in relation to the transmission network and any project force majeure event (PFME) subsisting. |
The availability regime is more favourable under the CISA than the term sheet with a lower equivalent availability threshold and additional relief events for force majeure. Under the firming LTESA, the equivalent availability threshold was also 90% but there was no relief for project force majeure events (only AEMO direction or instruction in relation to the transmission network). |
Performance Guarantees |
The performance guarantees require conformance with the project characteristics and a performance event rebate is payable if there is underperformance with respect to an LOR3 event (i.e. when AEMO has declared that ‘LOR Load Shedding’ is occurring as a result of a shortfall of available capacity reserves). |
The performance guarantees require that a storage capacity rebate is payable for a failure to achieve the storage capacity and a performance event rebate is payable if there is underperformance with respect to an LOR3 event. |
By requiring a storage capacity guarantee, the performance guarantee regime under the CISA is broadly aligned with the firming LTESA. |
Liability Caps |
The Commonwealth and proponent's liability caps were left to be specified in the CISA. |
The Commonwealth's liability is limited to:
The proponent's liability is limited to:
|
Liability caps for both parties have been broadly aligned with the firming LTESA. |
Proponent Termination |
It was suggested in the term sheet that the proponent may be entitled to terminate for Commonwealth default with an amount to be specified in the CISA. |
The proponent has no right to terminate the CISA. |
The CISA notes that termination rights are not available for the proponent because it has rights to seek damages and a termination right is contrary to the policy objectives of the CIS. Under the firming LTESA, the proponent could terminate due to SFV's default, material breach or misrepresentation, insolvency and the proponent experiencing a prolonged force majeure event. |
Automatic termination payment |
If the proponent fails to satisfy all conditions precedent by the sunset date, the agreement automatically terminates and the proponent must pay an amount calculated by reference to the aggregate of:
|
If the proponent fails to satisfy all conditions precedent by the sunset date or fails to achieve commercial operation on or before the sunset date, the agreement automatically terminates and the proponent must pay $4 million. |
By providing for a larger fixed termination payment if a proponent fails to satisfy all conditions precedent and commercial operations by the sunset date, smaller developers may be less willing to bid for a CISA given the risk of automatically being required to pay out a relatively large termination payment. Under the firming LTESA, the SFV may (but is not required to) terminate the LTESA and PDA if a proponent failed to achieve commercial operations by the sunset date. The consequences for such a termination was sized to the project, being a payment of an amount equal to the sum of:
|
Authors: Bree Michael, Partner; Cassandra Wee, Partner; Robert Gough, Senior Associate; Joshua Hetzel, Associate; Nancy Mao, Graduate
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.