Collaborating to reach zero emissions in water

Through innovative partnerships and smart energy procurement, Victoria’s water sector is working together to achieve its zero emissions targets.

The Victorian water industry aims to achieve net zero greenhouse gas emissions by 2035. State regulation supports this ambition by codifying a series of emissions reduction targets for each water corporation. Zero Emissions Water (ZEW) is one of the many ways in which Victorian water corporations are working to reduce their emissions. ZEW exemplifies how collective effort among water corporations can support efficient emission reductions.

In 2016, the Victorian Government set a clear emissions reduction objective for the Victorian water industry in Water for Victoria. This policy articulated a vision for Victoria’s water industry to be “a leader in the state’s climate change mitigation and adaptation actions.” This vision prompted the water industry to consider how it could collaborate to reduce emissions. Industry leaders were already considering this question, determining how the industry could collaborate to minimise scope 2 emissions from electricity usage.

New state regulations supported Victoria’s vision. In 2018, the Victorian Minister for Water issued the first Statement of Obligations (Emissions Reduction) (SoO). The SoO contained a 2025 emission reduction target for each of the state’s water corporations. Importantly, the targets were based on targets that the water corporations nominated themselves and were different for each corporation, recognising each corporation’s different context.

Setting the course for emissions reduction

Under the next iteration of the SoO, which will be implemented from 2022, each Victorian water corporation must meet additional emission reduction targets in 2030 and 2035. Some water corporations have net zero targets in 2030, but all must be net zero by 2035 at the latest. The SoO also requires all water corporations to source 100 per cent of their electricity from renewable sources by 2025.

The first stage of the industry’s investigation involved thoroughly identifying and assessing options. During this stage, five investment cases were examined. Through a feasibility assessment, participants determined that a Power Purchase Agreement (PPA) with a renewable energy facility was their preferred option. The members agreed that there was value in pooling their demand for renewable energy certificates and that by entering the market together, they would achieve better results due to increased scale compared to acting alone.

Governance and legal advice indicated that an incorporated joint venture limited by guarantee was the most suitable vehicle for multiple water corporations to collectively participate in a PPA.

Intelligent Water Networks, a platform for collaboration among the state’s water corporations, led the industry in establishing ZEW as an organisation and procuring a PPA. The creation of ZEW gave its members a scale of demand sufficient to attract competitive offers from a range of renewable energy generators. A market engagement process identified Kiamal Solar Farm (KSF) as a counterparty, with its soon-to-be-developed solar farm.

Collaborative solutions: the Power Purchase Agreement (PPA)

ZEW purchases renewable energy certificates directly from KSF on behalf of members through a PPA, a collective offtake agreement to support a new generation facility. ZEW’s PPA provides members with a steady flow of competitively priced renewable energy certificates that members surrender to reduce their electricity-related emissions. ZEW has also demonstrated the value that water corporations can create by working together to pool their scale and capability to achieve a common goal.

ZEW’s existence also allows its members to achieve economies of scale in capability and administration. The 12 members wholly own ZEW, which operates as an independent legal entity controlling all its business functions. The centralised delivery model enables a single PPA to operate between KSF and ZEW, distributing benefits to the members. This arrangement is more efficient than having 12 separate contracts administered by each member.

ZEW has developed a range of systems and processes to support its administration of the PPA including a range of service providers such as accounting, legal, IT, technical, settlement and executive support. All functions that support the business and board have been outsourced to expert providers, which is an efficient use of resources and best suits the lean operating model.

In addition to being an effective and efficient way to obtain renewable energy certificates, ZEW has created a forum for its members and the broader Victorian water industry to participate in and understand the rapid transformation of the electricity industry. This transformation is critical for Australia to achieve its net zero greenhouse gas emissions target in 2050.

Lessons for the water sector

The transformation is complex and ever-changing. ZEW supports its members to understand and benefit more broadly from the transformation by:

Providing regular reports to members on the operation of the PPA and broader developments in the electricity and renewable energy certificate markets.
Organising and hosting site visits at KSF for industry members and non-members to enhance their understanding of the transformation.
Participating in industry discussions about further opportunities to work together to reduce emissions, including collaborating to purchase carbon offsets and more purchases of renewable energy certificates.

ZEW’s lessons and successes provide insight into how the water industry can collaborate to achieve mutually beneficial outcomes, especially in the context of climate change mitigation. The organisation and the benefits being delivered to members prove that collaboration within the water industry can be effective. In this way, ZEW’s story and the lessons learnt along the journey shed light on the opportunities for and value of working together in the water sector to pursue common goals.

For more information, visit www.zew.org.au