APA's overall business strategy is influenced by the ability to leverage our existing assets and people skills to capture growth opportunities in clean energy and related energy infrastructure driven by climate change policies. To APA, it is critical that we support the delivery of reliable and affordable energy throughout the transition to a lower carbon economy by achieving the dual objectives of Australia’s economic growth and decarbonisation.
Managing risks and taking advantage of the opportunities
APA’s climate-related risks are embedded within our various business and sustainability risks. Due to the pervasive nature of the impacts posed by climate change, APA believes it cannot be considered as a separate or isolated risk. By incorporating climate change risk into our standard enterprise risk management process and within the key risks identified, we are able to make a more meaningful assessment of the likelihood of occurrence across the short, medium and long term.
The following outlines how climate change risk is embedded within the key risks and sustainability risks identified by APA, as well as how climate-related opportunities are associated with APA’s growth strategy.
- Compliance, Operating licences and authorisations – Changes to laws, regulations and policies may have an adverse impact on APA’s pricing, costs or compliance regimes, which may adversely affect APA’s operations and/or financial position and performance. This includes potential regulations associated with climate change, such as carbon pricing. Analysis of potential costs associated with carbon pricing is expected to be immaterial. Where possible, we have implemented carbon cost-pass through clauses within our contracts.
Strategic Market Risks
- Gas supply risk – Availability of competitively priced gas is essential for ongoing use of gas infrastructure assets. A long-term shortage of competitively priced gas, for example due to the unwillingness or inability of gas production companies to produce gas because of the relative price of gas compared to renewables, may adversely affect APA’s revenue and the carrying value of APA’s assets.
- Gas demand risk – The volume of gas that is transported by APA is dependent on end user demand. The relative price of gas and its competitive position with other energy sources (such as electricity, coals, fuel oil, renewable sources) may change demand levels for services on APA’s assets, which may then adversely affect APA’s future revenue, profits and financial position. There is a risk of a reduction in the use of gas appliances from consumers changing to solar-based electrical water heating.
- No significant risks identified, although perceptions of our customers and the broader community could be impacted if APA does not meet expectations to support the transition to a lower carbon economy.
Acute and chronic risks
- Operational risk – Any unplanned interruptions, natural hazards and other unforeseen accidents or incidents constitute operational risks, which could result from the acute and chronic physical risks of climate change. Operational disruption, or the cost of repairing or replacing damaged assets, may adversely affect APA’s financial position and performance. Insurance policies may only provide protection for some, but not all, of the costs that may arise from unforeseen events. To mitigate these risks, when pipelines are constructed and operated, APA considers extreme weather events and conditions to minimise potential impacts and provides for effective emergency and business continuity planning and testing to reduce the impact on occurrence. All revenue generating assets are insured and APA continually reviews its insurances to make sure they are relevant to the level of risk associated with extreme weather events.
- Efficient gas power generation – APA has developed two large carbon efficient gas power stations which have displaced load from less carbon efficient generation. These investments provide attractive returns and a potential hedge against carbon costs.
- Delivering reliable, safe and cleaner energy to remote areas – APA’s asset footprint allows us to deliver gas via our pipelines rather than trucking in diesel to remote areas of this vast country.
- Renewable energy– APA has increased its internal capabilities over the past few years to develop wind and solar projects, and now owns two large wind farms (Emu Downs Solar Farm was commissoned on 2 March 2018 and Darling Downs Solar Farm is currently under construction), with an investment in a third and two large solar farms (both currently under construction). We will continue to evaluate further investments in the renewable energy sector as demand for renewable energy continues to grow.
- Renewable Energy Target (RET) – APA is focused on the risks and opportunities of the legislated mandatory Renewable Energy Target (RET) and potential long-term emission reduction policies. The legislation provides an opportunity for APA to realise additional financial benefits through our renewables portfolio. APA is also broadly supportive of the Finkel report recommendations which could provide APA further opportunities in wind, solar and gas generation.
Products / services
- Gas as a lower carbon fuel – In the longer-term, APA is well positioned to benefit from growth opportunities, particularly the shift from coal to gas. APA promotes the environmental benefits of gas displacing a predominately coal-fired electricity sector.
- Diversification into renewables – APA seeks investments in both renewable energy and low emission technologies that will complement and hedge our current asset footprint. APA continues to progressively diversify its business to include renewable generation, enabling the business to take advantage of the strong growth in demand for renewable energy that is expected to continue over the long-term.
- APA’s operating model – APA has a competitive advantage with its superior asset operating model which drives efficiencies from scale and connectivity; as the largest gas infrastructure player, with a geographic footprint that provides us with unique energy solutions for customers. This model enables APA to be more resilient to climate-related impacts. For example, by offering more efficient fuel transportation options to our customers, compared to road transportation of diesel.
Supporting clean energy policy
APA continues to support reducing emissions as a responsible risk mitigation response to climate change. APA supports technology agnostic domestic carbon abatement polices to meet Australia’s 26% to 28% Paris COP21 carbon reduction commitment. APA is also broadly supportive of the June 2017 Finkel report concepts and recommendations, with the key to any climate change policy requiring bipartisan support to ensure coherent national energy policy and investment certainty.
In the longer term, as international and domestic carbon policy and markets mature, APA’s assets will play an important role in meeting Australia’s long-term emission reduction targets as energy consumption shifts from carbon intensive fuels, (for example, coal), to more carbon efficient fuels such as natural gas and renewables.
Investing in lower emissions gas-fired power generation
A clear example of APA delivering on its strategy to deliver reliable and cleaner gas-fired power generation to remote Australian communities is the Diamantina and Leichhardt Power Stations (DPS) at Mount Isa in Queensland. Constructed in 2013-14 as a joint venture with AGL, and fully acquired by APA in March 2016, DPS replaces an old gas-fired power station (Stanwell’s Mica Creek) which was first commissioned as a coal-fired station in 1960. The new facilities provide an emissions intensity of 0.40 tCO2-e/MWh (tonnes of carbon dioxide equivalent emissions per megawatt hour) representing a 17% reduction in the emissions intensity of Mica Creek at 0.48 tCO2-e/MWh. DPS, through the use of emissions efficient technology of 242 MW combined cycle gas turbine (CCGT, the Diamantina Power Station) and a 60MW open cycle gas turbine (OCGT, the Leichhardt Power Station), is delivering a reliable and cleaner source of energy to the local community and businesses in North West Queensland.
Similarly, APA’s Eastern Goldfields Pipeline in Western Australia is a 298-kilometre gas pipeline that has enabled the displacement of trucked-in diesel as the main fuel source for our customer’s energy generation needs. The gas-fired power generation provides not only a more reliable fuel supply, but has also removed thousands of diesel-consuming truck trips off Western Australian and outback roads.
Investing in renewable energy
APA’s business strategy is also premised on investing in wind farms and solar projects that will help Australia’s transition to a low carbon economy. In FY2017 APA announced three exciting renewable energy projects totalling approximately $565 million investment; the 130 MW Badgingarra Wind Farm, the110 MW Darling Downs Solar Farm and the 20 MW Emu Downs Solar Farm. This is in addition to the 80 MW Emu Downs Wind Farm owned since 2011 and its 2009 investment in the 132 MW North Brown Hill Wind Farm.
APA is also currently evaluating emerging technologies in storage, gas and renewables. We also participate in industry discussions to develop policy and to promote low emission technologies. APA will continue to evaluate further opportunities as Australia moves to a lower carbon economy.