Quantum Graphite : QSP Submission to Australian Energy Ministers

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QUANTUM

GRAPHITE

MARKET RELEASE For Immediate Release

4 April 2022

Quantum Sunlands Partnership

Completion of National Electricity Market Study

Application of Sunlands Co. Technology within the NEM

Potential Retrofitting of Coal Fired Power Stations

Further to our announcement of 23 December 2021 and 10 March 2022, the Company is pleased to attach the submission made by the Quantum Sunlands Partnership (QSP) to the Australian Energy Ministers Meeting.

The submission outlines QSP's recommendations for changes to the National Electricity Market's rules to support the installation of Long Duration Energy Storage (LDES) within the NEM. LDES is critical to increasing the penetration of renewables. Without LDES, material increases in renewables will result in significantly higher system risks, i.e., major threats to energy reliability and energy security.

Further, the submission includes specific reference to a type of LDES, referred to as RESERVE STORAGE, a form of deep mass storage, that would enable the acceleration of the penetration of renewables within the NEM. The combination of RESERVE STORAGE and the retrofitting of coal fired power stations provides the building blocks needed to achieve the AEMO Net Zero by 2050.

Director, David Trimboli commented that, "it's no secret that thermal LDES is the key to decarbonising the grid. Our submission highlights some of the immediate steps we can take to support AEMO's plan and rapidly increase the installation of renewables."

Thermal LDES and the forecast increase in global EV manufacturing underpin a significant increase in the market for Uley 2 coarse flake graphite. This delivers a level of demand and diversity ahead of other flake graphite producers.

FOR FURTHER INFORMATION CONTACT: Company Secretary

Quantum Graphite Limited E:[e-mail]

ABOUT QUANTUM GRAPHITE LIMITED

QGL is the owner of the Uley flake graphite mineral deposits located south-west of Port Lincoln, South Australia. The company's Uley 2 project represents the next stage of development of the century old Uley mine, one of the largest high-grade natural flake deposits in the world. For further information, qgraphite.com.

"…At Macroeconomics Advisory, we have estimated that the cost of replacing existing thermal power with solar and wind and back-up will be in excess of $150 billion. That impost is likely to be borne by governments/taxpayers.

But there is a way to avoid most of these transition costs and perhaps restore some of our old manufacturing base sourcing cheap, emissions-free, reliable energy.

The thermal option

One little known option that is apparently ready to go is long-term thermal storage. It is a scalable and compact way of storing energy that provides relatively cheap, very-long-duration back-up for intermittent systems. Even better, it is a leading-edge Australian-based technology.

The technology sources flake graphite locally to manufacture energy storage blocks that are fitted within energy storage cells. The critical breakthrough is that these cells operate at a very high operating temperature range with virtually unlimited cycles and can be charged and discharged simultaneously.

This unique capability enables them to drive the large-scale turbines used in coal-fired power stations. Heating cells with solar and wind generation and then using this heat to drive these turbines means it can deliver dispatchable power through the existing infrastructure in the Hunter and La Trobe valleys. The technology fits Angus Taylor's far-sighted plan to support technologies even if the execution of the strategy is floundering.

Who would have thought risk-averse bureaucrats would use it to dole out big dollars to foreign-sourced solar (including solar thermal), wind and now, hydrogen?

Why not just back the thermal option that appears to require no assistance whatsoever? It may just offer the good folks at the Energy Security Board the level of energy security to allow them to sleep nights."

Dr. Stephen Anthony, Contributor

- Australian Financial Review, 28 March 2022

Dr. Anthony's comments follow Macroeconomics Advisory's study in which it undertook an independent assessment of the requirements for long duration energy storage (LDES) within the NEM as part of the AEMO Net Zero by 2050 Plan. This study examines in detail the deployment of large scale thermal LDES by retrofitting existing coal fired power stations with TES technology. The findings in this study also form the basis for Macroeconomics Advisory's submission to AEMO on 11 February 2022; see Attachment 2 for study highlights.

Energy Ministers' Meeting

Hon. Angus Taylor

Chairman

Energy National Cabinet Reform Committee

Via email:[e-mail]; [e-mail]

Hon. Tim Wilson MP, Assistant Minister to the Minister for Industry, Energy and Emissions Reduction

Via email:[e-mail]

Victoria, Hon. Lily D'Ambrosio MP

Via email:[e-mail]

New South Wales, Hon. Matt Kean MP

Via email:[e-mail]

Queensland, Hon. Mick de Brenni MP

Via email:[e-mail]

South Australia, Hon. Tom Koutsantonis MP Via email:[e-mail]

Western Australia, Hon. Bill Johnston

Via email:[e-mail]

Tasmania: Hon. Guy Barnett MP

Via email:[e-mail]

Northern Territory, Hon. Eva Dina Lawler MLA Via email:[e-mail]

ACT: Mr Shabe Rattenbury MLA

Via email:[e-mail]

New Zealand: Hon. Dr Megan Woods MP Via email:[e-mail]

Mr. Daniel Westerman

Australian Energy Security Board

Via email:[e-mail]

("Members")

Long Duration Energy Storage (LDES)

Sunlands Co. Thermal Energy Storage (TES) Systems

IThe Technology

Sunlands Co. is an Australian company that has patented TES technology utilising flake graphite-based thermal storage media (FGSM) to be manufactured locally by the Quantum Sunlands Partnership (QSP). Details of the technology are set out in Attachment 1 to this letter andwww.sunlandsco.com.

The purpose of this letter is to introduce the Sunlands Co. TES technology to Members, provide suggestions for regulatory reforms considered essential to supporting investment in LDES and highlight the findings of the independent Marcoeconomics Advisory study on the deployment of thermal LDES within the NEM to support the AEMO Net Zero by 2050 Plan.

The Sunlands Co. technology has been the subject of a commercial feasibility study by leading thermal process engineers ProTherm Systems. This technology is the only LDES technology that operates at temperatures capable of driving utility scale turbines and consequently, the only technology that can be deployed as a retrofitting solution for existing coal fired power stations. The pairing of TES cells with conventional utility scale turbines and utilisation of associated power plant and transmission infrastructure has far reaching implications for the relatively cost-effective provision of mass storage which is critical to decarbonisation of the grid.

II Recommended Reforms to Support Investment in Thermal Long Duration Storage

Like any market, the market for storage responds to market need and commercial opportunity - this is generally derived from a number of factors including market structure/ dynamics, revenue opportunities, price and supply risk management and managing regulatory obligations.

In Australia, market dynamics to date are manifested in:

• • Private sector investment in storage predominate in the fast start, short duration space to provide FCAS-type services and or meet short term supply shortfalls, hedge against or exploit high wholesale prices;

• • Announced future private sector investment in medium duration storage of up to 4 hours; and

• • Very limited private sector investment in LDES, noting Kidston pumped hydro was only made possible with significant government subsidy/funding support including massive new transmission infrastructure investment by State-owned Powerlink.

Deficiencies in market structure underpinning lack of private investment in LDES including thermal LDES, are likely to be substantially addressed if the measures outlined below are adopted.

Potential of Thermal LDES to be Retrofitted to CFPS to Restore Dispatchability and Inertia

Major coal fired power stations (CFPS) are slated for retirement including Eraring (2025),

Yallourn (2028) and Bayswater (from 2030). The resulting loss of 'base load' dispatchable generation and valuable system inertia threaten energy security and grid stability.

Retirement of CFPS generation is considered inevitable due to the combination of CFPS plants reaching the end of their technical lives and declining CFPS economics due in part to carbon reduction policies. Whilst some efforts could be directed at extending the technical life of certain CFPS, declining economics appear to be an irresistible force, i.e., the impact of carbon reduction policies and average wholesale prices from the influx of zero short run marginal cost (SRMC) renewables.

Both market participants and regulators accept that LDES must be an integral part of the solution to address the loss of energy security and grid stability. The advantage of the Sunlands Co. technology is that it can physically restore dispatchable generation and system inertia at a relatively low cost. We recommend that policy makers focus on thermal LDES technologies such as Sunlands Co.'s which can utilise the existing NEM thermal infrastructure.

Remove Application of Network Charges to Storage

Sunlands Co. strongly encourages policy makers to remove network charges from LDES providers including generators fueled by TES. LDES providers are not the ultimate end-users of generation, whilst storage delivers direct benefits to consumers and networks.

The imposition of network charges on storage is counterintuitive.

Develop a Suitable LDES Revenue Model

Sunlands Co. recommends that policy development includes encouraging LDES solutions by developing revenue models that support the following LDES operations:

• (i) High frequency operation - LDES storage routinely discharged for overnight and supplementary power; and

• (ii) Low frequency operation - Reserve LDES (i.e., deep mass storage) where discharge may be less frequent and designed to address periods of solar and/or wind drought extending from a few hours to several days.

Routinely discharged storage providing overnight and supplementary power has a place in the commercial supply portfolios of energy retailers. The potential revenue streams including those derived from market arbitrage and hedging (cap option) are well established and would need to be factored into any policy response.

In the case of Reserve LDES, these recurrent revenue opportunities are far less prevalent.

As the Marcoeconomics Study found, Reserve LDES is critical to supporting the decarbonisation of the energy grid. Its development is highly unlikely without at least one of the following:

• (i) a capacity market;

• (ii) state ownership or underwriting of minimum revenues;

• (iii) an economic regulatory framework akin to transmission and distribution network assets; or

• (iv) regulatory obligations imposed on retailers to underwrite.

Without at least one of these mechanisms, capital investment will not be justified given the lack of recurrent commercial revenue streams.