Waroona Energy : News release

Announcement

28th August 2023 | TSX:WHE

Green Hydrogen Peaking Plant capacity set at 120MW

using proven technology

Waroona Energy Inc. (TSXV: WHE; OTC: WHEFF) ("Waroona" or the "Company") is pleased to provide an update regarding the study assessing a Green Hydrogen-FuelledPeaking Plant ("Peaking Plant") at the Company's Waroona Renewable Energy Project (the "Project") in Western Australia ("WA"). A Peaking Plant was identified as an early consumer of green hydrogen, given it's a proven technology,the existing market is already in place (electricity) and no legislative changes are required.

HIGHLIGHTS

• Initial results from the Peaking Plant Study determined the optimal size for the system is 120MW using proven and mature technologies
• Results also confirmed the Peaking Plant will be able to operate on 100% green hydrogen o The Study remains on track for completion in 4Q2023
• Based on this size system and applying the 2025/26 benchmark Reserve Capacity Price (A$193,400/MW) the Company would receive annual Reserve Capacity Payments (RCP) of ~A$23m pa. RCP can be locked in for a 5-year period which provides fixed revenue, a key requirement for potential debt providers
• The Australian Energy Market Operator (AEMO) has released its Annual Electricity Statement of Opportunities Report (ESOO or Report) which highlighted the WA electricity network is facing a major supply-demand deficit over the next decade indicating an urgent and imminent requirement for investment in new electricity generation
  o The Report highlighted over the next decade demand is forecast to increase by at least 78% (Expected Case), with an Upside Case increasing by more than 220%
  o This deficit has already seen pressure on electricity price with a 49% increase in the average price over the past 12 months to A$85/MWh (A$57MWh in the previous year)

Adam Kiley, President and CEO, said: As highlighted by on-going increasing electricity prices (up 49% this year) and now the ESOO Report, the on-going energy transition, both from a supply and demand perspective, is putting a strain on the WA electricity network. We believe this is now making the development of both our peaking plant and solar farm, highly important for energy security in theState of WA.

The Company is moving the development of both the solar farm and peaking plant at an acceleratedrate, as we aim to have both projects in a shovel ready position before the end of 2023.

Unique to WA, the RCP structure is a fantastic initiative that assists with future project financing. For example, based on the selected 120MW Peaking Plant facility size, we have the ability to haveguaranteed revenue of at least A$23m per annum over five years (excluding merchant sales).

This guaranteed revenue allows for significant leverage in the Projects development. With the WA Government due to update the Reserve Capacity Price in the coming months (December) for the 2026/27 cycle which the Company will be applying for, there is strong potential for this price to increasefurther.

Level 20, 140 St Georges Terrace, Perth, WA, 6000

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Peaking Plant to provide 120MW capacity

As part of the Company's strategy for green hydrogen, it was identified1 in association with our major shareholder and collaboration partner, Frontier Energy (FHE.ASX; OTCQB: FRHYB), that to be a successful early mover in the hydrogen industry, not only does a project need low operating and capital costs, but also a pathway for early consumption given the sectors stage of maturity.

The Company believes that given its existing connection to the SWIS and the maturity of the electricity market, a Green Hydrogen Fuelled Peaking Plant is a clear first consumer of green hydrogen. This led to the Company commencing a Study (Class three cost estimation - AACE International) to assess a dual fuel green hydrogen peaking power plant at the Project1.

Early results of the technology assessment have determined the optimal size for the peaking plant system will be 120MW (at 41°C). The sizing of this peaking plant considered multiple factors, including only assessing established technologies, the potential size of stage one hydrogen production1, the size of the Company's current connection on the electricity grid as well as indicative estimates of the capital cost based on similar and recently built facilities1.

Importantly, the system also allows for up to 100% green hydrogen to be the fuel source. The Company continues to work through other key areas within the Scope of works that includes:

• Technology assessment of current peaking plant technologies o Peaking Plant technology selection
  o Storage facility concept design
  o Assessment of EPC costs and performance of selected technology
• Capital and operating cost estimate based on the recommended technology
• Preliminary Hazard Assessment
• Energy Market Review with revenue streams identified
• Emissions assessment
• Permitting and approvals strategy

The Study remains on track for completion in the 4Q2023.

Reserve Capacity Payments to underpin Project Financing

As previously highlighted, the Wholesale Electricity Market (WEM) in Western Australia consists oftwo components:

• Wholesale market sales - participants interact to supply and purchase electricity. The average electricity price on the WEM over the past year has increased from A$57/MWh to A$85/MWh.

1 News Release 4 July 2023

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During the peak periods (4pm - 9pm) when a peaking plant operates this price has increased further to an average price of A$122/MWh (previously A$82MW).2

• Reserve Capacity Credits3 - electricity generators are paid for the reserve electricity generation capacity they make available. The reserve capacity price is set every 12 months and the benchmark RCP is currently A$193,400/MW4 for 2025/26.

At the forecasted capacity of the peaking plant (120MW), the Reserve Capacity payment would be ~A$23m per annum. As highlighted in the ESOO Report, it is likely this price will increase in the 2026/27 year which is the period the Company will be applying for in 2024. New generation facilities have the option of locking-in this payment for five consecutive years. This is significant, as this provides revenue certainty, a pre-requisite for debt providers.

Image 1: Quarterly average of wholesale price of electricity5

1. AMEO - August 2021 - July 2023
2. https://www.erawa.com.au/cproot/23061/2/Notice---Benchmark-Reserve-Capacity-Price-2025-26---
   Publication-of-Final-determination.pdf
3. https://www.erawa.com.au/cproot/23058/2/-BRCP.2023---2023-benchmark-reserve-cap_e-for-the-2025-26-capacity-year---Final-Determination---for-publication-clean-.PDF
4. Source: AEMO; afternoon peak comprises 4pm-9pm.

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ESOO Report highlights major supply deficit with an urgent requirement for additional capacity on WEM

In August, the Australian Energy Market Operator (AMEO), which is responsible for managing the electricity and gas systems and markets across Australia, released its annual Wholesale Electricity Market (WEM) Electricity Statement of Opportunities (ESOO).

This Report plays an important role in the Reserve Capacity Mechanism (RCM) process on the WEM as it includes the 10-year Long Term Projected Assessment of System Adequacy for the SWIS. The primary purpose of the Report is to identify the investment in capacity from generation, storage, and demand side management (DSM) needed to ensure a secure and reliable electricity supply for the SWIS over the coming 10 years.

The Report highlighted that the urgency of advancing generation, storage, DSM, and transmission projects to bolster reliability and support a rapid and orderly energy transition. Its findings emphasise the need for additional capacity procurement and expedited progress of capacity projects in the SWIS.

Image 2: 2023 WEM ESOO Capacity and Demand, illustrating the Gap

Whilst there are multiple factors highlighted in the Report affecting both supply and demand, the key drivers were:

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• Renewable Energy Transition (Supply) - the transition to deploy renewable energy has been accelerated significantly over the past 12 months. Nationally, the Australian Federal Government pledged in September 2022 to lower emissions by 43% by 2030 and achieve net zero emissions by 2050. Whilst in WA, the state government intends to introduce climate change legislation this year to reduce government emissions by 80% below the 2020 level by 2030, and to meet net zero by 2050. This has seen WA announce the close of coal fired power generation in the State by 2029. These factors have significantly outreached the forecast compared to the 2022 WEM ESOO.
• Increased business, industrial and electrification (Demand) - Forecast demand has increased significantly due to growth in business electrification, along with growth in cooling load (air- conditioning), electric vehicles (EVs), and the expansion of industrial loads.
  In the Reports Expected Forecast, operational consumption is forecast to grow at an average annual rate of 5.6% and reach 30.3 terawatt hours (TWh) in 2032-33. This is a 72% increase compared to the 2022/23 estimate. Whilst the high demand growth scenario, operational consumption is projected to increase by more than 220% to 58.9 TWh over the same period.

As shown in the graph below, the low case for the current report, is higher than the high case in the previous year.

Subsequent to AEMO publishing the Report, the WA Government has announced that the planned retirement of some coal fired generation planned for 2024 has been postponed by at least half a year6.

By contrast, the Company's strategy for developing renewable energy and a peaking plant aims to bring more renewable energy onto the SWIS. By being available to supply 120MW power generation at short notice during peak demand times, the proposed peaking plant will help narrow the generation capacity shortfall forecast in the WEM ESOO.

Full details of the ESOO can be found on the link below: https://aemo.com.au/en/energy-systems/electricity/wholesale-electricity-market-wem/wem-forecasting-and-planning/wem-electricity-statement-of-opportunities-wem-esoo

6 https://thewest.com.au/politics/state-politics/shutdown-of-collie-coal-fired-power-plant-delayed-in-response-to-fears-over-electricity-shortages

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