Babcock leads power generation

Investment group Babcock & Brown has entrenched its position as the biggest private sector player in energy generation in Western Australia after agreeing to buy 100 per cent of the AlintaAGL business.

The $522 million deal means that Babcock, through its various arms, has an interest in four operating power stations in WA and another four power stations currently or soon to be under development.

The latter projects include a 40-megawatt biomass plant being developed at Manjimup by WA Biomass Pty Ltd, which is jointly owned by Babcock, WA firm Carbon Solutions, and US firm National Power.

The same entities teamed up in 2004 to establish Renewable Power Ventures Pty Ltd, which built the 90MW Alinta wind farm near Geraldton.

The Babcock group, through Babcock & Brown Power, also has a 70 per cent stake in NewGen Power, which is building a 320MW gas-fired power plant in Kwinana and recently gained environmental approval for a 330MW gas-fired plant at Neerabup.

Babcock & Brown Power has agreed to acquire full ownership of AlintaAGL following a ‘Russian roulette’ sales process that was negotiated last year when Alinta Ltd and AGL Energy Ltd split ownership of the WA business on a 67:33 basis.

AGL had an option to move to full ownership of AlintaAGL, which owns the Alinta energy retailing business and its co-generation power stations.

It signalled its interest in May this year, when it announced that it would buy AlintaAGL if Macquarie Bank was successful in its bid for Alinta Ltd.

However, Babcock ended up being the successful bidder for Alinta.

Since then, AGL has had a change of chief executive – with last month’s shock departure of Paul Anthony – and a change of plans.

AGL did not take up its option, which allowed Babcock & Brown Power to buy AGL’s 33 per cent stake for $522 million.

The purchase is expected to be finalised by the end of December.

BBP chief executive Paul Simshauser said AlintaAGL would provide strong growth opportunities over coming years, including through the establishment of additional cogeneration units.

AlintaAGL operates two co-gen units at Alcoa’s Pinjarra alumina refinery and is building more at Alcoa’s Wagerup refnery.

Mr Simshauser said the purchase also marked BBP’s first entry into the energy retail market.

He said BBP anticipated that the retail electricity market in WA would be open to full competition by 2010-11, which would provide further growth opportunities.

In presentation material, BBP acknowledged that margins were likely to face “a degree of compression” over the short term.

AlintaAGL currently has long-term gas purchase contracts but will have to pay substantially higher prices for gas as its wholesale supply contracts come up for renewal.

BBP said “gas supply contracts with existing customers will be renegotiated over time to increase margins as contracts roll off”.

Despite the dismantling of Alinta’s corporate head office following the Babcock takeover, Mr Simshauser said it would mostly be business as usual for the AlintaAGL business.

The business will be overseen by BBP’s Brisbane-based general manager energy markets, Andrew Kremor, who was previously chief executive of Queensland business, Energex.

BBP’s other assets in WA include power stations at Port Hedland and Newman and a co-generaton plant at the Cawse nickel mine.

It also has an 11.8 per cent stake in the Goldfields gas pipeline.