Renewables projects compete for backing

03/07/2017 - 13:12

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Competition among developers of renewable energy projects in WA's South West is hotting up, with two solar farms starting construction this year and a further eight major projects hoping to join them.

APA Group is planning a 130MW wind farm next to its existing Emu Downs wind farm. Photo: APA Group

Competition among developers of renewable energy projects in WA's South West is hotting up, with two solar farms starting construction this year and a further eight major projects hoping to join them.

Construction work on Western Australia’s largest solar farm, near Badgingarra north of Perth, started earlier this year.

APA Group’s $50 million project will add 20 megawatts to capacity in the South West electricity network.

It has been underpinned by a 13-year offtake deal with state-owned utility Synergy, which will purchase both the energy and large-scale renewable generation certificates (LGCs), which are crucial to this kind of development.

The project will soon be joined by WestGen’s $70 million Byford solar farm, which will add a further 30MW of capacity to the network.

A key breakthrough for the Byford project was signing a 10-year offtake deal with Wesfarmers’ subsidiary, Kleenheat.

WestGen director Richard Harris told Business News financing was due to be finalised this month, with construction to get under way in August.

The industry is eagerly awaiting the next announcement about which projects will join Emu Downs and Byford.

APA Group has been ticking all the boxes needed to get its 130MW Badgingarra wind farm under way.

It signed a 12-year offtake deal with Alinta Energy in February, for sale of both the energy and the LGCs.

With funding to come from APA’s cash reserves and operating cash flows, the project is almost certain to proceed.

The $315 million wind project will be located next to APA’s existing 80MW Emu Downs wind farm and the 20MW solar farm, giving the group a combined generation capacity of 230MW in the area.

Synergy, along with private companies Stellata Energy, Sun Brilliance and Carnegie Clean Energy are all competing to be the next cab off the rank.

Complex policy

Competition is intensifying at a time when energy demand is rising slowly, meaning there is limited need for new capacity.

In a report released last month, the Australian Energy Market Operator said the South West Interconnected System (SWIS) had sufficient capacity to meet expected demand out to 2021, but would need an extra 433MW by 2027.

Rooftop solar, which is growing at 130MW per year, will account for a big chunk of future demand.

AEMO’s projections adjust for the planned closure of about 380MW of Synergy’s existing coal and gas-fired generating capacity.

If Synergy proceeds with the two renewable projects it is evaluating, its market power would effectively be maintained and the planned move toward full competition in the retail energy market would be more challenging.

Energy Minister Ben Wyatt will also need to weigh up how much the state government wants to boost renewable energy, after pointedly avoiding any commitments during the election.

Another factor is that Synergy needs to acquire about 800,000 LGCs by 2021 to comply with Commonwealth renewable energy targets.

If it fails, it will need to pay penalties of about $90 per LGC.

Synergy chief executive Jason Waters is keeping his options open, but appears keen to proceed with two projects.

“Our overwhelming motivator in meeting the 2020 LRET obligations is to ensure we do so at least cost to electricity consumers,” Mr Waters told Business News.

“Therefore, the business will pursue a strategy to procure energy and LGCs at the lowest cost to taxpayers, either through developing our own assets on the SWIS or through signing offtake agreements with the private sector.”

Mr Waters confirmed Synergy was continuing to evaluate an expansion of its Greenough River solar farm (from 10MW to 40MW) and, more significantly, developing the Warradarge wind farm near Enneabba.

“In Warradarge wind farm we have an asset that is recognised as one of the best renewable projects with one of the highest capacity factors in Australia that provides the lowest cost renewable energy in the state,” Mr Waters said.

Jason Waters says Synergy is aiming for efficiencies. Photo: Attila Csaszar

Full development of Warradarge would add 250MW of capacity to the SWIS.

That presents a big challenge for the likes of Carnegie, Sun Brilliance and Stellata.

Private competitors

Sun Brilliance is planning a 100MW solar farm near the Wheatbelt town of Cunderdin at a cost of $150 million. The company had been targeting financial close in May, and hoped to begin construction in June.

Director Ray Wills remains positive, despite failing to meet those dates.

He said the company was still planning to develop Cunderdin on a ‘merchant basis’, meaning no offtake contract, and without government grants.

Mr Wills said the Western Power access arrangements were close to being finalised.

“The financial partners are waiting for that to happen,” he said.

Mr Wills said two international infrastructure investors were bidding for the project, with KPMG managing the financial negotiations.

Equity investors are due to contribute 30 per cent of the cost, with Sun Brilliance to retain a significant minority stake.

Stellata Energy, which was established in January last year, is planning a solar farm near Merredin in the Wheatbelt, not far from a large wind farm.

Stellata’s project will have capacity of 120MW and a cost of $160 million, according to director Troy Santen.

The company has announced financial backing from UK-based investment group Ingenious, which has raised £500 million for renewable energy projects in Europe.

The Merredin project obtained planning permission last month, one step towards its goal of starting construction in the first half of 2018.

Mr Santen said Stellata was in the process of negotiating a power purchase agreement and, like most other renewables projects, would need to sell LGCs.

Carnegie is working on multiple projects in Australia and overseas, with three in WA’s South West.

The state government has committed $19.5 million to a wave farm project in Albany, which is being designed to have an initial capacity of 1MW.

Carnegie’s aim is to expand capacity to 20MW and says this will generate a total investment of $100 million.

Subject to the success of the 20MW facility, the company says the wave farm could be expanded to 100MW.

In addition, Carnegie is developing the 2MW Garden Island microgrid, which combines battery storage and a 2MW solar farm with a wave energy project.

This is budgeted to cost $7.5 million, with Carnegie saying in its latest update in April that construction was due to start in the June quarter.

Carnegie’s third project in the South West is a 10MW solar farm at Northam, being developed through a joint venture its subsidiary Energy Made Clean had established with property group Lendlease.

The Northam project is budgeted to cost between $15 million and $20 million, with Carnegie having completed a capital raising this year to fund its share of the equity investment.

The company announced in mid-June it was working through final approvals and aiming for a final investment decision around mid-July.

That would trigger the start of a six-month construction phase.

When Business News asked for an update last week, the timing seemed to have become loose.

“Financial close precedes construction which is expected to commence in the coming months,” a Carnegie spokesperson said.

The spokesperson was also non-committal about the contractual basis of the project, saying a power purchase agreement was one mechanism to provide revenue, with alternatives including selling into the spot market.

The long list of potential renewable energy projects in WA’s South West includes WestGen’s plan for a 40MW plant at Manjimup, using waste timber from woodchip producers and the Forest Products Commission as its fuel source.

The project is fully approved in terms of planning and permits, but with a price tag of up to $150 million, still needs financial backing.

Note: This is an extended version of the article published in the July 3 print edition of Business News.

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