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Australian banks finally get a taste for solar projects

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The sale of a 1MW solar PV project near Alice Springs last week went virtually unnoticed, but it includes a bunch of “firsts” that could be significant for the growth of the solar PV industry in this country.

The sale of the Uterne solar power plant by US solar manufacturing giant SunPower to privately held Australian renewable energy developer Epuron marks the first time a project of this size has changed hands in Australia.

The 1MW Uterne solar project has been performing above expectations.

It also marks the first time such a project has obtained project finance from an Australian bank – and it is the first step in a strategy by Epuron to build up a portfolio of solar projects to supplement its development work in wind farms.

The bank financing could be the most significant of the “firsts”. While commonplace overseas – in Europe, the US and elsewhere – Australian banks have had little opportunity to invest in such solar projects in Australia. The first “utility scale” solar project in the country, the 10MW Greenough River project to be formally opened this week, was built without bank debt, with co-developers Verve Energy and GE preferring to stump up the money themselves.

One of the reasons for that was that until banks see and understand such technologies and projects, they are likely to ascribe a higher degree of risk and price to any financing. In the case of Greenough, the cost of equity was cheaper than the cost of debt. By bringing in banks, and lowering the cost of that debt, the task facing the Clean Energy Finance Corporation and the Australian Renewable Energy Agency will also be made easier.

Neil Hereford, the head of carbon solutions at Commonwealth Bank, which is believed to have provided debt for around 50 per cent of the Uterne transaction, said that while the transaction was small, it was a key step in building capacity.

“It’s important to get people comfortable with solar projects and to understand the technology and the risk,” Hereford told RenewEconomy. “These are baby steps …because there are not many projects in the market.”

Still, the market for solar PV systems of 1MW and above in Australia is expected to grow rapidly in coming years, particularly in regional areas with good sun, and in remote and off-grid areas.

Epuron, which is investing into Uterne some of its money earned from the sale to AGL Energy this year of the massive Silverton wind project near Broken Hill, has a near-term target of building a portfolio of around 5MW of such installations, targeting remote locations and also mining projects.

It will soon commission the TKLN project, which totals around 1MW of solar PV at three different remote locations in the Northern Territory. Each is designed to reduce the dependence of diesel, and are usually combined with battery storage to help smooth the output. Power and Water Corporation, which has a 20-year power purchase agreement for Uterne,  is also providing power purchase agreements for those installations.

Mines have proven to be a tough nut to crack, but Epuron sees potential in using both solar and wind energy to reduce dependence on diesel and gas. “We think there is a host of opportunities in remote areas and TKLN is a good case study,” says project manager Anthony Melov.

Melov says solar plants such as Uterne produce a stable cash flow, which could balance the “ups and downs “of the wind development business.

Uterne was commissioned in June last year after the $6.6 million plant was built with the aid of the federal government grants under the Solar Cities program. The plant is equipped with high-efficiency panels and SunPower’s T20 Tracker system, which positions panels to follow the sun during the day. It has performed above expectations and has generated in excess of 2,300kWh for each kilowatt of peak capacity. That translates into a capacity factor of nearly 30 per cent, for those who like to compare it with wind farms and other generators.

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  • http://www.sunoba.com.au Sunoba

    Many thanks Giles for the interesting article.

    The financial metrics for the Uterne project might be of interest. Based on the as-new cost and a 30% Capacity Factor, I estimate the cost per peak Watt is AUD 6.6 and the LCOE is AUD 281 per MWhr. Not cheap! But one has to be encouraged that such a deal can be approved by banks.

    Details at http://www.sunoba.blogspot.com (post for 8 October 2012).

    • Giles Parkinson

      Not cheap. But look at what it is competing against in diesel – well north of $280/MWh. (as i see you’ve noted in your blog).

  • Mike Reeves

    Hi Giles,
    Can’t help wondering if you mean 2,300kWh per kW of peak capacity? Figures for cloudy Melbourne down south are 3.7kWh/kWp p.a. which gives a modest 1350.5 kWh per kWp per year. Even given that Alice is a lot further north and tracking systems improve performance … otherwise, I want one!
    Cheers

    • Giles Parkinson

      Ahhhh. well spotted. fixed.