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AGL seeks investors’ funds to help with large scale renewable target

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AGL Energy has unveiled a new investment vehicle which it hopes can bring in outside money from institutional investors to help it meet its share of the 2020 renewable energy target.

The company flagged the established of the fund late last year, during the Paris climate talks, and on Wednesday unveiled what it calls the Powering Australian Renewables Fund (PARF), which will have $3 billion in equity and finance available for investment in large scale renewables.

veseyAGL managing director Andrew Vesey described the creation of PARF as critical for build out of large scale renewable energy in Australia, which has been at a virtual standstill since before the election of the Coalition government in 2013, and which has since been reduced from 41,000GWh to 33,000GWh.

However, despite gushing mainstream media reports about AGL “going greener” the fund aims to do no more than what AGL is required to meet its legislated renewable energy target obligations. It simply shares the cost and risk of those investments with other institutions.

Vesey said the fund would only target around 1,000MW of capacity, which is roughly AGL’s share of the RET that it needs to have built by 2020.

And Vesey said he did not expect the fund to be in position to commit to new projects for another 12 months, meaning that large scale renewable energy investments have been put off to 2017.

“It will be a year before we are starting to develop new projects given everything that has to happen,” Vesey told an analysts briefing on Wednesday. And some analysts questioned whether the length of the power purchase agreements to be offered by the fund – between 5 and 10 years – was enough to attract finance.

Independent analysis last month suggested that unless 4,500MW of large scale solar is committed in 2016, then the RET will likely face a shortfall, and penalty prices will have to be passed on to consumers.

RenewEconomy asked AGL if it intended to avoid the penalty payments – the large scale generation certificates have been trading at $77/MWh, just short of the $92.50 penalty price.

In an emailed response, AGL said: “As the largest ASX-listed investor, owner and developer of renewable energy in Australia,  AGL is well placed to manage its RET obligations over the long term. AGL uses a range of tools to manage its LGC portfolio in an efficient manner.”

The fund is likely to favour some of AGL’s wind projects, with Vesey saying that AGL projects already in its books, including the giant Silverton wind project near Broken Hill and another at Coopers Gap, will likely be prime targets for the fund, although third-party offerings will also be considered.

AGL Energy said it would contribute $200 million to the fund, but its net investment will be lower than that because it will sell the Nyngan and Broken Hill solar plants into the venture.

Those plants required $218 million of investment from AGL, the rest came from government agencies, although any purchase of those plants by PARF will likely be debt-funded.

Vesey sees the new fund as dealing with one of three key bottlenecks to the renewables industry – the others being the overcapacity in the market, and the need to “protect” the wholesale energy market.

PARF will likely offer power purchase agreements of between 5 and 10 years. It has been the inability of sourcing PPAs that has kept the industry at a standstill.

By creating the fund, AGL Energy is deciding that it would prefer to be using other people’s money, and keeping the PPA obligations off its balance sheet. It is seeking equity interest from unlisted infrastructure investors, and debt funding from Australia’s major banks.

Vesey said the need to remove “old and dirty” coal generators, the excess base load capacity of around 7,000MW,  remained a major impediment to the renewables market, although he also appeared to drop his opposition to payments to hasten their removal.

In the past, Vesey has advocated “regulatory” intervention that may target coal plants on their retirement date and pollution levels (AGL has the youngest and cleanest coal fleet overall), but Vesey said he was willing to at least look at  proposals such as that by ANU researchers for a common fund to hasten the exit of generators.

AGL is also keen on capacity payments to generators to act as standby, although critics of capacity markets complain that this is little more than another subsidy. In Western Australia, the capacity market has cost hundreds of millions of dollars a year and has resulted in the construction of fossil fuel plants that may never be switched on.

Vesey also said that AGL was cautious about renewables because of the over-capacity and didn’t want to “crush the wholesale energy market.

However, the wholesale energy market has rebounded strongly in the past year, thanks to some permanent coal-fired generator closures, some announced closures, some maintenance closures, and a cold winter in some parts of the country and a hot summer in others.

Indeed, the wholesale market, also boosted by growing demand for LNG plants in Queensland, has nearly recouped the falls it made after the carbon price was repealed, meaning that despite the Coalition rhetoric, consumers are not saving so much. And coal generation is going strong since the removal of the carbon price.

AGL’s profits in the last six months from the wholesale markets surged by $126 million, helped by a full contribution from the big black coal generators it bought in NSW, and the low cost Loy Yang A brown coal generator, which despite its relatively low emissions intensity (at least compared to other brown coal generators)  remains the single largest emitter in the National Electricity Market.

Still, Vesey, who also announced a $US20 million investment in US-based battery storage systems developer Sunverge, as part of an accelerated push into the home energy market, was making a big deal out of the renewables investment.

“We are not making investments into renewables because of a target,” he said, “but because we believe that the reference scenario is one where carbon is difficult to put into the atmosphere.”

“This is not about targets, it is about the future of our business,” Vesey added later, saying that the company was focused on “anticipating the future”, not being reactive to it.

 

 

 

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