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CEFC backs 270MW Sapphire wind farm, in vote of confidence for merchant market

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The 270MW Sapphire wind project near Glen Innes in northern NSW will proceed to construction, after securing up to $120 million in debt finance from the Clean Energy Finance Corporation on Monday.

The CEFC said on Monday that its commitment to the $588 million project – the fifth and final winner of the ACT government’s large-scale wind reverse auction – would both demonstrate the bankability of large-scale renewables projects in Australia and help allay concerns about merchant risk; a key concern as a number of the nation’s biggest wind and solar projects look to the merchant market.

TARALGA, AUSTRALIA - AUGUST 31: Taralga Wind Farm on August 31, 2015 in Taralga, Australia. (Photo by Mark Kolbe/Getty Images)

Taralga wind farm, courtesy of Vestas Wind Systems

Sapphire is minority-owned by project developer CWP Renewables, and co-financed by Commonwealth Bank, Sumitomo Mitsui Banking Corporation and EKF, Denmark’s export credit agency, while Partners Group has provided most of the equity funding.

And while CWP has secured a 20-year feed-in tariff from the ACT government for 100MW of the project’s output, the remainder will be traded on a merchant basis.

As we have reported here often, long-term PPAs for large-scale renewable energy projects in Australia – and particularly for wind farms – have been thin on the ground in Australia, since the Abbott-era federal government policy changes put the sector under a cloud of uncertainty.

Three years on, and despite the locking in of a bipartisan national renewable energy target, the paralysing effect this had on industry growth is still being felt.

In June, the (out-going) chief of Australian wind energy developer Infigen said that securing a PPA for wind energy in Australia was “still very difficult”, with the market for a 10 year off take contract “still very thin”.

“Why is there not more contracting? From the large obligated parties … they seem to have a strategy at the moment of just simply passing through the higher costs to their customers,” George said in answer to a question from an analyst. “And that is reflected in … more customers coming to people like us for their supply.”

It was also reflected in the growing spread between contract prices and merchant prices, George said.

But the CEFC said on Monday that the Sapphire debt finance package demonstrated the bankability of those large-scale renewables projects that did not have 100 per cent energy off-take agreements through long-term power purchase agreements (PPAs).

“In order to achieve Australia’s Renewable Energy Target, we need to see the accelerated development of many more large-scale renewable energy projects in the near term,” said CEFC wind sector lead Andrew Gardner in a media statement.

“This means financiers and developers are increasingly required to support projects which have an element of merchant risk to augment any PPAs.

“Project financing for large-scale greenfield renewable energy assets has generally seen a reluctance to take on price or merchant risk. With this area of financing still evolving, we have been pleased to work alongside other commercial financiers in the Sapphire project to help demonstrate the bankability of such projects and give confidence to other developers seeking finance for projects which have an element of merchant risk,” Gardner said.

CWP Renewables managing director Alex Hewitt said his company was “excited” to see its second wind project in NSW proceed to construction.

“The commencement of this landmark project reinforces our track record of delivering excellent wind farm projects, following the successful delivery of both Boco Rock Wind Farm in southern NSW and Fantanele Wind Farm, the largest onshore project in Europe at the time of construction.”

CEFC transaction lead Bobby Vidakovic said he believed the wind farm’s development would contribute to a stronger wind industry in Australia, through local employment in the construction phase and with the use of high performing technology solutions.

“As a result of this project we are pleased to see that CWP will also be able to expand both its asset management team and its microgrid development business,” Vidakovic said.

“We are also helping to build industry capability and advance improvements in technologies through this project. The wind farm’s transformers are being manufactured by the Wilson Transformer Company, Australia’s largest manufacturer of power transformers.”

As well as being one of Australia’s biggest wind farms, Sapphire is also notable for being the first in Australia to use the new Vestas V126 3.6MW turbine, which has one of the best available rates of energy production per turbine; and for its planned contributions to a Community Fund at the rate of $2,500 per turbine per year over the life of the project.

A consortium between Vestas and Zenviron will deliver the project, with Vestas supplying and commissioning the turbines, and Zenviron delivering the balance of plant. TransGrid will build, operate and maintain an on-site substation connecting the Sapphire project to the national energy grid.  

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  • GlennM

    Great news,,,,
    what is the COALition progress on killing CEFC ? How many more of these can they do befor they are terminated ?

  • disqus_gF5uXVTUbL

    Storage?

    • Rod

      There is plenty of storage in NSW

      It is called the Snowy Mountains Hydro Scheme

      • disqus_gF5uXVTUbL

        Your the person who couldn’t get their head around the idea inertia isn’t needed. You think in the old centralised grid paradigm. I’m sure you have qualifications and work in it based upon how entrenched you are. The hydro is hardly available locally to be brought to bear when poles and wires go down. It can be done better. Your thinking is fossilised. I’ve had four outages in the last three months and I live in NSW.

        • Rod

          No, I’m yet to be convinced of the importance of mechanical inertia in keeping the lights on.
          No qualifications but I used to work in the industry.
          The National grid is a valuable asset that will be used regardless of the generation source for years to come.
          Transmission failures are inevitable due to weather events, bushfires etc. but the solution of grid scale battery storage for an extended outage is currently and probably for the foreseeable future financially unfeasible. Maybe at a substation level to smooth out PV they make sense.
          I will also be interested to see the outcome of the Electranet study comparing the cost of grid scale storage to the proposed NSW interconnector.

          • disqus_gF5uXVTUbL

            Your underestimating the potential effect of policy change. This is over confidence. No one really knows what will happen. The best leaders can do is aim for a path that achieves a quality grid in terms of the environment, economy and social justice.

        • Jonathan Prendergast

          I think this 270MW wind farm is more about reducing emissions of one of the most emissions intensive grids in the world due to the risks of climate change, than providing local energy resilience.

          I agree there is lots of potential to provide local energy through solar and storage. But not sure every renewable project should be burdened with this, while action on climate change is so necessary and urgent. Don’t let perfect be the enemy of good.

          • disqus_gF5uXVTUbL

            Yes your view is the prevailing cultural one of the CEFC and ARENA. It’s not working for us in any great way, as the country isn’t moving forward with the strategy. Your view leads you to be critiqued by the right as driven by ideology. Your view also leads you under attack by the right due to the intermittency of renewables. You fail to address challenges from the perspective of the triple bottom line, the principles of the economy, social justice and the environment. Did you think I didn’t think of these things? Your problem is lack of vision to discern a strategic path forward the whole community will accept and act upon. You fail to design a working example of renewable energy that can’t be attacked. People like you in positions of leadership are slowing the county’s implementation of renewable energy. In a fews years when the fossil fuel generators are turned off you will have created a pitiful performing grid.

          • Jonathan Prendergast

            More a realist than a reductionist. I blame the decade spent trying to create change. We have been at this for over a decade and are still up to only 14% renewable nationally. You might be surprised how more aligned our thinking is than your quick judgement suggests.

          • disqus_gF5uXVTUbL

            With my quick judgment, I prefer to fight things out to find out what’s there. Thanks for the clarification. With this realist point, as well as an electronics background, I retrained in human development and social welfare. It’s important to genuinely try to mediate conflict with the other side, who us lefties believe are recalcitrant etc. We tend to judge them, however we need to redress their concerns. Even if that means us taking more perceived responsibility and making more effort, we need to do that if we are to have any hope of getting less resistance and more traction for the policies we really need. You may think me abrasive in my methods, although I’m not out and out pessimistic about hopes of bipartisan alignment.

          • DJR96

            Whilst many of us embrace that decade of trying to create change and have helped increase renewables to 14 %, there is also a big industry that controls the network and policies flat out trying to preserve the existing, ageing status-quo, resisting the very same change. Problem?

  • john

    Clown Boots will be having a nightmare about this