AGL taps government investment funds to help it meet RET obligations

AGL Energy says it has tapped two government-owned investment funds as its first partners in the new renewable energy investment vehicle it is creating to help it meet its share of the 33,000GWh renewable energy target by 2020.

The Power Australia Renewable Fund, which was first canvassed last November by AGL at the Paris climate talks, is aimed at drawing in their party monies to help AGL defray the costs of investment in new renewable energy projects.

On Wednesday, AGL Energy announced that Queensland Investment Corporation and its clients, including the federal government’s Future Fund, would provide $800 million commitment to PARF, with AGL Energy tipping in $200 million.

AGL will also benefit because it proposes to sell two of its major undeveloped assets into the fund – including the Silverton wind farm (up to 200MW) in New South Wales and Coopers Gap (up to 350MW) in Queensland – as well as two of its existing assets, the 102MW Nyngan and 53MW Broken Hill solar plants.

AGL Energy chief executive Andrew Vesey told RenewEconomy at the Clean Energy Summit that private investment funds had also expressed interest in PARF, although he indicated that most of these were from overseas.

“We cast the net very broadly. We had a lot of private funds interested internationally. But it came down to two things, we had a preference for quality … and for domestic funds, because this is an Australian initiative and we want to make sure that the benefits go to Australian consumers and investors as well,” he said.

Vesey said once the initial fund had been bedded down, and made its first investments, then it would seek new partners. However, Vesey also indicated that AGL Energy supported a “national” target, and not state-based targets that were generally much higher than the federal target.

“We prefer one national target … and that’s what we always think is a preferable thing to do.”

Could it be raised? “Once you get confidence … the targets are an incentive, they are not the be all and end all.”

QIC CEO Damien Frawley described the unorthodox partnership – a first in Australia – as a positive and important national step in the global shift to decarbonisation.

“QIC is proud to create this ‘first of a kind’ partnership between institutional capital and a key energy industry participant such as AGL,” he said on Wednesday. “By bringing together institutional capital with a key industry player in AGL, this innovative platform can help to unlock the level of investment required to meet the RET.

“PARF enables QIC to provide its investor clients with strong risk-adjusted returns by developing a pipeline of large-scale renewable energy generation in Australia.”

AGL CFO Brett Redman added that the PARF would enable the appropriate allocation of risk, in a rapidly-changing energy landscape, “by bringing like-minded organisations together to share that risk over the medium to long term.

“From feedback we’ve received from our lending group, we are confident of securing strong debt-market support to participate in this innovative project,” Redman said.

However, it is believed that the fund will only offer power purchase agreements for around five to seven years, which some financiers say is not sufficient to remove the risk from such projects. Some project developers, however, are going ahead without any power purchase agreements, although the cost of finance will likely be higher.