Anatomy of a renewable finance deal: Developer lands equity for state’s largest solar-battery hybrid

The Perth-based Frontier Energy says it has lined up agreements for an injection of equity that will account for nearly one third of the cost of the largest solar-battery hybrid project to be built in Western Australia’s main grid.

After several false starts and different configurations, Frontier is getting ready to give the go-ahead to its Waroona project, now pitched as a 132 megawatt (MW) solar plant and an 81.5 MW (6.9 hour, or 565 MWh) battery energy storage system.

The solar capacity has recently been expanded, largely because of an increase in module capacity from its preferred panel supplier from 610 watts to 660 watts, and the battery has more storage (an extra two hours) in order to comply with the requirements of the capacity credits which underpin the business model for the facility.

Frontier, because it is the only listed Australian company focusing on renewables and storage, provides a rare insight into the financing and business models of these technologies, because of its ASX reporting requirements, and because it seems to like talking about it.

The company has it has received “firm commitments” for $110 million of new equity through a placement to institutions and family business offices. It is conditional on shareholder approval, and landing another near $220 million to cover the $310 million cost of Waroona, plus another $17 million in contingencies.

If it can seal these transactions, it will then start working on stage 2 of the Waroona project, which is expected to be a similar size to the first.

“The equity raising is a pivotal achievement for Frontier as it paves the way for our Stage One Senior Debt Finance to progress towards binding credit approval and then to financial close,” executive chairman Jamie Cullen said in a statement.

“We will then be ready to commence building Stage One and continue development work on Stage Two.”

Frontier predicts that Waroona, located around 120 kms south of Perth near Alcoa’s massive facility at Wagerup, will earn “base case” revenue of around $72.5 million from the first stage, including $32 million from its reserve capacity contracts with the Australian Energy Market Operator.

The remaining $40.5 million will come from energy sales and frequency control services, and large scale generation certificates (LGC), although the company suggest most of this $40 million will come from the sale of excess output from its battery and solar farm.

The project also has an underwriting agreement under the Capacity Investment Scheme, which acts as a “top up” should its other sales revenue fall below certain levels. The sum is not quantified, but if it is included in “other” in the graph above, then it is not significant.

After subtracting $10 million of Opex – including an estimated $3 million from charging the battery – the company expects operating earnings (Ebitda) of $62.5 million, and free cash flow of $32 million after debt and tax payments.

All going well, the company envisages the facility could add a third and fourth stage, taking the total project to around 1,000 MW and up to 660 MW of battery capacity.

“Together with our already strong support from existing investors, the appetite from new investors highlights both the quality of our Stage One project, and the pipeline for future development at Waroona to create a major renewable energy precinct in the South West of WA,” Cullen writes.

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