APA’s new gas generator remains in UNGI limbo, can’t find a customer

APA Group has told shareholders that it sees new growth opportunities in emerging clean energy markets, as the collapse in gas prices and lower production dents valuations of the company’s gas facilities, and a planned gas generator remains stalled due to Morrison government delays.

APA is one of Australia’s largest owners of gas infrastructure, including a portfolio of more than 15,000 kilometres of natural gas pipelines, but has recently branched out into the clean energy sector, with investments in wind and solar power stations, as well as hydrogen production facilities.

The gas producer told shareholders that it expects to play a substantial role in the Morrison governments ‘gas led’ recovery while also acknowledging that the company would need to look to alternative markets for growth.

However, the APA Group told shareholders it was still searching for potential customers and underwriters for its proposed 220MW Dandenong gas-fired power station, which has been slated for financial support by the Morrison government, but which has not been forthcoming more than a year after its initial announcement.

The project was shortlisted for federal government support through the Underwriting New Generation Investments (UNGI) program. The Dandenong project was one of the first selected by the Morrison government to proceed to contract negotiations, but more than a year later, no agreement on funding has been reached.

A dozen gas and pumped hydro energy storage projects have been shortlisted under the Morrison government’s UNGI program to receive underwriting support.

However, the government will rely on a $1 billion Grid Reliability Fund to fund the commitments. The creation of that fund is currently stalled in parliament, as the Morrison government negotiate with Nationals members over unplanned amendments that could open up the fund to investments in coal and nuclear projects.

“APA continues to engage with prospective customers to underwrite the project,” the company said in its half-year results update on Tuesday.

The project is just one of more than a dozen shortlisted UNGI projects that remained stalled due to a failure by the government to actually deliver on promised support, with some projects, including upgrades to the Vales Point coal fired power station cancelled entirely due to the delays.

APA says it has implemented a new ‘pathfinder’ program to identify opportunities to invest in emerging technologies, particularly in renewable hydrogen production, as well as the Parmelia Gas Pipeline hydrogen transformation project, which will see a portion of the pipeline converted to become one of Australia’s first hydrogen ready gas pipelines.

“If successful, this will be one of only a few such hydrogen ready transmission pipelines in the world and it’ll create a significant opportunity for the development of a hydrogen hub in the Kwinana Industrial precinct, near Perth,” APA CEO Rob Wheals, said.

APA said that it had also adopted a commitment to achieving net zero emissions from its operations by 2050, but despite this is still bullish about the prospects of its gas market, saying that it expects growing global commitments to zero net emissions will drive increased demand for gas as a transition fuel.

The company said that it was looking to expand its exposure into the emerging hydrogen market, building upon its existing involvement in the Badgingarra Renewable Hydrogen Project, which has been shortlisted for funding by the Australian Renewable Energy Agency, and the potential involvement in a hydrogen production facility at the Kwinana Industrial District outside of Perth.

“We are also well positioned for growth in those areas where we either have or are rapidly developing capability, including renewables, firming, storage and electrification, in our chosen markets,” Wheals added.

“Leveraging our existing capability and assets in energy infrastructure, we will pursue opportunities in adjacent energy markets such as hydrogen, off-grid renewables and storage. The program will also be a key enabler in our efforts to support a lower carbon future and our ambition to achieve net zero operations emissions by 2050.”

APA reported a loss for the first half of the financial year of $11.7 million, which was a considerable deterioration from its performance during the same period a year prior when it achieved a post-tax profit of $175 million.

The loss was caused primarily by a $249.3 million impairment recorded against the book value of the company’s Orbost gas processing plant, with APA Group forced to revise down expected earnings from the facility due to lower than predicted production as following a ‘reconfiguration’ of the plant.

The company joins a growing list of Australian gas and coal companies that have recorded substantial write-downs in the value of their fossil fuel assets after a year of lower prices and falling demand.

Revenues for the company were also down slightly, falling 1.4 per cent, attributed to falling gas prices, as well as the impacts of network curtailment that impacted one of the company’s wind and solar farms.