Cannon-Brookes backed fund to deliver “coal plant-worth” of big batteries

A private investment fund whose aim is to underwrite a “coal plant’s-worth” of dispatchable battery storage on the Australian grid has announced its first financial close, backed by deep-pocketed investors including the Cannon-Brookes family’s Grok Ventures and the Jana Diversified Infrastructure Trust.

Specialist infrastructure project financier Infradebt said on Monday that it had reached its undisclosed target for the first capital raise for its Energy Transition Fund (ETF), which will provide senior debt finance to six to eight big battery projects with a total capacity of 1.5-2GW over the coming few years.

The first two investments, as have been reported, are loans to the Neoen Capital Battery in the ACT and Genex Power’s Bouldercombe BESS in Queensland.

The Capital Battery by the French renewables giant Neoen is a 100MW/200MWh lithium-ion facility being developed alongside the Queanbeyan substation, through a mix of Neoen’s equity and senior debt facilities from Infrabest and the federal government’s Clean Energy Finance Corporation.

The 50MW/100MWh Bouldercombe battery is a 50MW/100MWh project about 20km southwest of Rockhampton in Queensland. Both projects are under construction and expected to begin operations later this year. Infradebt managed funds are the sole financer for the Bouldercombe BESS.

Infradebt CEO Alexander Austin says the fund is not yet ready to reveal the details of the other four to six big battery projects it is working to help finance, but says details of projects three and four three should be made public “relatively soon.”

Also under wraps is the amount of money the ETF has in its coffers, although Austin does disclose that the tranche fundraise provided “more than enough” to cover the first two battery transactions, with plenty of capital for big battery number three.

“The structure of the fund is deliberately raising capital in tranches over this year and next year to align with our objectives …of six to eight batteries, 1.5-2GW and probably around a billion dollars of total debt capital,” he told RenewEconomy.

Austin says the ETF is focused on big battery projects with four to six hours duration of energy storage, whose chief role is in the daily grid balancing market, where there are “reasonably good market arrangements” for batteries.

“I think batteries are quite unique and one of their key attributes… is that they’re the only part of the electricity system that can profit from volatility,” Austin says.

“They can make profit from both upside volatility, like the system has experienced in spades in 2022, but they can also profit from downside volatility – it’s the only asset that can make money from negative prices.

“So while I don’t know exactly how [the energy transition] is going to work out, I’m very confident that we’re going to have plenty of volatility.”

The fund is also targeting projects that are in the grid connection approval pipeline; “we’ll typically come in at that point where they they sign an EPC contract and proceed to the construction phase,” Austin tells RenewEconomy.

“There’s lots of projects that that want to get going. And I think one of the great things about how we’re able to approach [finance] is that we just want to back great battery projects,” he says.

“We don’t need that battery project to have, you know, a 10 or 15 year off-take with an investment grade retailer.”

Ultimately, Austin says, the fund’s purpose is to get more large dispatchable storage into the system, so that coal can be taken out, and renewables can deliver their full benefits.

“We’ve got to push really hard on these batteries because without without dispatchable storage, the politicians aren’t going to let us shut the coal,” he tells RenewEconomy.

“That’s the kind of chicken-and-egg problem we’re gonna solve – we’ve got to get these batteries built first so that the coal can shut.

“It’s not something where we can just blindly say, well, after the coal shutdown we’ll build some batteries. That’s not going to be acceptable to the politicians or the regulators or to industry.

“But it does mean that you’ve got to get things done.”

Austin says that a key finance challenge for grid-scale energy storage is that – like the batteries projects themselves – battery transactions are getting bigger and bigger.

“Part of that’s driven by grid connection costs, which are pretty expensive, and that creates an incentive to build as big a project as you can to spread those costs over a bigger base.

“But one of the side effects of that is that then we need to be able to mobilise larger chunks of capital to be able to provide debt finance for those larger projects. So one of one of the reasons for setting up a bigger fund is to be able to do bigger transactions.”

For the Cannon-Brookes’ family’s Grok Ventures, which was a co-investor in Infradebt’s first ethical fund (IEF), along with Future Super, the decarbonisation of the grid is an increasingly solid investment.

“Since investing in Infradebt Ethical Fund back in 2017, we’ve closely observed Infradebt identifying gaps in the capital stack to accelerate Australia’s decarbonisation efforts, whilst providing solid risk adjusted returns,” said Grok Ventures CEO and CIO, Jeremy Kwong-Law.

“We believe ETF will be another fund to deliver returns and accelerate decarbonisation of our grid.”

See RenewEconomy’s Big Battery Storage Map of Australia