CEFC tips another $70m into big solar, as market confidence soars

The Clean Energy Finance Corporation has signed off on Australia’s largest single large-scale solar financing deal to date, tipping another $70 million into a total of 165MW of big solar capacity in Queensland and Victoria and heralding a new level of investor confidence in the nation’s large-scale renewable energy market.

The three projects, which are being developed by Edify Energy alongside international renewable energy investor Wirsol, include the Whitsunday and Hamilton Solar Farms in Queensland, both 57.5MW, and the Gannawarra Solar Farm in Victoria, at 50MW.

The “benchmark” financing deal – announced on Monday – commits the CEFC, the Commonwealth Bank and Germany’s NORD/LB to a syndicated senior debt facility to support the three projects, with Edify and Wirsol are providing equity.

Notably, the deal had included the relatively new 57.5MW Hamilton Solar project, whose 44,000MWh a year of energy was – according to the CEFC’s Monday announcement – uncontracted, and to be sold to the grid on a merchant basis.

But the Hamilton project appears to have secured an offtake deal with ERM Power, the energy retailer most recently in the news for its January decision to pay a penalty to the Clean Energy Regulator, rather than meet its development commitments under the federal Renewable Energy Target.

Since that decision – which sent ripples through the Australian renewable energy market and prompted the CER to issue another call for retailers to meet their RET obligations – ERM Power announced deals to underpin the construction of two renewable energy generation assets in Australia.

This now appears to include Hamilton, and underlines ERM’s strategy of deciding to play with an “arbitrage”  on large scale renewable energy certificates, using a three year “grace period” to bet that LGC prices will fall from their historic highs to more manageable levels.

“The amount of energy that will be generated annually by the Hamilton Solar Farm is equivalent to powering approximately 450 schools in Queensland for 12 months, while the creation of LGCs contributes to the Renewable Energy Target,” ERM Power CEO John Stretch said on Monday.

“The need for an orderly transition to low emissions electricity generation is obvious. There is a huge opportunity and responsibility to get the transition from fossil fuels to renewables right, given the significant impact on the energy market, economy, jobs and our environment.”

The other two projects included in the CEFC finance deal, Whitsunday and Gannawarra – both of which were pioneered by Australian outfit Solar Choice before being acquired by Edify – had already secured power purchase agreements; Whitsunday with the Queensland government, and Gannawarra with Energy Australia.

“This latest package of transactions sets an exciting new benchmark in the provision of finance to accelerate the development and delivery of renewable energy projects in Australia,” said CEFC large-scale solar program lead, Gloria Chan, in a statement on Monday.

Despite the new contract with ERM Power, Chan said on Monday that the involvement of the Commonwealth Bank and NORD/LB in completing the financing over a longer tenor, was notable given the merchant price risk component of the project.

“We created our large-scale solar program as a means of providing tailored finance to accelerate large-scale solar projects in Australia at the lowest possible cost,” Chan said.

“We are (now also) seeing increasing confidence in the sector, and a growing appetite by investors to support both contracted projects and to take merchant energy price risk.

“Through our recent investments, we have also seen a continued reduction in the cost of solar energy, to the point where it is increasingly competitive with other forms of electricity generation, confirming the central role of solar energy in Australia’s renewable energy mix.

“This trend of increasing competition and appetite for renewables among domestic lenders is central to the ongoing development of large scale solar in Australia.”

Edify Energy CEO John Cole has welcomed confirmation of the innovative financing package, which he said was testament to the quality of the three projects, which are expected to be operational by the start of 2018, and create 300 jobs during construction.

“Large-scale solar is finally growing at a pace and making a real impact in Australia’s energy mix,” Cole said.

“We will seek to maintain the strong community interest throughout the construction period and into operations scheduled for early next year.”

As noted above, the $112 million Whitsunday Solar Farm is one of three regional Queensland solar projects that were last week underwritten by the state Labor government, in a move aimed at fast-tracking financial close and beginning construction.

It is also receiving up to $9.5 million in grant funding from the Australian Renewable Energy Agency (ARENA), as part of its large-scale solar funding round.

Gannawarra, meanwhile, sealed a 13-year PPA with EnergyAustralia in February, for all the electricity generated by what may well be the state’s first large-scale solar project.

The first phase of Gannawarra – which is being co-developed by Solar Choice and Edify Energy and has planning approval for a total of 300MW – is set for construction in north-western Victoria, on the 220kV transmission line between Swan Hill and Kerang.

According to the CEFC, this latest investment in big solar takes the green bank past its initial $250 million target, to combined commitments of $281 million in seven projects to date.

Elsewhere, it announced a $150 million investment commitment to three large-scale solar
projects in regional New South Wales, as well as a $54 million commitment to the Kidston Solar Project near Townsville, which is looking to combine solar generation with pumped hydro storage.

Separately, the CEFC also committed to a $20 million equity investment in Australia’s largest solar farm, at Ross River in Queensland.