China state-owned companies become major players in Australia wind industry

Pacific Hydro – once Australia’s largest renewable energy specialist – has been sold to China’s State Power Investment Corporation, in one of the largest acquisitions in Australia’s energy sector by a Chinese government entity.

The Chinese state-owned giant will buy Pacific Hydro from fund manager IFM Investors after it beat out rival bidders, both local and international, with a deal thought to be worth more than $3 billion including debt.

The bid reportedly came out of left field on Wednesday, with Pacific Hydro earmarked to sell for around $2 billion.

In terms of size, the deal ranks alongside State Grid Corporation’s purchase last year of a majority stake in gas pipeline owner Jemena.

China’s Investment Corporation is also believed to be positioning itself to buy further renewable energy assets in Australia — potentially Taralga Wind Farm or those placed on the market by AGL Energy.

Taralga wind farm in NSW is already said to have attracted some Chinese bidders, but prospective buyers have been put off by the short term contract of only 10 years. The business is expected to sell for between $200 million and $300m.

According to the Financial Times, China replace the US as the largest foreign investor in Australia in 2013-14, with its companies receiving FIRB approval for projects worth $A27 billion.

A report by KPMG and Sydney University — Demystifying Chinese Investment in Australia — found a notable shift away from investing in mining towards a focus on infrastructure, real estate and agriculture.

One of the biggest players in Australia’s renewables space, the journey of Pacific Hydro has reflected the that of the industry as a whole, struggling under the strain of uncertain policy.

Australian pension fund IFM paid $925 million for full control of PacHydro in 2005, and entertained offers for a 50 per cent stake in 2009, when it sought to sell down a share to help fund developments to meet the new renewable energy target.

However, these development plans were stalled by interminable policy uncertainty; PacHydro last year pulled out of a consortium to build the 56MW Moree solar farm, citing market uncertainty and falling wholesale electricity prices.

The company then wrote off nearly $700 million, including the value of some of its Australian assets and its assets in Chile. That loss was followed by the resignation of two directors Garry Weaven and Brett Himbury in February 2015.

In March, the company cut staff numbers by as much as 25 per cent, including senior executives, as part of a major restructure, and placed all of its $2 billion in Australian renewable developments on hold.