Energy Insiders Transcript: Geoff Dutaillis interview

PowAR chief executive Geoff Dutaillis talks about big wind projects, battery storage, the ESB’s new rules and connection problems.

This is a lightly edited transcript of the recent Energy Insiders podcast, featuring Geoff Dutaillis.

Giles Parkinson  00:01

Geoff Dutaillis, Chief Executive of PowAR Renewables, thanks for joining the Energy Insiders Podcast Geoff, and look, please I’m a bit confused about the name of this new company. Is it PowAR/POWER Renewables? You had better enlighten us.

Geoff Dutaillis  00:18

Thank you Giles, and my pleasure. I really appreciate the opportunity to talk. It is Powering Australian Renewables in long form, which is a bit of a mouthful, but PowAR for short, PowAR – it’s simply a shortened acronym for us to kind of do it eloquently in print. Nothing more than that.

Giles Parkinson  00:38

And so what’s happened today basically is that the deal that saw the joint takeover of Tilt Renewables has been completed. PowAR now takes Tilts Australian assets which includes a pretty good portfolio of operating wind farms and a pretty interesting development portfolio, and in New Zealand assets go elsewhere back to New Zealand.

Geoff Dutaillis  01:02

Yeah, correct at the headlines. Giles, for yourself and David, it won’t be lost on you that, PowAR  is consolidating its position as number one owner and operator of wind and solar generation in Australia. So with the combination of power in Tilt now, that consolidates that role.

And more importantly, we’ve got an enviable development pipeline to prosecute, and even just as importantly, or more important, capability in the Tilt team who are very capable, highly skilled, experienced, demonstrable track record in delivery in Australia and New Zealand and we can’t wait to combine the businesses.

David Leitch  01:48

So such a nice group of employees you’ve decided to move down to Melbourne to join them I hear?

Geoff Dutaillis  01:54

I have David, I’ve made that commitment. The Tilt business is based in Melbourne. I will be relocating there for certainly the foreseeable future to lead the business from there. The only challenge I’ve got, of course, is getting into Victoria and this COVID  situation we find ourselves in.

Giles Parkinson  02:13

You’ve got people like Deion Campbell and his team. You’re keeping them on to basically run the Tilt side of the business.

Geoff Dutaillis  02:20

Yeah, at the headline level, Deion is stepping down as the Tilt CEO and I become the CEO of the combined business. The rest of the Tilt team, and the PowAR team for that matter, will be combined into one team. No changes. The functional structure of the Tilt business stands and will be one happy, bigger family.

Giles Parkinson  02:43

So Deion stays with the company or not ?

Geoff Dutaillis  02:47

So Deion’s agreed to stay on and assist with the integration tasks. Obviously, it’s been  an arm’s length transaction. And up until this point, we haven’t really been able to get under the hood. So there’s a lot of detail I need to understand. So Deion’s going to assist me to kind of understand that kind of Chief Executive level. So he will be staying on for several months is the is the arrangement and assisting me as needed.

Giles Parkinson  03:15

Well, as you mentioned, there’s a pipeline of projects out there, what’s going to be your first priority?

Geoff Dutaillis  03:21

First priority, we’ll come back to integration, but first priority is people. Hence your conversation about the team, or question. But on from a development perspective or assets, as per our announcement we will be moving forward for a final investment decision on Rye Park which is imminent. The Tilt businesses has announced obviously the offtake for Rye Park with Newcrest previously. We’re keen to get that one over the line. And as per your previous conversations and business with Deion last year, the pipeline’s got optionality in it.

We’ve got a diverse pipeline where we can bring that forward to the market as circumstances suit. It’s no secret that New South Wales is an attractive region within the NEM. So Liverpool is well and truly in our sights. We’d like to get that going off the back of Rye Park. Waddi in WA we’d like to see that as an entry  point for the business in WA. And then the rest of the pipeline we will look at, whether it’s in Queensland, New South Wales, or Victoria, or South Australia.

David Leitch  04:32

Geoff, will have to find a different word other than pipeline, I think. But just to give listeners a bit of context here, I think the existing portfolio of Tilt and PowAR combined the new PowAR, if you like, the existing assets are something a bit over 1300 megawatts of capacity and the vast majority of which is wind and then Rye Park is about 400 megawatts, which I think, and you can remind me if I’m wrong about this,  about half of it’s already been sold on a PPA,  is that right? 

Geoff Dutaillis  05:13

Correct, David. No, thanks for the prompt. Yeah, the operational assets bring together the 800 megawatts on the PowAR side and just over 500 on the Tilt side for that combined 1300 with Rye Park, as I say, about to commence, he says optimistically, that’s 400 megawatts which will take us up to 1700. Put that alongside of development pipeline in in the order of three and a half gigawatts. That’s what the combined business looks like on an asset base.

David Leitch  05:46

I think Liverpool Range is one of a series around Australia of next size up wind complexes. I think you’re talking about  1300 megawatts for that, if it was all done at once. Rye Park and Liverpool range are both in New South Wales. I guess the development of those is partly dependent on the New South Wales roadmap or maybe not in Rye Park case? How do you see your development fitting in with the New South Wales roadmap?

Geoff Dutaillis  06:29

Well, the New South Wales roadmap gives us optionality. I mean, Liverpool has approvals in place to kind of certainly do the first stage of kind of 600 megawatts-ish. But you know, Liverpool has much more capacity than that. And it comes down to transmission, which I’m sure we’ll get onto.

So, yeah, we welcome the New South Wales roadmap, the red zone, obviously, the Central West Orana. Technically at the moment, Liverpool is just on the edge of that. But one of the connection options or connection points is within it. So we don’t necessarily need the road map to prosecute Liverpool, but it gives us optionality to bring it forward in a different way and make it bigger, of course.

David Leitch  07:17

We’ll talk some more about transmission, I’m sure and ESB reforms, but I guess I’m interested in the business as a business, and making everyone happy and wanting to work for the team and so on, that’s obviously very important, but when I look at, it’s a bit of,  like all of these things, it’s a lot of assets thrown together.

What’s the difference between a lot of assets and a business? That is to say, you know, how do you start extracting some synergies from the fact that you’ve got all of these assets? I mean, you’ve got – what about sales? Do you have plans to get a retail license? What about the relationship with AGL? Why don’t you talk a little bit just about how you plan to go from a collection of assets into a business?

Geoff Dutaillis  08:13

Yeah, thanks, Dave, no to the first point. And this echoes one of Tilts values, and also stated values and also PowARs. The business is people powered, its people-centric. People make a business. People are the ones who run a business, people are the ones who manage the assets on a day to day basis. They’re the ones who sit opposite a customer to make sure they’re happy. It’s all about the people. So that’s why you know, the first top of my list on integration is all people aspects, and molding that into a fully functioning team. And that team is already very good, and very experienced and very skilled. So I cannot understate how important that is, for me to focus on on that.

On an assets basis, we will, like you’ve seen as renewable energy businesses have matured, the likes of Infigen and now Iberdrola, of course and others, increasingly you move out of the developer mindset of project-centric world and start thinking in a portfolio sense. So energy business, think in a portfolio sense, so you’re supplying a product to your customers, not necessarily directly from a single project, but from a portfolio. And it’ll come back to, at the moment we have a number of projects which are obviously contracted directly to the project, or assets I should say, but we will move into a portfolio thinking, where we are supplying not just variable green electrons, we want to move into supplying firm green electrons at a cost competitive price.

So that brings with it the need to mature our capability in an asset sense where we need to get storage into the portfolio. We need to get flexibility capability in portfolio. And importantly, the customer in an energy markets aspect to continue to grow that skill base again, which is also within the Tilt business already.

Giles Parkinson  10:19

I think David’s interest in talking about transmission, and I guess that might prompt some inquiries about ESB, but let’s first just go in a couple of moments about the ESB, the headline strategy, what was your reaction to it? A lot of concern here about the so called capacity market, the design of those particularly with the PRRO, Physical Retailer Reliability Obligation, not many details on the phone of what that might actually look like, but certainly a lot of concern.

Very little support from anyone in the energy industry apart from Energy Australia and possibly Delta and a couple of lobby groups. Can you just tell me from your point of view as a man with a very big development portfolio, what this means for your development business?

Geoff Dutaillis  11:09

We share those concerns. Even more recently, we’ve had the likes of the Australian Industry Group coming out and not necessarily thinking that some of the aspects are a good idea. So we share that concern. Where that goes to is denting investor confidence. We’re already seeing that, you know, development of renewable projects in this country has stalled. You know, the evidence speaks for itself. in Q1 2021.

One project, 400 megawatts, has reached financial close. And I’m pretty certain that data that comes out next week from CEC will be close to zero megawatts being financially committed. That’s the lowest since before 2016. So that kind of tells you that all of these hits that the industry is taking are denting investor confidence. And investor confidence is a multi pronged beast that starts with… removing uncertainty, and having something you can invest into for decades.

You know, they’re investment decisions that go for, you know, 20 or 30 years. If you’re at the risk of someone changing the rules once you’ve made an investment decision that’s not going to be supported. Investors will either stall, stop or go somewhere else.

Giles Parkinson  12:37

What are you going to do with something like Rye Park then? You’re talking about, you’ve already got a contract, you’ve got an uptake, you’ve got Newcrest mining, you presumably need to raise finance. Are you talking about all these projects being stalled? Can you still go ahead with these rules looming over the horizon? Or do you have to wait and see how it actually settles?

Geoff Dutaillis  12:54

Rye Park we’re comfortable with and that project was progressed in a different context. What it will make us do is consider when we bring our portfolio development opportunities if we invest across the NEM. So then you’ll get into the state based support mechanisms. So we’ll look at them on an investment basis more at that scale. It also talks to, scale is one thing, quality arguably is more important. We not only have a scale aspect to the pipeline, we have a quality aspect.

Rye Park and Liverpool, for example, are both well located in the network. And so they’re great opportunities to prosecute when others may hesitate in terms of their investment decisions. So we’re confident on those two. Obviously diversifying into WA, it’s different market. So we’ll consider that, you know, we’ve got options within our pipeline to address that uncertainty.

David Leitch  14:01

And so, Geoff, I guess I’ll come back to a different sort of question, which is the shareholding structure? Do you think all of your owners fully align at the moment? I mean, historically PowAR started out, if you like, with a bunch of AGL assets that essentially the ownership was transferred into PowAR, but the operations and the output all go to AGL. Tilt has a much more diversified customer base.

And I’m wondering how you, I mean, I could ask this question a lot of ways, but I think the easiest, maybe the most easiest way to ask it is how do you say the demand for a project like Liverpool range or the other half of Rye Park? Do you think there are still plenty of customers out there or you’re going to end up selling it back to AGL?

Geoff Dutaillis  15:00

Pick it off into two bits. Yeah.

First of all talk about the partners and the investors and the answer that is unequivocally Yes. And then, I mean, on the second, which I’ll again, I’ll come back to you, I see nothing but opportunity in the customer landscape. So first of all, on the partners, I mean, you’re absolutely right. I mean, AGL and QIC and Future Fund came together to form PowAR. And I’ve got nothing but good things to say about that partnership and their behavior. I mean, as you well know, I put my hat hat in the ring to stay around as the CEO middle of last year, because I saw the huge opportunity now that had kind of consolidated. It’s what I term as the foundation assets, which were generated by the AGL development team. So AGL have been enormously supportive as a partner, and I see no reason or believe that’s going to change.

What is important for all the investors is that we have a diversified customer book. And AGL in that regard is a very important customer as well as being a strategic partner of PowAR. That diversified customer book is in the interest of all our investors. And that won’t change. So when you start to look at the Newcrests of the world, or the Victorian Government, or ALDI, for that matter, who have a small slice of Dundonell, they’re all important customers. I think the important thing to then move on to is, you’ve seen that migration of the customer base for renewables move from traditional retail as driven by the RET, of course, into now what we’re seeing is customers voting that they want not only competitively priced electricity, but they want clean, as well as reliable. That’s what I think we’re well placed to deliver.

David Leitch  16:58

As you look at the development obstacles at the moment for, let’s talk about Liverpool, because I and you know, you are a very wind-centric business, it seems to me, but anyway, that’s something else. If Liverpool’s that next project off the range in the NEM what  do you see as the issues that that project will have to overcome to get to go ahead? And what’s the timeline that you’re looking at for that one?

Geoff Dutaillis  17:28

Yeah. Well, in one of your comments there David, I think some of my industry colleagues will challenge you on it being the next project in the NEM. But the in terms of a gigawatt scale, absolutely, we’re really excited. And it can be more. If you go through the classics checklist of you getting a development project up, it’s your land planning, connection off take, and you go from there. So land, secured. I’m talking about Liverpool in this context, connection is progressing.

There is engagement with Transgrid, of course, in terms of what the first stage would look like, and potentially what the bigger scheme would look like. So connection is good. Then the planning environment, there’s a planning process to go through. We’ve got planning approval in place for the first stage. We would look to kind of prosecute that while we also consider what stage two might look like. And I hasten to add that we are very focused on it not just being in a big wind farm. We want it to be a hybrid.

So whether that involves an element of solar and certainly storage, they’re the things we’ll start to consider, because as I mentioned before, we need to get storage and flexibility capability into the portfolio. So timeframe for all of that – it’s a mega project, of course, but we’d certainly see Liverpool coming to fruition this side of 2025. Yeah, certainly the first stage, if not sooner. That’s what we’ll be focused on very much so after Rye Park.

David Leitch  19:07

And then we’ve talked about the ASB reforms as they don’t affect or how they might affect the coal and the physical reliability. But what about transmission planning? And actually connection approvals, and all of that sort of thing? I mean, even for Rye Park, I mean, it’s got the GPS modeling and all of that stuff that we’ve been talking about here lately. How are you feeling? Are you happy?

Geoff Dutaillis  19:41

I’ll say a qualified maybe. I listened with interest to your last podcast with Daniel [Westerman] last week, and I’ve had another conversation with Daniel also as part of it. Who would want to be the market operator? I mean, it’s a really challenging role. Daniel described quite openly the challenges in front of AEMO and they’ve got their core role, but they’ve also got big challenges in terms of the of the transmission. But maybe pick that off a bit and break down. The first priority we’ve got in terms of bringing renewables into the NEM and into the system is transmission. As the phrase goes, there is no transition without transmission. It’s the first priority. We cannot get the transmission that’s outlined in the ISP soon enough, and that’s Interstate and intrastate. And that agenda is well laid out in the ISP. Now it’s a process of getting through that.

The recent experience with Project Energy Connect shows that the process for investment decisions is not fit for purpose under the RIT T test. Also, the other example which people love to use is Northwest Victoria. Victoria is making decisions to get on with that transmission because the state of Victoria needs it. And it’s going to take too long through current channels.

So transmission, the timeframe we’ve got to deliver the  transmission that will suit the timing of new renewables coming online for the impending retirement of the coal fired power stations, one of my really big concerns, from a system perspective is that we’re not going to get there quick enough with that transmission and the new renewables to replace the  retiring coal fleet. And we’re going to be caught in the middle, where the volatility is when we have more exits than supply coming forward. And that’s a really scary proposition in terms of what we can deliver for consumers. So transmission, number one, really  worries me. AEMO, as I said, Daniel was quite open in terms of the challenges they’ve got, and I think he rattled off some numbers that, you know, they’ve done 120 odd connections in four years. 30 odd of those in 2020. So that’s a significant number of megawatts.

And David, you’ve talked on these podcasts about the number of megawatts coming into the system or proposed. That’s a hell of a lot of connections. And the connections, again, as Daniel mentioned, but we’re involved in, the connections reform agenda initiative, is about a collaborative effort to, you know, work through those issues, to make that connection process better. So it removes the uncertainty. And some of the questions that you put to Daniel, which is real life behaviour versus the modelling that then goes into the GPS standards, and what you get with your initial approval, and whether that’s a changing landscape as you get through the commissioning process, are all concerns  that have hit all of us in recent years.

So they’re the kind of things that have got to get better. And I see that as a key challenge for AEMO, from a capacity and a capability perspective. As capacity, number of connections, and capability in terms of the expertise. I’m not saying anything that Daniel doesn’t know about.

David Leitch  23:22

No, I feel I’m monopolizing all the questions here. But I think I wrote somewhere that I expect you guys to have about $250 million of EBIT, da. That’s going to be a pretty significant business once Rye Park is developed. I guess my question really is, do you see more consolidation going on? We’ve seen already AGL, as has been discussed, the merging. We’ve seen in Infigen and Iberdrola getting together. There seems to be quite a consolidation in the market. And you guys are still out there in front. Is that process got further to go? In your opinion?

Geoff Dutaillis  24:12

Yeah, I think it does. David. I mean, the evidence speaks for itself. In addition to the ones you’ve mentioned, you’ve obviously got Shell investing in a ERM, that’s a few years ago now, but also in ESCO. More recently. You know, the big players…. there’s different agendas behind all of this, of course, but they’re all moving into renewables. And increasingly, you need scale to be able to deliver for customers, let alone get the big projects up. You need to have a track record.

You need to be a good counterparty, all of those things that go with being a solid energy business. So, we always go through ways of consolidations in industry. You and I’ve been around long enough to kind of see that from the early 2000s. So I think that will continue, there will be players that kind of fall by the wayside, and there’ll be players that kind of get bigger. And organic.

David Leitch  25:07

I’ll hand back to Giles. But the the observation always coming out of the share market is it’s the second and third owners that make all the money, but over to you Giles.

Giles Parkinson  25:17

That’s quite true. Hey, Geoff,  battery storage. So I’m interested to know which projects you have as a priority. I’m also interested to know what you make of the ESB proposals and how that might actually affect the the case for battery storage. You talked about it being necessary for a firming product for your own customers who are looking for renewables.

So Tilt had a bunch of storage projects in the pipeline, they had quite a big one proposed for the Latrobe Valley. They were talking about the smaller one behind the meter of Snowtown, but were a bit frustrated by the behind the meter rules, I don’t know whether that’s been adequately addressed in the new rules put forward by the AEMC. Which of the storage projects that you’re looking at, seem most likely at this stage? And what sort of timeline?

Geoff Dutaillis  26:04

Timeline is, as soon as we can Giles. To tell you the truth. I mean with both teams we were exploring storage opportunities. And that’s not just batteries. We can get into a broader conversation around lithium ion batteries are very good up to kind of two hours, but we need other other technologies to help us, you know, pumped hydro included. So it’s about storage more generally. So we’re exploring all of those. You’ll be aware there’s a there’s a T test happening at Broken Hill at the moment. And one of the options on the table is compressed air of course. You’ve also got solar thermal. Various schemes being touted around that which is obviously provides a dispatchable renewable resource. So there’s different ways.

And we will, we are and will, continue to look at those. In terms of the priorities for us, again, no secrets, but the Snow Town battery, for all sorts of reasons to do with a connection process or the approval process for a behind the meter battery, it just is not cost effective. So that one’s been paused.

More broadly, we consider every asset we’ve got a connection point with a prospective battery sitting there. So we’ve looked at those battery opportunities at each of the power assets and the Tilt team similarly on the other side. So we will look to the battery opportunities that have been flagged by Tilt in their portfolio to pursue and not so much publicly because we haven’t had to, but yeah, on the power side, we’ll look to prosecute storage opportunities at our assets as well.

Giles Parkinson  27:43

Sorry, you’re talking about Rye Park and Liverpool Range?

Geoff Dutaillis  27:45

No, no, I’m talking about the ones you meant like Latrobe. And we’ve got, the Tilt portfolio’s got storage opportunities identified. And  we certainly will pursue those.

Giles Parkinson  27:55

I thought you said that there was opportunities at Rye Park within the PowAR, oh sorry not with Rye Park but within the PowAR portfolio, so I just presumed you’re looking at battery storage at common connection points. So would Rye Park have a battery to go with it?

Geoff Dutaillis  28:08

Not in the short term, because it’s at the moment, we’ll certainly look at it longer term, but at the moment, the first thing we’re going to do is is get the wind farm up. When I referred to the PowAR portfolio, sorry, Giles, I was referring to Cooper’s Gap, obviously Silverton and Broken Hill and Nyngan Solar farm are all connection points, which can be leveraged.

Giles Parkinson  28:29

Okay. You mentioned compressed air. And that’s been this proposal for Broken Hill. So you guys would actually sort of take over all that? You’d be the developer? I mean, you’ve got different technology provider. I’m kind of fascinated by this, because it’s something which sort of sounds very, very interesting, but hasn’t really been deployed at large scale yet.

Geoff Dutaillis  28:47

Yeah, it’s it’s one of those categories. No, we’re not the developer at the moment. We’re  talking with the proponent. And, you know, we’re working our way through that process. I mean, the RIT T process has got a way to go. And that’s a whole other conversation as to what the preferred solution is out there. And it’s not just about storage. It’s about reliability for Broken Hill and a number of other things. Which is why it’s not just a straight cut decision as to what you do out there. But compressed air is demonstrating its credentials overseas. So it’s a technology that’s on our radar to look at to invest in and bring into the portfolio.

Giles Parkinson  29:32

You talk about the Snowtown battery. We had a previous conversation with Deion Campbell where he was talking about the frustrations of that behind the meter. And really the rules made it very, very hard and basically uneconomic. There were new proposals put forward by the Australian Energy Market Commission. Have you had a chance to look at those and work out whether they go in any way to help address the problems created with the behind the meter storage?

Geoff Dutaillis  30:01

The short answer is…. a quick answer, Giles is: they go towards a solution. I don’t think they are there yet, because they haven’t been debated fully yet. What the Snowtown and other proposals are behind the meter, so we’re not the only one who’s tried this or trying. So it’s highlighted that the current framework for putting a behind the meter battery, which makes sense to firm renewables and dispatch it when you need it, to a degree, it makes sense.

So it’s an element, again of changing the rules that are no longer fit for purpose, to allow that kind of thing to make renewable projects firmer, and more dispatchable. And that’s just from an energy perspective. Of course, there’s also being able to use them for essential services, system services. So I don’t think they’re there yet, but they’re on the table, which is great.

Giles Parkinson  30:56

Yeah, and just on battery storage. David mentioned at the start of the podcast, the fire at the Victoria, big battery. We don’t really know what’s caused this yet. We may not know for a while, but the picture is probably not a very good look. What do you think this means for battery storage? I mean, is it just another incident? I mean, it’s not as though other technologies don’t have incidents. I mean, we had a coal fired power station just sort of explode a couple of months ago. And, of course, the fossil fuel cars and petrol stations occasionally catch light. But what do you think this might have as, in terms of impact, on the industry?

Geoff Dutaillis  31:31

I think that the context you just mentioned, Giles is really important. I mean, it’s easy for the detractors of renewables or batteries to say, look at that, it’s never gonna work. You know, large infrastructure does have its challenges at time. And as you said, you know, Callide up in Queensland or, whether you want to talk about Yallourn down in Victoria, and a myriad of other things that have happened over decades. Incidents do happen.

The important thing I think, coming to lessons learned out of this one will be really important. So therefore, you go back to the root cause when anything happens, you know. What caused the fire? What went wrong? Was it a technology issue, a human issue, human error issue? Is it systemic? Is it a serial defect? And only then will we learn the lessons, but we’ll definitely learn the lessons out of it in terms of making, the batteries we bring out next, better, just like, we learned the lessons in terms of the maturation of gas generation, coal fired generation wind turbines, solar panels. It’s all the same journey. So I think the broader context is really important too before we critique one particular incident.

David Leitch  32:45

Yeah, I think the most important issue of all is was it covered by insurance, of course? Look, Geoff I think we’ve covered off PowAR fairly well,  before the two businesses are even  in the seat really and brought together. It’s the biggest renewable developer in Australia at the moment. There’s a bunch of guys following along pretty hard on the heels and with assets in development themselves. And I think we’re all going to get bigger and the projects are getting bigger, and the business is getting more mature. But it’s been great to hear about the progress of PowAR. And we wish you very, very well with it all.

Geoff Dutaillis  33:29

Thanks, David. I feel as though we’ve only just got started on a conversation. So you finally got me onto a podcast, and we’ve only just started. So I really look forward to being invited back and maybe to throw this at you, but maybe have a couple of us on a call so we can really get the dialogue going. So throw that open as a suggestion, but I really appreciate your time, guys.

Giles Parkinson  33:50

Well, you’re welcome to come back on the podcast and reveal exclusively, because you’re not bound by ASX rules or anything like that, you can reveal exclusively your next best big investment on this podcast. And I’d imagine it’d be just a huge battery storage company by a wind/ solar project.

Geoff Dutaillis  34:08

I look forward to that opportunity.

David Leitch  34:11

I think we’ll see quite a bit more going forward.

Giles Parkinson  34:13

Good on you. Thank you very much, Geoff.

Geoff Dutaillis  34:15

No. Thank you guys. I really appreciate it.