Genex lands $516m NAIF loan for solar and storage project

The listed company Genex Power has landed $516 million in concessional finance from the Northern Australia Infrastructure Facility (NAIF) for its world-leading solar and pumped hydro storage project in north Queensland.

The project – the first of its scale to combine solar and pumped hydro – will be located in the former Kidston gold mine, where water will be stored in disused pits, providing 250MW of capacity and up to eight hours storage.

This will be combined with up to 270MW of large-scale solar – on top of the 50MW already built – and possibly another 150MW of wind, creating a large-scale renewable energy hub that is fully dispatchable, or even what some like to call “base-load”.

NAIF has come under intense scrutiny – mostly for its consideration of funding for the controversial Adani coal project, but also because in three years it has made only a few small-scale commitments, in a barramundi farm and a port facility.

The $516 million loan it is making to Genex is for a term of 20 years at concessional interest rates, and will account for the bulk of the project debt funding.

“This is a significant milestone in the development of the project,” the company says, with  final details of the loan, and the rate to be charged, to be negotiated over coming months.

Financial closure is expected later this year, with a three-year construction timetable for the hydro, and 18 months for the solar.

Executive director Simon Kidston (the mine is named after his great-grandfather, a former state premier) told RenewEconomy the company is thrilled with the support.

“It’s a massive milestone. It shows the federal government is behind the project and wants to get it done. So it’s pretty awesome.”

(You should listen to our recent Energy Insiders podcast interview with Kidston here).

Kidston said the NAIF facility would be ranked as “subordinated debt”, which means that any other bankers brought on board will get priority should things go awry. This is a key point in negotiating the cost of finance.

The facility is subject to a range of conditions, including contracting for the solar and storage plant, so it looks like it won’t be able to go “merchant.”

Kidston told RenewEconomy that though the solar and storage would be co-located, so providing “firm” power as far as the physical grid is concerned, the contracts would be quite separate.

One contract would be written for the output of the solar plant, while another would be written for the use of the pumped hydro.

Essentially this would go to another generator or retailer, who would use the storage as they saw fit – possibly selling into peaks, offering caps, or grid security.

In return, Genex would receive a fee, much like a rental. The two new battery storage installations in Victoria – at the Ganawarra solar farm and at Ballarat – will operate under a similar arrangement with EnergyAustralia.

Laurie Walker, the CEO of NAIF, said the “indication of this support” will assist Genex to advance its discussions with other project counter-parties and to “prove up” the project fundamentals.

“This is a demonstration of how NAIF can work with stakeholders to help them understand how its concessional financing can support the development of a project which has the potential to provide substantial benefits to Northern Australia,” Walker said in a statement.

“NAIF sees the project as important for the transition of the market to lower emission renewable energy sources, and the board’s preparedness to consider a capital commitment of the size referred to in this announcement reflects the alignment of this type of project with NAIF’s objective to contribute to the transformation of Northern Australia through infrastructure development.”

The loan is subject to a number of conditions and customary terms for a project financing term sheet, including:

• negotiating offtake arrangements and grid connection for energy and dispatch rights for the Project to the satisfaction of NAIF;
• concluding a cost benefit analysis in accordance with the provisions of the NAIF Investment Mandate, which will be important in determining the level of concessionality that NAIF can offer the Project;
• finalising terms for senior debt funding;
• securing the balance of equity funding from an acceptable equity partner;
• due diligence on a range of project issues;
• negotiation and execution of project and facility documentation; and
• final NAIF credit approval and Board Investment Decision.

RenewEconomy observation: Bravo for this finance. Hopefully this will not be used as a pretext to balance green with black and clean with dirty and offer a loan to Adani.

Note: Kidston will be speaking at the Large Scale Solar and Storage conference co-hosted by Informa and RenewEconomy in Sydney at the end of June. You can find out more and buy tickets here.