Global fund backs cheap Australian wind as local firms head abroad

At a time when Australian wind energy companies are turning their focus to overseas markets in the search for growth opportunities, a billion-dollar global private equity fund has announced an investment of $75 million in wind power in Australia.

Denham Capital Management, a $7.3 billion US-based fund focused on mining and energy, announced on Tuesday that it had invested $75 million in a 1GW portfolio of Australian wind power projects currently under development. Part of the deal, which remains subject to procedural closing conditions, will see Denham join existing project sponsors Enersis Australia, National Power and Kato Capital to create a separate entity called OneWind Australia.

Denham’s arrival on the scene is hoped to accelerate the development of these projects, with an initial focus on the late-stage development and financing of several of them, including Glen Innes, a 100MW wind farm in NSW; Lincoln Gap, a 250MW project in South Australia; and Cattle Hill, a 240MW development in Tasmania.

Denham has already moved to take advantage of Australia’s “metals and minerals opportunities” – as the firm’s managing partner and co-president and head of its global Power and Renewables team, Scott Mackin, has put it – and opened an office in Perth last November.

So the addition of wind assets from Australia – where, as Mackin has also pointed out, generation from windmills has become cheaper than that from coal – seems fairly obvious.

But where a global equity firm like Denham sees promise, local firms appear to find uncertainty and roadblocks. Fairfax newspapers report today that wind energy technology firm Windlab Systems – a privately held company spun off from the CSIRO in 2003 – has been prompted to look overseas for growth markets, due to ongoing uncertainty over Australia’s renewable energy policies.

Indeed, this week Windlab signs power purchase agreements for two of the largest wind farms in South Africa, which will have a combined capacity of 226MW and account for about a fifth of the nation’s 1200MW in wind energy capacity planned for the next three years.

“Everyone’s been holding their powder dry as to how these (issues) will play out,” Roger Price, Windlab’s chief executive officer, told Fairfax news, referring to uncertainty over the RET in this election year, with the current (favourable) policy set to be reviewed again next year, and Coalition yet to commit to current terms. Making serious local investment proved difficult, Price said, “if the policy levers are being moved on an 18-24 month basis.”

Combine this policy uncertainty with what Price describes as “by far the most aggressive planning laws in the world” – a reference to Victoria’s recently amended wind farm siting regulations, which he adds were crafted using “very little scientific basis” – and it becomes pretty clear why companies like Windlab are seeking foreign climes.

All this aside – and presuming the RET is retained as is – Price says wind energy still has significant potential in Australia, with construction seen ramping up between 2015-20. “We still expect Australia to be 25 – 35 per cent of our business over time,” he said.

For Denham Capital, the falling cost of power generation from wind turbines, as coal and gas-fired electricity becomes more expensive, has been part of the attraction.

“Wind energy is now cheaper than new build fossil-fuel generation in Australia,” Mackin told Bloomberg in a telephone interview. And the company is currently studying other markets where wind is competing with fossil fuels.

Bloomberg reports that Denham plans to bid in electricity auctions in Brazil through its local Rio Energy unit, and – like Windlab – sees potential in South Africa, where networks are struggling to meet demand as the country embarks on a shift to renewables to curb its reliance on coal.

In Australia, Denham plans to sign loans for phases of wind farm developments later this year or early next year with the first project operational in 2015, Mackin says.

The company is appointing Michael Toke as managing director of OneWind Australia, which will operate out of Sydney. Toke has more than 10 years of experience in the wind energy industry, most recently serving as CEO of Cannon Power Group, a California company that has successfully developed, financed and constructed more than 1GW of wind capacity globally.

Enersis Australia’s shareholder group includes the team that successfully developed and built more than 1GW of wind power projects in Europe, while National Power has developed more than 700MW currently operating in Australia. Kato Capital’s principals have been involved in more than 750MW of wind power projects globally. The existing sponsors have been developing the OneWind Australian projects together since 2009.