Infigen Energy follows the sun in US and Australia

Australian renewable energy developer and operator Infigen Energy has established a new joint venture in the US to pursue large scale solar PV developments.

The venture, with the Texas-based Pioneer Green Energy, will target solar PV farms in the 20MW-50MW range, which are being supported by federal government incentives and ambitious renewable energy targets, particularly in sun-rich states such as California.

Infigen Energy CEO Miles George revealed the venture when announcing the company’s interim results for the December half, which delivered a $35.2 million bottom line loss, and a 10 per cent fall in operating earnings to $70 million, but improved cash flow to meet its heavy debt repayments.

Infigen Energy has entered the solar PV industry in Australia, where it has teamed up with Suntech to resubmit a bid to the solar flagships program. In an interview with RenewEconomy, George, said he expects solar to be competing with wind in costs over the medium to long term.

In the interview, George discussed the Solar Flagships bid, the efforts to sell the US wind business, the power of Australia’s big three retailers, the future of the renewable energy target, and opposition to wind farms.

Here is the edited transcript of the interview with George.

Your operating results were not greatly changed, you still posted a $35 million loss. Is that sustainable, and what was your take on the results?

Production was down, mostly the result of low wind conditions, but the prices for the first half were materially better than they were at the end of 2010. In terms of development, the Woodlawn wind farm is now operating, and according to our expectations. The operating cash flow was one of biggest movers, where the actually cash generation, and therefore the debt repayment was increased substantially – net operating cash flow was up to $26 million from $7 million. In terms of cash, we are on track to meet our debt repayment target which was $250 million over FY11 and FY12 combined. A fair bit of that is due to sale of German business in June last year, but we are continuing to have material debt repayment which is obviously a good thing. And corporate costs were down significantly.

What about the US assets, are you still looking for a buyer?

There is essentially no change to that. We are taking the same approach as with the German assets, where we got a price that was attractive. That meant holding off the sale of Germany for 12 months. That was well worth doing and the objective is to do same thing in the US. We are not running any formal sales process but we are open to unsolicited proposals. We’ve had a few of them, and we continue to have discussions. There is interest there, but we have not got anyone to the line.

Does this impact on the ability to develop projects in Australia?

The two are linked, not as black and white as you suggest. We have got $112 million in cash outside the bank group. A portion of that could be used, in wind or solar. It’s a relatively small amount of money and we are limited in terms of development activity that we could pursue, so there is a link.

Which is looking more attractive, wind or solar?

There’s been a significant reduction in price of solar PV technology in the last 6 months or so. We had the solar flagships bid in Australia which we have resubmitted and today we are also announcing some solar activity in the US. Our view is that solar PV technology does have the potential in the medium to long term to compete with wind as a competitively priced technology.

Can you tell us more about the US solar business?

We are looking to develop a series of smaller solar projects – in the 20MW to 50MW range – where there are good connections, where we can use expertise in operating these assets. There is quite significant potential for future growth, and we hope to have some projects ready in the 2013-15 period. There could be between 150-300MW of projects in that time frame.

Does that mean you will be investing more in solar than in wind?

We are building a portfolio of options, as we have done in the wind market. We see that as one of the areas of interest. Our wind development pipeline is substantially larger than solar development. But solar is an important technology that we should develop. We have looked at geothermal, biomass, wave, none of those attractive for us to invest in.

We took a decision that solar PV would be a competing technology in the medium term. In the US, we will be focusing on areas where they have strong renewable portfolio standards, such as California. They have got much tougher mandated requirements.

Who is the venture with? Suntech?

Actually it is with a developer called Pioneer Green Energy. The technology will depend on a project by project basis, but certainly Suntech is a logical choice for us.

When is the first project likely to be developed?

Most likely 2013. We have to compete for power purchase agreements, and we will be doing that over the next little while.

So you might have a solar business in the US, but no wind business?

No, it’s the same team that is undertaking these developments. If we were to sell the US business, we would sell it in its entirety.

Does solar make it more attractive to sell?

It would, for sure. The whole industry is moving toward solar in the US, and there it is a much stronger growth area than wind, which has the production tax credit expiring this year. The solar PV incentives last another five years, so you have got a greater level of certainty.

In Australia, however, it is all very uncertain.

The regulatory uncertainty contributed a lot to the issues we have as an industry. We have been very keen to develop business in Australia but the continuing legacy of oversupply of LGCs, and the lack of certainty about carbon price has made it difficult to get the obligated parties to the table. And because of this the big three retailers have had a 3-4 year window to defer decisions on renewables.

Have they got too much power?

It’s like a lot of industries in Australia, the food industry with Coles and Woolworths, the banks, there are plenty of examples of concentration and impact on competition and independent players like ourselves. We already sell our product to two of the three big retailers in Australia. We see that as just one of our channels to market. To deal with the concentration in ownership, our approach is to get own retail licence, which we did. We can deal directly with other wholesale participants to market. So far we have been doing well with that. The surplus has created a situation that LGC prices are so low, there is no commercial incentive to invest in new developments. It is a logical commercial behaviour on the part of the retailers.

You did this a couple of years ago, now other developers are going down a similar path, like Pacific Hydro.

Yes, it took us two and a half years to establish the infrastructure and relationships and other requirements. We can trade with other energy participants, and it gives us a lot of optionality, such as off-take arrangement, including for solar flagships.

Are you confident of a successful Flagships bid?

I don’t want to go into the detail of Solar Flagships. Our bid this time round is much stronger commercially and technically than it was 12 months ago. Much stronger commercially, we now able to offer an extremely attractive offer, and best value for money.

That is all about reduced costs?

That’s right. You are looking at dollar per MWh, how much do you have to put in. Our proposal has diversified projects, they are not all in one spot, they are at three different sites, all of which have planning approval, in secure and stable locations. We are avoiding transmission losses, and subject to finalizing funding arrangement, they ready to go ahead. We have developed 6 major renewable projects in Australia over last 5 years on time and on budget. So we have got a good track record.

What about the Renewable Energy Target? The market seems to be pricing in changes to the LRET.

The review is due by the end of the year. Some market participants suggest that this is an opportunity for amendment. We are keen for review to take into account market development, and the influences that are at play, and to make sure that the chance of achieving LRET by 2020 is preserved, notwithstanding that in last three years, the big three retailers have not had to do much to meet their obligations because of that large surplus.

Can we still meet the LRET, can we build enough turbines or solar farms?

When you look at the task to build wind farms and solar farms to meet the target, and compare that with similar task to build LNG plants, it’s a simple task. Australia has got some massive projects underway, if we can deliver on those, then delivering 8000MW of wind should be relatively simple, provided we get underway. The review might help that happen.

What is the market telling us?

The forward prices are showing significant improvement – the calendar 2013 bundled price is up to $100 level, so the forward markets showing prices up to the new build economics price. What’s important from the developers point of view, is what the retailers are prepared to contract for over 10-15 years.

What’s your next project?

We have taken the decision to build adjacent to our current developments, so the next project will probably be the Capital 2 wind farm. We have got a number of others in NSW and Queensland and one in Victorian that are moving along. We wont make final decision about which one is the most attractive for a while.

What about the opposition to wind farms? I’m not sure if it’s big, but it is loud, and seems to be having an influence over state government decisions in NSW and Vic.

You’re right, it is loud rather than big. We have found in our surveys that 95% of local community is strongly supportive of wind farms. When they are proposed there is some uncertainty, but once built our have had overwhelming community support. That’s ntot to say that we don’t have people who complain about them, but it’s not a good reason not to go ahead with development. Our view is that the opposition campaign really has been a storm in a teacup, very noisy but not much substance. There has been multiple rejection of claims on adverse health effect, promoted by the Waubra Foundations and the like. Eventually the message will get through.

What will be the impact on the energy market of large deployment of wind and solar?

I think the biggest impact is on development on gas-fired plant – combined gas-fired plant competes head on with new renewable energy. In terms of gas-fired, what we would see that the cost and trends of wind and solar are going to be driven by LRET, and open-cycle gas turbines is driven by growth in peak-load power demand, which is growing, but baseload is dropping off. Baseload power demand that would be met by CCGT is likely to be deferred, but the gas players will be exporting their product.

What about the impact on energy prices?

South Australia is a good example. We’ve seen the deployment of more than 1000MW which has had a positive effect on the market there. It has reduced volatility, lowered pool price, eliminated price spikes, and at the same time reduced greenhouse gas emissions and already achieved its 20 per cent target. These are the sort of things that will happen as renewable energy increases penetration in other states .