The immense size of wind projects and the rising costs of building them are causing potential funders to look at them carefully – and not just on the size and number of turbines.
The focus now is on the quality of a project, such as whether it has approvals, good community support, and access to transmission, rather than mere “bragawatts” of a whole portfolio, says Andrew Kerley, the head of wind development at the newly launched GreenPoint Energy.
“Five years ago, we were seeing that it was all about size of the portfolio, as what developers were pitching as their potential differentiator,” Kerley told an audience at the Australian Wind Energy conference in Melbourne on Wednesday.
“What we’re seeing now is… it gets harder, it’s more complicated, it’s more expensive now to develop projects, and so we don’t see there being value in having a large portfolio of projects that are all very large and very similar.”
Institutional investors don’t see value in the size of a portfolio now if those megawatts or gigawatts are too difficult to “get up”.
And he says it also means the end of super-sizing wind projects.
Kerley says the Equis-owned developer GreenPoint is no longer necessarily looking to “squeeze as many turbines as possible” onto a site anymore.
Instead, they’re focused on finding offtakers and sizing the project to what customers are prepared to buy, and doing so very early in the development cycle.
“Having that view to ultimately being able to sell the projects to the customers, and just ultimately, for our sake, being able to deploy that capital is really what our focus is on now,” he says.
German developer RWE is developing two massive projects in the 1.1 gigawatt (GW) Theodore and the similarly sized Cattle Creek projects in Queensland.
RWE chief financial officer Fiona McIntyre says they’re having to take an offshore wind approach to getting these projects financed, where previously the company had been able to fund smaller developments in-house.
“The size of those projects really is dictating a different approach to how we go to market,” she said during the forum.
“RWE has a global offshore wind division, and so really the approach we’ll be taking for these larger next projects in Australia will be similar to that, where we look for an equity partner and also undertake project financing.
“It’ll be absolutely essential from an RWE perspective to get a long-term off-take to obviously support the right mix of contracted and uncontracted cash flows from our own equity return perspective, and likewise that’ll be needed for project financing, and also to attract an equity partner to the project.”
Buyer’s market
It’s not news that capital for wind is now very hard to come by, with just four projects reaching final investment decisions (FID) in the last year.
A power purchase agreement (PPA) is now essential for convincing other investors to sign onto a wind project, Renew Economy understands, but several factors mean they can now be much pickier.
Daniel Beever, manager at UK investment manager Foresight Group, says a number of foreign investors have left Australia and the local and international entities left can be much more choosy about what they back.
“Investors just demand high returns because of base [interest] rates, there’s an appreciation of greater risk level in the sector,” he told the same forum.
“There’s a scarcity of capital across all private markets and an appreciation for liquidity premium, and so for investors, for projects, we can be far more selective in terms of what projects we actually look at and various technologies and what countries we invest in.”
All of which means it’s a buyer’s market for wind in Australia, as a swathe of projects are hunting for cash, and grid connections, to get them to FID in the coming 18-24 months.
See also: Struggling wind projects warned their unused capacity will be returned to future CIS tenders
And: “They are losing patience:” Just one in ten investors believe Australia will meet renewables target
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