Tectonic shift as network owner buys solar farm, points to renewable future

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Network owner Spark makes first move into owning large wind and solar project in what will be seen as a major threat to the business model of traditional utilities.

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In a move that could herald the start of a tectonic shift in the make-up of Australia’s energy sector, major network owner Spark Infrastructure has announced it is buying a 100MW solar farm in New South Wales – an unprecedented move into owning generation assets.

The purchase of the 100MW (AC)/ 120MW (DC) Bomen solar farm – located near Wagga Wagga – from emerging developer Renew Estate – is Spark’s first move in what it calls its “Value Build” strategy as it seeks to move beyond owning just regulated network assets into a high renewables and decentralised grid.

“The project is our first step towards our goal of building a business platform in adjacent essential service infrastructure focused on renewable energy,” CEO Rick Francis said in a statement..

“It is evidence of our commitment to invest in Australia’s renewable energy future through 100% ownership of contracted renewable generation, and adds to our commitment to renewables through our existing electricity transmission and distribution businesses.”

It also appears a major shot across the bows of the traditional structure and ownership of generation assets in Australia, and will be seen as a major challenge to the long-established status quo of the big “gentailers” dominating generation and retail.

Spark has previously warned of such a shift, with Rob Stobbe, the head of SA Power Networks, one of its subsidiaries, noting a few years ago that the future looks bleak for traditional gen-tailer models with the emergence of decentralised generation, storage and micro-grids.

Spark, like other network owners, is pushing into new businesses despite the presence of so-called “ring-fencing” guidelines that are supposed to separate the networks from infringing too much on the traditional gen-tailer business.

The implications for the likes of AGL, Origin, EnergyAustralia and the government-owned Snowy Hydro, are significant, and they will no doubt increase their efforts to keep the networks out of what they see as their traditional business.

But their business models are already being squeezed and undermined by solar farms like Bomen, which are by-passing the big utilities to sign deals directly with corporate buyers and new and emerging intermediaries.

If this continues, as many expect it will, along with a rapidly accelerating uptake of rooftop solar by households and smaller businesses, and more network operators become owners of local and regional renewable energy projects, it suggests a new order of things in the electricity sector.

Renew Estate principal Simon Currie says this is how it should be. “The model is broken,” he told RenewEconomy. “(The current system) is not doing the right thing by consumers. It’s got to change …. we have got to come up with different regulatory models.”

Spark says Bomen is strategically located in a strong grid location, close to TransGrid’s Wagga North substation where it will connect into TransGrid’s transmission network. It will also be located close to the proposed new transmission link connecting South Australia and NSW.

Construction of the $188 million project is scheduled to commence in coming months with completion due in 12 months time. Spark also owns a stake in Transgrid. The project should therefore avoid some of the connection issues that have plagued other wind and solar projects.

The Bomen solar farm this week locked in long-term contracts for nearly all its output with Westpac (for power and renewable energy certificates for 10 years) and retailer Flow Power, over a range of tenures from 5 to 10 years.

Westpac will take just over one quarter of the output from Bomen, as part of its newly-announced commitment to source all its electricity needs from renewables, while Flow Power will deliver nearly half the output to customers including wine maker Australian Vintage and iconic snack food manufacturer Snack Brands.

These contracts will deliver average annual revenue of $13.5 million for the first five years to Spark.

Spark says few projects “tick all the boxes” like Bomen, describing it as a “high quality, shovel-ready” project located on land zoned for industrial use, close to load centres and with a 30 year life. It will have a capacity factor of 28 per cent and will use bifacial solar panels from Jinko and single axis tracking from Nextracker.

“Bomen has highly contracted cash flows and attractive risk-adjusted returns which will exceed current regulatory returns,” Francis said.

“Whilst modest, it is a logical and prudent first step in diversifying our exposure to regulated assets and accesses growth in adjacent essential service infrastructure in line with our investment strategy.”

The construction (EPC) contract is with Beon Energy Solutions (Beon), which is owned by Victoria Power Networks,  which is also under Spark’s umbrella with a 49 per cent stake.

“We are delighted to be working with Westpac and Flow Power, and alongside our businesses, Beon and TransGrid to deliver the next piece of Australia’s future energy infrastructure,” Francis said.

On a conference call, Spark says it expected no problems with the emerging issue of marginal loss factors, given the location of the solar farm at a major network junction, and its proximity to loads. Given it owns the networks, it shouldn’t have any problems on that count.

Francis said the company would not “be rushing out with an open cheque book”, but was interested in more assets. “We will keep an eagle eye out for other good opportunities that may arise,” he told analysts. It’s a modest step out but an important step out.”

He said the company was focused on assets which had contracts, and was not looking to owning “merchant” assets. “The corporate PPA (power purchase agreement) market is opening up.”

In a separate statement, Renew Estate said it was the first of many projects it expected to deliver – gaining both off take contracts and buyers for the project itself.

It even quoted local member and National Party leader Michael McCormack, who has said some silly things about renewables in the past, congratulating the project.

“It’s fantastic to see Wagga Wagga, and indeed the Riverina, selected as the site for this exciting renewable energy venture,” McCormack was quoted as saying.

“It’s a great example of confidence in the region and will be a shot in the arm for the local economy, creating some 250 jobs during peak construction and providing for $1 million in community benefits over a decade, including STEM scholarships and environmental projects.

“And it demonstrates yet again that regional Australia is at the leading edge of technology and capable of hosting big projects which have statewide and national benefits.”

Shame about the Coalition’s policies. But the industry is powering ahead regardless.

 

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