New Energy Solar returns home

John_Martin_New_Energy_SolarJohn Martin17 October 2017

After investing $300 million in solar farms in the US, Australia's New Energy Solar is turning its attention back home.

“There’s a head of steam here in Australia,” said John Martin, the new chief executive of the solar fund which comes from the stable of asset manager Walsh & Co, co-founded by former Australian Financial Review editor Max Walsh.

“We think solar capacity will more than triple this year from what’s under construction.”

When the fund started out in late 2015, Australia couldn’t offer the size of project it was seeking, with most only a few megawatts in size. The four projects that New Energy Solar backed in the US, with a combined capacity of 225 megawatts, overshadowed Australia’s total solar capacity.

But a rapid reduction in costs and greater certainty around policy support for renewables have transformed the picture, with several projects under construction in Queensland this year of more than 100MW in size. New Energy Solar examines projects of at least 50MW with a long-term power sales contract.

The trend for corporates to contract directly for solar power – such as Telstra’s backing of a $100 million solar venture – is adding further momentum.

“We see that as the way of the future,” Mr Martin said, pointing to New Energy Solar’s similar deal with Stanford University for one of its Californian projects.

“We see a very strong pipeline of projects continuing in the US and the good news in Australia is the pipeline is growing really rapidly.” He said Australia’s lagging position to the US in solar had a “silver lining”, however, because costs have dropped so fast. “The cost of energy out of those projects would have been many times higher than what they can achieve now,” he said.

After initial equity backing by more than 3000 Australian individuals and families, and with all four of its US projects up and running as of last week, New Energy Solar is now in the process of raising debt financing through a $US100 million ($134 million) US private placement.

That will provide funds for further investment, with a further capital raising likely once more projects have been added to the pipeline.

“At some point in the future we’ll look at doing an IPO,” said Mr Martin, who has held senior roles at National Australia Bank, ABN Amro and PwC and was appointed New Energy Solar CEO last Friday.

A lingering concern with the Australian solar market is the abrupt end of the renewable energy target support mechanism in 2030, which is gradually shortening the tenor of the power purchase agreements that investors depend on for certainty of revenues.

Mr Martin said that while the fund can “live with” a 12-year power sale contract, three or four years hence it will be more challenging. He called on policy-makers to consider ways to smooth out the policy pathway to create a “more normal” market involving PPAs of a variety of terms as in the US.

Meanwhile, rival solar investor Lighthouse Infrastructure and Netherlands-based DIF confirmed they will buy the Clare Solar Farm in Queensland from Fotowatio Renewable Ventures, as flagged in Street Talk.

The deal is thought to value the project at about $250 million including debt.

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