New Financing Vehicle for Developing Renewables
For some time, I have been articulating that given the technology and market transition underway, traditional renewable energy financing techniques such as one entity taking all market disruption risk over 15 years will no longer be acceptable to providers of debt and equity. Financing innovation must keep pace with technology innovation. Slide 28 of this presentation I gave to a Griffith University conference last October provides further background.
The Powering Australian Renewables Fund announced today is designed to facilitate financing innovation by providing an opportunity for investors to align their investment to their risk appetite.
A new corporate entity is to be established with a view to developing and owning approximately 1,000 MW of renewable generation, covering investment of around $2.0–3.0 billion. AGL will contribute equity of around $200 million with contributions of equity from a handful of other participants (e.g. super funds) being sought. AGL intends to provide relatively firm short-term PPA style support with renegotiation parameters beyond approximately five years.
The Fund provides a solution to one of the challenges associated with investment in utility scale renewables in the current environment (the allocation of risk among market participants) and represents around 20% of the total generation required to meet the current RET target in 2020. Addressing other challenges such as the orderly exit of aged emission intensive generation to facilitate sustainable economics for new projects will help accelerate further investment. This is an issue which you can learn about in these publications: Energy-only markets and renewable energy targets: Complementary policy or policy collision? and Australian Climate Change Policy – Where To From Here?
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