According to a research paper from financial services company Euroz, Genex Power could see its shares more than triple in value following the development of the Kidston pumped hydro component, which will be underpinned by an ARENA grant early this year.
Looking into the long-term off-take and equity investment term sheet inked in December, under which EnergyAustralia will provide equity financing for the construction of the Kidston pumped hydro project, the analysts assume – based on financial structure and negligible equity requirement – that Genex will realize IRRs of over 15% for its 50% share in the pumped hydro JV.
Under the deal, Genex Power and EnergyAustralia will jointly own the Kidston pumped hydro project, which is expected to require around $400 million in capex, while the electricity provider will negotiate, finalize and execute a long-term offtake agreement and market rights attached to the project.
The Kidston facility is Australia’s first large-scale project to use pumped hydro to store solar generated power.
It is comprised of the operating 50 MW Stage 1 solar project, the Stage 2 projects – the 250 MW pumped storage hydro project and the multi-staged integrated solar project of up to 270 MW under development and Stage 3 – the Kidston Wind Project of up to 150 MW if proven feasible.
In September, Genex secured a development approval for the pumped storage component, noting at the time that the project remains on track to commence construction in 2019 and generation from 2022.
As for the next step, Genex is looking to secure financing for the 270 MW solar farm, which will be done once financing for the pumped storage project is finalized, reads the paper.
In terms of financing, Genex Power has secured a concessional debt funding of $516 million from the Northern Australia Infrastructure Facility for the second stage of its Kidston power facility, comprising the 270 MW solar PV plant and the 250 MW of pumped storage hydro project.
Previously, the Kidston energy hub, located on the site of a 100-year-old mine in Queensland, received $8.9 million in funding from the Federal Government, through the Australian Renewable Energy Arena (ARENA), for the construction of the Stage 1 solar project, and up to $9 million in funding to support the development of Stage 2 Solar and Stage 2 Hydro.
According to the research paper, circa 80% of the pumped hydro cost will be funded by long term (~30yr) low cost (~3%/yr), concessional finance, with the balance to be provided by an ARENA grant ($30-50m est) and equity.
“We anticipate the ARENA grant to be awarded early in the new year and documentation to be finalizes, with NAIF shortly thereafter,“ it notes.
All things considered, analysts view that the Kidston portfolio will be of increasing attraction to infrastructure funds and/or large utilities, given the attractiveness of dispatchable renewable electricity and a financial structure that boasts long term low tenor.
Kidston Stage 1 solar project update
In a statement to the ASX last week, Genex has provided the December quarter revenue update for its operational 50 MW Kiston Stage 1 Solar Project.
According to Genex, the project generated 35,755 MWh of electricity in the December quarter up from 87,729 MWh in the previous quarter. This brings the project’s cumulative generation to 123, 484 MWh, as it continues to ramp up towards its goal of producing 145 GWh of electricity a year.
The company reported revenue for the quarter was $3,146,420 with the cumulative revenue reaching $14,906,773. It notes that total revenue is comprised of energy and LGCs sales up to 30 July 2018, after which LGCs revenue reverted to the Queensland government.
To support the development of the Kidston renewable energy hub labelled as ‘Critical Infrastructure’ to the state, the Queensland government has provided a 20-year revenue support deed for the Stage 1 solar project, which commenced on 31 July 2018.
After the Stage 1 solar farm was switched on late in 2017, Genex reported its first revenue from the Stage 1 solar farm early December last year.
Announcing the acquisition of the 50 MW Jemalong solar project last September, Genex said that the purchase was funded by strong revenues from the Kidston’s 50 MW Stage 1 Solar Project.