Following a strategic review of its assets that commenced in September, the investment fund New Energy Solar (ASX: NEW), which owns solar farms totalling 606 MW in the US and 165 MW in Australia, has decided to divest its Australian portfolio of Beryl and Manildra solar farms in New South Wales and exit the Australian renewables market.
The Australian newspaper reported late last week that potential buyers for the portfolio, which will be sold by competitive auction in January 2021, are believed to include Palisade Investment Partners (which recently acquired Granville Harbour Wind Farm in Tasmania), Lighthouse Infrastructure (with interests in Queensland’s Emerald Solar Park and Clare Solar Farm, and a rooftop PV portfolio), First Sentier Investors (which recently purchased John Laing’s Australian wind farms for $285 million) and Dutch Infrastructure Fund (reported to also have been interested in John Laing’s wind assets).
New Energy Solar follows Fotowatio Renewable Ventures (FRV) and BlackRock into the solar-farm sale yards. FRV is offering a 49% stake in its Australian renewable portfolio which includes some 500 MW of operating assets, while BlackRock is seeking buyers for the 90% stake it holds in the so-called Gretel Solar Portfolio, which consists of 60 MW Hayman Solar Farm and 180 MW Daydream Solar Farm.
New Energy Solar says divestment of Australian assets was a key recommendation of its strategic review — conducted by RBC Capital Markets — and is “aimed at reducing the complexity of the business”, which currently combines solar farms in two distinct markets, with its Australian assets “in a mature operational state” and its US portfolio “yet to reach optimal operational performance”; and the attendant complexity of reporting.
Undervalued on the ASX
The sale announcement was made in late October and said the quality and value of its New Energy Solar assets have not been not reflected in the business’ security price, which has fallen on the Australian Securities Exchange from a recent high of $1.35 in January 2020 to close at $0.94 on Friday.
In flagging its intention to sell out of the Australian market, New Energy noted that the two NSW assets “are situated in close proximity to the New South Wales Renewable Energy Zones, and are of very high quality with proven operations and long-term contracts of 12 years with strong investment grade counter parties”.
Despite the quality of the assets and what it described in October as “material interest in the NEW portfolio” the fund’s strategic review had nonetheless identified that its security price has been impeded in part by “limited support for the listed renewables sector in Australia”.
New Energy cited the “inability of small-cap listed renewable companies to gain traction on the ASX” as among the factors that contributed to its underperformance in the Australian context.
Part of a broader malaise in Australian renewables investment?
In September, in the fund’s Renewable Insights blog, New Energy Solar’s Head of Finance, Warwick Kenneally, wrote about the “highly publicised difficulties experienced by many investors in new energy technology and renewable assets in Australia”.
At the time he noted that the formation of the Clean Energy Investor Group (CEIG) to “lobby government, regulators and market operators for more permanent, reliable settings in energy policy to attract global institutional investment to green the grid also suggests that investment signals are not sufficient”.
In a synchronous twist, New Energy Solar’s announcement of its intention to sell out of Australia was made on the same day (26 October) that CEIG released independent modelling of the outcomes of the Australian Energy Market Commission’s (AEMC) new market design proposals — the short version being that “Investors slam AEMC proposals”.
Modelling carried out by Baringa Partners showed that cost of capital for clean energy projects would “increase by 150 basis points due to revenue uncertainty created by the AEMC’s proposals to move to Locational Marginal Pricing” and that some 3 GW of renewable energy projects would be “deferred due to unacceptable levels of risk associated with revenues from new projects as a result”.
Such findings suggest that even proposed reform agendas need to more closely consider the concerns of investors.
Although these rule changes are prospective and would not affect the Beryl and Manildra operations, they are indicative of an overall stalemate in the Federal political and regulatory will to create an environment in which renewable energy development will thrive to meet the Australian Energy Market Operator’s forecast requirement for 26-50 GW of large-scale renewables and up to 19 GW of flexible, dispatchable resources, to replace generation of retiring coal-fired assets.
Kenneally had already concluded in his blog that it is becoming clear “that the policy and regulatory environment in Australia is not conducive to achieving a smooth transition, particularly for investors”.
Wait, what just happened in the US?
In this week where Democrat leader Joe Biden claims the US Presidency, it looks highly likely that Australia will be left behind in its climate policies and commitment to transition, not only by Asian nations such as Japan and Korea which have pledged to achieve net-zero-carbon economies by 2050, but by Biden’s ambitions to implement a rigorous program of emissions reduction in the US economy to reach the same goal.
Yesterday The Guardian reported that Australia, a country with some of the richest renewable resources in the world “risks becoming an isolated laggard in addressing the climate crisis”.
Environment Editor Adam Moreton quoted the US president-elect as having declared climate change “the No 1 issue facing humanity” and reported Biden’s promise to bring $2 trillion in climate spending and policies to bear in order to put the US on a path to 100% clean electricity by 2035 and net zero emissions no later than 2050.
Such clear intention casts an unhealthy light on the Morrison Government’s limp pledge to reduce greenhouse gas emissions to 26–28 per cent below 2005 levels by 2030.
A firm national commitment to reduce emissions within a timeframe that will align with the Paris Climate Agreement to keep global temperature increase this century well below 2 degrees Celsius, and actually aims to limit increase to 1.5 degrees Celsius, is the precursor to setting and accelerating cohesive energy transition policies. These in turn would give investors the confidence to develop the renewable capacity required to power Australia into a future build on clean energy.
Climate Act Now!
Independent Member of Parliament, Zali Steggall, has picked just the right moment of reinvigorated awareness of the climate imperative and revived potential for aligned international commitments to reintroduce her Climate Change Bill to Parliament today.
If it is successful, it will result in an Australian Climate Act that will require Australian leaders by law to plan an orderly decarbonisation of the economy to net zero by 2050 — nothing radical, just a deliberate and considered plan that all parties and stakeholders can work with, and that will properly value the contribution that renewables make to Australia’s prosperity.
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