Deals galore as RET race begins

AUSTRALIA has had a pitifully small share of the international clean-tech investment and transaction market, with an estimated 1 per cent of the global total in 2008

But that may be about to change. The passage of the Renewable Energy Target legislation has got companies thinking about opportunities, financing tasks and the need for increased equity in project funding. And it’s all a bit of a race, because the RET was essentially created on a first-in, best-dressed basis.

First off the rank is Pacific Hydro, with owner Industry Funds Management commissioning Lazard to sell just under half to a strategic or financial investor, so it can accelerate the rollout of its Australian wind farm portfolio. This could see 650MW of new turbines brought into production, at an estimated cost of $1.5 to $2 billion.

IFM took full ownership of Pacific Hydro in 2005 after a particularly keen bidding contest with Spanish giant Acciona. Its successful offer valued Pacific Hydro at around $950 million, and after injecting another $500m to develop a bunch of hydro projects in Chile, and wind projects in Brazil and Australia, it hopes buyers will agree on a valuation of around $2bn.

Pacific Hydro is not the only asset on offer. Infigen has its US wind business on the block, so it can accelerate its rollout in Australia, and Viridis Energy Fund is offering its collection of wind and landfill gas assets for sale. The Tasmanian government may soon review its joint ownership of the wind farm developer Roaring 40s.

There is even some suggestion that AGL and Origin might want to think about a spin-off of their renewable businesses as a way of funding their anticipated expansion and tapping into investor appetite for a renewable investment that can boast both income and profits.

Similar paths have been followed overseas. They would have noted the success of Spain’s Iberdrola Renovables, which raised $23bn via an IPO in early 2008 before the global financial crisis put paid to any other similar plans. CSR has already taken one step down that path, flagging the spin-off of its sugar business in a float that will be playing up its renewable energy possibilities.

Although much of Pacific Hydro’s earnings potential will not be realised until the Chilean and Brazilian projects come on line, it is one of the largest independent renewable companies in the world and could be an attractive target for a like-minded international investor.

Sunny future for weather insurance

THE global push towards renewables, along with greater variability in temperature and weather events, is creating huge demand for weather-related risk products.

The US-based Weather Risk Management Association says there were $45bn worth of products in the market in 2008, while a survey completed last year by research firm Weatherbill suggested that up to 25 per cent of Australia’s GDP was exposed to weather-related events.

The push for high renewable energy targets, with their emphasis on unpredictable wind conditions and water flows, has created huge variability for developers, financiers and utilities. What happens when the wind doesn’t blow and the water doesn’t flow, or more frequent heatwaves push spot power prices above $10,000 per MW/h?

Mick McKeever, the head of weather and energy specialty products at insurance group Marsh, says energy retailers and generators have traditionally sought hedging to smooth out the variability, but increased volatility in the weather is making this expensive, and new weather-related insurance products are proving cost-effective. McKeever says premium income has risen fourfold in recent years.

The first such deal in Australia was struck between Marsh and Integral Energy in 2006. Integral had been using a basket of increasingly expensive swaps, options and caps to deal with the stresses of peaky summer loads.

Steve Lowe, the former head of Integral and now a director at Carbon Conscious, says it was a “ground breaking” deal that saved the company more than $20m in hedging contracts in its first full year. “The deal performed even better than we expected,” he said.

McKeever says Marsh will also insure for production shortfalls, which could offer developers alternatives to the normal power purchase agreement they need to secure finance.

He says Australia has the right market dynamics for such contracts — excellent data, a regulated market, high volatility in temperatures, a challenge between fixed-price contracts and variable purchase, and sophisticated futures and trading markets.

He says weather-related products could be used to cover farmers for transport and other costs, retailers for unseasonal warm or cold spells, and might even apply to carbon sequestration.

Overseas, they are being broadened out to allow regional associations to insure holidaymakers and golf courses against the ravages of bad weather.

High hopes for waste heat

THE internet boom is a distant memory. Say hello to the green economy.

Perth entrepreneurs Ross Smith and Greg Pennefather — who have previously collaborated in an online trading venture and in ADSL technology — have joined forces again for an ambitious renewable energy project they are convinced can make them billions.

They have secured — via the ASX-listed Enerji — the Australian rights to the Opcon Powerbox, a Swedish cogeneration technology that allows emissions-free energy to be produced from low-grade waste heat from industrial and fossil-fuel power generation processes.

There are estimates that some 10 million megawatts of energy are lost from waste heat through power generation — nearly as much energy that is generated by conventional means around the world.

Whoever can find a way to tap into that has a very big business opportunity, and Smith is not holding back: “We have the technology to harness a very significant portion of it. It will blow people away.”

First, though, must come the proof of concept. Enerji says it has signed an MOU with Babcock & Brown Power to conduct a “pre-feasibility” study at the Flinders coal-fired power station in South Australia and a gas-fired station in Western Australia.

Smith became attracted to the idea a few years ago after selling the successful and award-winning Colonial Brewing Company he had founded at Margaret River. Clearly, this is the best thing he has seen.

“This one is mind-boggling,” he says. “I’m going global with this. We could be a multi-billion-dollar company.”